UNIVERSAL FOOD CORP. vs CA, FRANCISCO
It is to be emphasized that the respondent patentee would not have agreed to the
Magdalo and Victoria Francisco filed in CFI for rescission of a contract
entitled “Bill of Assignment”, they prayed that UFC has without any right to use the
Mafran trademark and formula. UFC admits some of the allegations of the
Franciscos. It was stipulated that Magdalo will be the chief chemist and assign,
transfer and convey the property rights and interest of the Mafran trademark and
formula.
The lower court dismissed the complaint. The appellate court affirmed the
judgment. Petitioner contended that the Franciscos cannot rescind the contract
since the right to rescind a reciprocal obligation is not absolute and can be demanded
only if one is ready, willing and able to comply with his own obligation and the other
is not; that under article 1169 of the same Code, in reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him; the Franciscos did not cede and transfer
the formula for Mafran Sauce.
Whether or not there was delay on Francisco’s part on compliance
NO. The Francisco’s did not intend to cede and transfer the formula for the
Mafran Sauce. A perceptive analysis of the entire instrument and the language
employed therein would lead one to the conclusion that what was actually ceded
and transferred was only the use of the Mafran sauce formula. It was the intention
of the parties as shown: There was royalty, Francisco only intended to part the use
of the formula and not the formula itself so he can monopolize it, his continued
possession of it and lastly, the admonition of the Civil Code that presumes the effect
where the least transmissible of right is favoured.
Whether or not the rescission of the Bill of Assignment is proper
YES. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him. The injured
party may choose between fulfillment and rescission of the obligation, with payment
of damages in either case. In this case before us, there is no controversy that the
provisions of the Bill of Assignment are reciprocal in nature.
General rule is rescission will only be permitted if there is fundamental
breach that will defeat the very object of the parties. UFC’s contention that the
rescission should be denied because it is a subsidiary remedy which cannot be
instituted except when the party has no other legal means for reparation.
However, the dismissal of the chief chemist constitutes substantial breach.
other terms of the Bill of Assignment were it not for the basic commitment of the
petitioner corporation to appoint him as its Second Vice President and Chief Chemist
on a permanent basis; that in the manufacture of Mafran sauce and other food
products he would have "absolute control and supervision over it.
The salient provisions of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the appointment of the respondent
patentee as Second Vice-President and chief chemist on a permanent status; the
obligation of the said respondent patentee to continue research on the patent to
improve the quality of the products of the corporation; the need of absolute control
and supervision over the laboratory assistants and personnel and in the purchase
and safekeeping of the chemicals and other mixtures used in the preparation of said
product — all these provisions of the Bill of Assignment are so interdependent that
violation of one would result in virtual nullification of the rest.
ORIA vs McMICKING
Guitterez Hermano brought an action against Oria Co. for the recovery of
a sum of money. Oria Co. dissolved and the managing partner Balbas entered into a
contract with Manuel Oria for transferring all properties to Balbas. Among the goods
transferred was the steamship Serantes.
The court rendered a judgment in favour of Hermanos for the sum of
money. The Sherriff demanded the judgment from Balbas but he said he has no funds
to pay. The Sherriff levied the steamsip and announced it for auction. Manuel
contended that the property was his as it was a property of Oria Co. which he all
bought. Guitterez Hermanos became the highest bidder and purchase of the
steamship.
Manuel filed an action for injunction and declaration of ownership of the
property. The trial court favoured against Manuel. Hermanos contended that the
sale was fraudulent as against the creditors of Oria Co. Manuel contended that Oria
Co. had sufficient property to pay the judgment.
Whether or not the sale to Manuel is valid
NO. In the consideration of whether or not certain transfers were
fraudulent, courts have laid down certain rules by which the fraudulent character of
the transaction may be determined.
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
Nothing of value seems to have been delivered by the plaintiff in consideration of
said sale and no security whatever was given for the payments therein provided for.
2. A transfer made by a debtor after suit has been begun and while it is pending
against him.
Plaintiff, at the time of the sale, was fully aware of the two suits that had already
been begun against the company
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
That at the time of said sale actions were pending against said company by one single
creditor for sums aggregating in amount nearly P160,000
5. The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present
other of the above circumstances.
The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of the other
two persons heretofore mentioned which said three brothers together constituted
all of the members of said company.
7. The failure of the vendee to take exclusive possession of all of the property.
The case at bar presents every one of the badges of fraud above
enumerated. Tested by the inquiry, does the sale prejudice the rights of creditors,
the result is clear. The sale in the form in which it was made leaves the creditors
substantially without recourse. The property of the company is gone, its income is
gone, the business itself is likely to fail, the property is being dissipated, and is
depreciating in value. As a result, even if the claims of the creditors should live twelve
years and the creditors themselves wait that long, it is more than likely that nothing
would be found to satisfy their claims at the end of the long wait.
Since the record shows that there was no property with which the
judgment in question could be paid, the defendants were obliged to resort to and
levy upon the steamer in suit. The court below was correct in finding the sale
fraudulent and void as to Gutierrez Hermanos in so far as was necessary to permit
the collection of its judgment.
SIGUAN vs LIM
Lim issued two checks to Siguan but it was dishonoured since the account
was closed. He was charged with BP 22 and was convicted. He was also charged with
estafa prior to the issuance of check but was acquitted. Lim executed a Deed of
Donation in favour of her children.
Siguan filed for an accion pauliana against Lim and her children and to
rescind the deed of donation for being fraudulent and it was prejudicial to him. Lim
denied any liability as the criminal charge was erroneous and the deed of donation
was in good faith. The trial court ordered the deed to be rescind but the Court of
Appeals reversed the judgment as the requesites of accion pauliana were absent;
there was no credit prior to the contract and no fraud and prejudice was to the
creditor.
The petitioner further contended that it was contrary to Oria vs
McMicking, there was a prior credit from the estafa case and overlooked Article 759
of the Civil Code. Respondents argued that petitioner cannot invoke the offended
party in estafa since she was not a party.
Whether or not the Deed of Donation is rescissible
NO. Article 1381 of the Civil Code enumerates the contracts which are
rescissible, and among them are "those contracts undertaken in fraud of creditors
when the latter cannot in any other manner collect the claims due tThe action to
rescind contracts in fraud of creditors is known as accion pauliana.
For this action to prosper, the following requisites must be present: (1) the
plaintiff asking for rescission has a credit prior to the alienation, 12 although
demandable later; (2) the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) the creditor has no other legal remedy to
satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third person
who received the property conveyed, if it is by onerous title, has been an accomplice
in the fraud.
The general rule is that rescission requires the existence of creditors at the
time of the alleged fraudulent alienation, and this must be proved as one of the bases
of the judicial pronouncement setting aside the contract. 16 Without any prior
existing debt, there can neither be injury nor fraud.
 In the instant case, the alleged debt of LIM in favor of petitioner was
incurred in August 1990, while the deed of donation was purportedly executed on
10 August 1989. The first two requisites are not met.

Even assuming arguendo that petitioner became a creditor of LIM prior to

the celebration of the contract of donation, still her action for rescission would not
fare well because the third requisite was not met. All remedies were not yet
exhausted. Petitioner did not alleged that he did so. Lim still has other properties
which was presented in court

The fourth was also absent since he was not in a way prejudice since the
deed was executed prior to the debt. He also depended solely on the presumption
and the badges of fraud. The badges not being exclusive. He failed to discharge the
burden of proving any circumstances for fraud

The offended party for estafa cannot be invoked by the petitioner since
the law is clear: only the creditor who brought the action for rescission can benefit
from the rescission; those who are strangers to the action cannot benefit from its
effects. 31 And the revocation is only to the extent of the plaintiff creditor's
unsatisfied credit; as to the excess, the alienation is maintained. 32 Thus, petitioner
cannot invoke the credit of Suarez to justify rescission of the subject deed of
donation.