Universal Food Corp v CA

May 13, 1970

Facts:
- Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First Instance
of Manila, against the Universal Food Corp., an action for rescission of a contract entitled
“Bill of Assignment.” The plaintiffs prayed the court to adjudge the defendant as without
any right to the use of the Mafran trademark and formula and order the latter to restore to
them the said right of user and to order the defendant to pay Magdalo’s unpaid salary from
Dec 1, 1960.
- The defendant filed its answer containing admissions and denials. Par 3 states “admits
the allegations contained in par. 3 of plaintiffs’ complaint.” The answer also stated that all
the terms and conditions of the Bill of Assignment have been complied and with and
therefore rescission is not in order. They also stated that Magdalo was not dismissed as
the permanent chief chemist of the Corporation. They also stated these special defenses.1
- The lower court dismissed the plaintiff’s complaint and thereafter the CA reversed and
decided against the defendant Corp.
o The CA found that: Magdalo V. Francisco, Sr. discovered or invented a formula
for the manufacture of a food seasoning (sauce) derived from banana fruits
popularly known as MAFRAN sauce;
o That the manufacture of the product was used in commercial scale in 1942, and in
the same year plaintiff registered his trademark in his name as owner and inventor
with the Bureau of Patents;
o Due to lack of sufficient capital to finance the expansion of the business, in 1960,
said plaintiff secured the financial assistance of Tirso T. Reyes. After negotiation,
the Universal Food Corp was eventually formed leading up to the execution of the
Bill of Assignment.
- Magdalo then entered into contract with UFC stipulating among other things that he
become the Chief Chemist and Second Vice-President of UFC and shall have absolute
control and supervision over the laboratory assistants and personnel and in the purchase
and safekeeping of the chemicals used in the preparation of said Mafran sauce and that
positions are permanent in nature.

1
the aforesaid plaintiff is estopped from questioning
1) the contents and due execution of the Bill of Assignment,
2) the corporate acts of the petitioner, particularly the resolution adopted by its board of directors at the
special meeting held on October 14, 1960, to suspend operations to avoid further losses due to increase
in the prices of raw materials, since the same plaintiff was present when that resolution was adopted and
even to. Magdok part in the consideration thereof,
3) the actuations of its president and general manager in enforcing and implementing the said resolution,
4) the fact that the same plaintiff was negligent in the performance of his duties as chief chemist of the
corporation, and
5) the further fact that the said plaintiff was delinquent in the payment of his subscribed shares of stock
with the corporation.
 - Magdalo then was appointed Chief Chemist with a salary of P 300.00 a month. Magdalo
kept the formula of the Mafran sauce to himself. Thereafter, due to an alleged scarcity and
high prices of raw materials, on Nov. 28, 1960, Secretary General De Guzman of UFC
issued a Memo duly approved by the President and General Manager the only Supervisor
Ricardo Fracisco should eb retained in the factory and that the salary of Magdalo should
be stopped for the mean time, until the corporation should resume its operation.
- On Dec. 3, 1960, President and General Manager Tirso Reyes issued a memorandum to
Victoriano Francisco ordering him to report to the factory and to produce Mafran Sauces
at the rate of not less than 100 cased a day as to cope with the orders of the corporation’s
various distributors and dealers, and with instructions to take only the necessary daily
employees without employing permanent employees. Another memorandum was issued
instructing Assistant Chief Chemist Ricardo Francisco to recall all daily employees to the
production of Porky Pops. Another memorandum was issued instructing Ricardo
Francisco as Chief Chemist to produce Mafran Sauce and Porky Pops.
- Magdalo Francisco Sr. continued receiving the amount of P 300.00 a month until he was
not notified with regard to the production of the Mafran Sauce.
- UFC then began looking for a buyer of the corporation including its trademarks, formula
and assets at a price of not less than P300,000. Due to the successive memoranda,
without Magdalo being recalled back to work, he filed the present action. UFC then later
on requested plaintiff to report for duty, but then declined the request because of the
present action.
ISSUE:
Whether by virtue of the terms of the Bill of Assignment respondent Magdalo V. Francisco, Sr.
ceded and transferred to the petitioner corporation the formula for Mafran sauce – NO
RATIO:
- A perceptive analysis of the entire instrument and the language employed therein would
lead to the conclusion that what was actually ceded and transferred was only the use od
the Mafran sauce. This was the intention of the parties.
o MOST RELEVANT:
It is alleged in paragraph 3 of the respondents' complaint that what was ceded and
transferred by virtue of the Bill of Assignment is the "use of the formula" (and not
the formula itself). This incontrovertible fact is admitted without equivocation in
paragraph 3 of the petitioner's answer. Hence, it does "not require proof and cannot
be contradicted." Sec. 2, Rule 129, New Rules of Court states that admissions
made by the parties in the pleading, or in the course of the trial or other
proceedings do not require proof and cannot be contradicted unless previously
shown to have been made through palpable mistake. The last part of paragraph
3 of the complaint and paragraph 3 of the answer are reproduced below for ready
reference:

"3. — . . . and due, to these privileges, the plaintiff in return assigned to

o OTHER REASONS:
 One of the principal considerations of the Bill of Assignment is the payment
of "royalty of TWO (2%) PER CENTUM of the net annual profit" which the
petitioner corporation may realize by and/or out of its production of Mafran
sauce and other food products, etc. The word "royalty," when employed in
connection with a license under a patent, means the compensation paid for
the use of a patented invention.
 The provisions of the Bill of Assignment show that the intention of the
patentee at the time of its execution was to part only with the use to
preserve the monopoly and to effectively prohibit anyone from availing of
the invention. The Bill of Assignment states that Magdalo was appointed
chief chemist, to be permanent in character and shall exercise absolute
control and supervision over the laboratory assistants and personnel and
over the purchase and safekeeping of the chemicals.
 The conclusion is further fortified by the admonition of the Civil Code that a
conveyance should be interpreted to effect "the least transmission of right,"
and is there a better example of least transmission of rights than allowing
or permitting only the use, without transfer of ownership, of the formula for
Mafran sauce.