G.R. No.

156841 | June 30, 2005 Article 1308, Civil Code: Principle of Mutuality of Contracts
GF Equity v Valenzona GF Equity v Valenzona

I. Recit-ready Summary 2. Under their contract, Valenzona would receive P 35,000.00

GF Equity hired Arturo Valenzona as Head Coach of the Alaska monthly and GF Equity will provide him with a service vehicle and
basketball team in the Philippine Basketball Association under a Contract of gasoline allowance with the employment period of 2 years.
Employment where GF Equity would pay Valenzona the sum of P35,000.00 3. Under paragraph 3 of the same contract it was stipulated there that:
monthly. While the employment period agreed upon was for 2 years “If at any time during the contract, the COACH, in the
commencing, the last sentence of paragraph 3 of the contract carried the sole opinion of the CORPORATION, fails to exhibit
following condition: “If at any time during the contract, the COACH, in sufficient skill or competitive ability to coach the team,
the sole opinion of the CORPORATION, fails to exhibit sufficient skill or
the CORPORATION may terminate this contract.”
competitive ability to coach the team, the CORPORATION may terminate
this contract.” Although, he had consulted his lawyer for the stipulations in 4. Although Valenzona had consulted his lawyer for the stipulations
the contract and was pointed by his counsel that there is one-sidedness face in the contract and was pointed by his counsel that there is one-
still he agreed to the contract because of his trust to the chief financial sidedness face still he agreed to the contract because of trust and
officer of GF Equity. Thereafter, Valenzona was constructively dismissed as confidence in Uytengsu, the chief financial officer of GF Equity.
head coach of the Alaska team. Valenzona demanded from GF Equity 5. Even before the contract, Valenzona was already coaching Hills
payment of compensation arising from the arbitrary and unilateral Brothers (also by GF Equity) under a verbal contract and was able
termination of his employment. GF Equity, however, refused the claim. to put the team as a runner-up in the 3rd PBA Conference of 1987.
Valenzona thus filed before the RTC Manila a complaint against GF Equity 6. During his time as the head coach of Alaska, the team placed third
for breach of contract with damages. RTC, upholding the validity of the both in the Open and All-Filipino PBA Conferences in 1988.
assailed provision of the contract, dismissed the complaint. CA reversed the 7. 8 months after signing the contract, Valenzona was terminated as
RTC’s decision and thus ordered GF Equity liable for damages based on coach of the Alaska team. Valenzona demanded from GF Equity
Article 19 of the Civil Code. Hence this petition. payment of compensation arising from the arbitrary and unilateral
The issue in the case at bar is whether or not paragraph 3 of the
termination of his employment. GF Equity, however, refused.
contract is violative of mutuality of contracts. The SC affirmed as mutuality
is one of the characteristics of a contract. The purpose of the mutuality 8. Valenzona thus filed before the Manila RTC a complaint against
principle is to nullify a contract containing a condition which makes its GF Equity for breach of contract with damages.
fulfillment or pre-termination dependent exclusively upon the uncontrolled 9. Manila RTC dismissed the complaint, stating that the contract was
will of one of the contracting parties. The paragraph 3 in the contract gives valid and that Valenzona is aware of the bad bargain, and upheld
GF Equity the right to pre-terminate the contract clearly transgresses the the validity of the assailed provision of the contract.
principle of mutuality of contract. The assailed stipulation being violative of 10. CA reversed the RTC’s decision and thus ordered GF Equity liable
the mutuality principle underlying Article 1308 of the Civil Code, it is null for damages based on Article 19 of the Civil Code. It stated that
and void. there is mutuality in paragraph 3 but GF Equity shouldn’t abuse it,
II. Facts of the Case (Material Facts) leaving such decision within the ambit of GF Equity’s management
1. GF Equity hired Arturo Valenzona (Valenzona) as head basketball prerogative.
coach of Alaska team. As head coach, Valenzona was required to III. Issue/s
comply to his duties such as coaching at all practices and games 1. W/N the last sentence of paragraph 3 of the stipulated contract
scheduled for the team. is violative of the principle of mutuality of contracts? (YES)

Obligations and Contracts (2020) PETITIONER: GF Equity, Inc. 1

DIGEST AUTHOR: Joses RESPONDENT: Arturo Valenzona
 G.R. No. 156841 | June 30, 2005 Article 1308, Civil Code: Principle of Mutuality of Contracts
GF Equity v Valenzona GF Equity v Valenzona

IV. Holding/s ARTICLE 1308, CIVIL CODE OF THE PHILIPPINES

The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
Issue #1
YES, the last sentence of paragraph 3 of the stipulated contract is VI. Disposition
violative of the principle of mutuality of contracts as GF Equity was WHEREFORE, the decision of the Court of Appeals dated October 14,
given an unbridled prerogative to pre-terminate the contract. 2002 is hereby SET ASIDE and another rendered declaring the assailed
Petitioner’s Arguments Court’s Rebuttals provision of the contract NULL AND VOID and ORDERING petitioner,
• CA committed a non-sequitir • Since the pre-termination of the GF Equity, to pay private respondent, Arturo Valenzona, actual damages in
when it agreed with the findings contract was anchored on an the amount of P525,000.00 and attorney's fees in the amount of P60,000.00.
of RTC but reached an opposite illegal ground, hence, contrary to Costs against petitioner.
conclusion law. GF Equity also negligently SO ORDERED.
failed to provide legal basis for
VII. Random Facts
such pre-termination, thereby
• Ponente: Carpio Morales, J.
abusing the right of Valenzona to
thus entitle him to damages under
Article 19 in relation to Article 20
of the Civil Code
Overall Ruling
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. 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. In the case at bar, the contract incorporates in paragraph
3 the right of GF Equity to pre-terminate the contract. The assailed
condition clearly transgresses the principle of mutuality of contracts. 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. The assailed stipulation being violative of the mutuality
principle underlying Article 1308 of the Civil Code, it is null and void.

V. Law or Doctrine Applied

Obligations and Contracts (2020) PETITIONER: GF Equity, Inc. 2

DIGEST AUTHOR: Joses RESPONDENT: Arturo Valenzona