Case Digest: GF EQUITY, INC. v. ARTURO VALENZONA

GF EQUITY, INC. v. ARTURO VALENZONA

462 SCRA 466 (2005)

Mutuality is one of the characteristics of a contract, its validity or performance or compliance of which cannot be left to the will of only one of the parties.

GF Equity hired Arturo Valenzona (Valenzona) as head basketball coach of Alaska team. As head coach, Valenzona was required to comply to his duties such as coaching at all practices and games scheduled for the team. Under their contract, Valenzona would receive P 35,000.00 monthly and GF Equity will provide him with a service vehicle and gasoline allowance. Under paragraph 3 of the same contract it was stipulated there that;

“If at any time during the contract, the COACH, in the sole opinion of the CORPORATION, fails to exhibit sufficient skill or competitive ability to coach the team, the CORPORATION may terminate this contract.”

Subsequently, Valenzona was terminated. GF equity invoked paragraph 3 of the said contract. Counsel of Valenzona demands for compensation arising from arbitrary and unilateral termination of his employment. However, GF equity refused it. Valenzona filed a complaint before the Regional Trial Court (RTC) of Manila against GF Equity for breach of contract. Valenzona contends that the condition in paragraph 3 violates Article 1308 of New Civil Code (NCC). But the RTC dismissed the complaint and affirmed the validity of paragraph 3 on the grounds that Valenzona was fully aware of entering into a bad bargain.

On appeal, the Court of Appeals (CA) held that the questioned provision in the contract ―merely confers upon GF Equity the right to fire its coach upon a finding of inefficiency, a valid reason within the ambit of its management prerogatives, subject to limitations imposed by law, although not expressly stated in the clause‖; and ―the right granted in the contract can neither be said to be immoral, unlawful, or contrary to public policy.‖ It concluded, however, that while ―the mutuality of the clause‖ is evident, GF Equity ―abused its right by arbitrarily terminating Valenzona‘s employment and opened itself to a charge of bad faith.‖

ISSUE:

Whether or not paragraph 3 of the contract is violative of the principle of mutuality of contracts

HELD:

The ultimate purpose of the mutuality principle is thus to nullify a contract containing a condition which makes its fulfillment or pre-termination dependent exclusively upon the uncontrolled will of one of the contracting parties.

The contract incorporates in paragraph 3 the right of GF Equity to pre-terminate the contract — that ―if the coach, in the sole opinion of the corporation, fails to exhibit sufficient skill or competitive ability to coach the team, the corporation may terminate the contract.‖ The assailed condition clearly transgresses the principle of mutuality of contracts. It leaves the determination of whether Valenzona failed to exhibit sufficient skill or competitive ability to coach Alaska team solely to the opinion of GF Equity. Whether Valenzona indeed failed to exhibit the required skill or competitive ability depended exclusively on the judgment of GF Equity. In other words, GF Equity was given an unbridled prerogative to pre-terminate the contract irrespective of the soundness, fairness or reasonableness, or even lack of basis of its opinion.

To sustain the validity of the assailed paragraph would open the gate for arbitrary and illegal dismissals, for void contractual stipulations would be used as justification therefor. The nullity of the stipulation notwithstanding, GF Equity was not precluded from the right to pre-terminate the contract. The pre-termination must have legal basis, however, if it is to be declared justified.