12/27/2017 Case Digest: GF EQUITY, INC. v.

ARTURO VALENZONA

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CASE DIGEST: GF EQUITY, INC. V. ARTURO VALENZONA

Published by geline on August 14, 2013 | Leave a response

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.”

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12/27/2017 Case Digest: GF EQUITY, INC. v. ARTURO VALENZONA

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 clauseǁ; and ―the right
granted in the contract can neither be said to be immoral, unlawful, or
contrary to public policy.ǁ It concluded, however, that while ―the
mutuality of the clauseǁ is evident, GF Equity ―abused its right by
arbitrarily terminating Valenzona‘s employment and opened itself to a
charge of bad faith.ǁ

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.

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12/27/2017 Case Digest: GF EQUITY, INC. v. ARTURO VALENZONA

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.ǁ 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.

Ambit Arbitrary Articl Basketball Coach Basketball Coaching

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