Case Summary (G.R. No. L-6088)
Unilateral Termination Clause
Paragraph 3 contained a resolutory condition: “If at any time during the contract the coach, in the sole opinion of the corporation, fails to exhibit sufficient skill or competitive ability… the corporation may terminate this contract.” This clause vested unfettered discretion in GF Equity.
Performance and Notice of Termination
Despite competent performance—third place finishes in two 1988 PBA conferences—Valenzona received a September 26, 1988 letter invoking the termination clause. His coaching duties ceased and salary payments were withheld pending settlement of an alleged outstanding balance.
Procedural History
After GF Equity’s refusal to settle, Valenzona’s counsel demanded payment in July 1994 and filed a breach-of-contract suit on September 26, 1994. The RTC of Manila dismissed the complaint in 1997. On appeal, the Court of Appeals reversed in October 2002, awarding damages. GF Equity then petitioned to the Supreme Court.
RTC’s Ruling
The trial court upheld the unilateral termination clause as valid, emphasizing Valenzona’s informed consent to its terms and found no just cause to disturb the corporation’s prerogative to terminate under the contract.
CA’s Rationale
The Court of Appeals regarded the clause as a valid management prerogative, but nonetheless ruled that GF Equity abused its contractual right by arbitrarily dismissing Valenzona, thereby violating the duty of honesty and good faith (Art. 19, Civil Code). It awarded compensatory, moral, exemplary damages, and attorney’s fees.
Issue Before the Supreme Court
Whether the termination clause violated the mutuality principle of Article 1308, which mandates that contractual validity or enforcement cannot be left to the uncontrolled will of one party.
Mutuality Principle (Article 1308)
The Supreme Court held the clause null and void for violating mutuality: it granted GF Equity exclusive power to judge and terminate Valenzona’s employment without objective standards or redress, enabling arbitrary dismissals.
Abuse of Rights (Articles 19 and 20)
Although based on a contract stipulation, GF Equity lacked any lawful or reasonable basis to terminate. Its reliance on a void clause constituted an abuse of rights—failing to act with justice and good faith—thus incurring liability for damages under Article 20.
Laches Defense and Prescription
The defense of laches was rejected. Valenzona fi
Case Syllabus (G.R. No. L-6088)
Factual Background
- GF Equity, Inc., through its CFO W. Steven Uytengsu, engaged Arturo Valenzona as Head Coach of the Alaska PBA basketball team under a written employment contract from January 1, 1988 to December 31, 1989.
- Prior to the written contract, Valenzona had coached the Hills Brothers team under a verbal agreement, leading it to a runner-up finish in the 3rd PBA Conference of 1987.
- Compensation under the contract was ₱35,000.00 per month (net of taxes), plus a service vehicle and gasoline allowance.
- During the 1988 season, Alaska placed third in both the Open and All-Filipino Conferences.
- On September 26, 1988, GF Equity invoked the contract’s termination clause and terminated Valenzona’s services, paying him until his outstanding balance of ₱75,868.38 was settled.
Contractual Provisions
- Duties (Paragraph 1): Coach all official and exhibition games, attend All-Star Game events, and oversee playoff games in accordance with PBA schedule.
- Conduct Rules (Paragraph 3): Coach must comply with all corporate rules governing team and player conduct at home and on the road, with implementation entrusted to the coach.
- Performance and Conduct (Paragraph 4): Coach must maintain good physical condition, loyalty, proper attire, honest and moral behavior on and off court, and avoid actions detrimental to corporate interests.
- Endorsement and Publicity (Paragraph 7): Coach will endorse corporate products if requested and permit use of his image in promotional materials.
- Termination Condition (Last sentence of Paragraph 3): “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.”
Procedural History
- September 26, 1988: Notice of termination delivered to Valenzona invoking the unilateral termination clause.
- July 30, 1994: Valenzona’s counsel demanded payment of unpaid compensation arising from alleged arbitrary termination.
- September 26, 1994: Complaint filed with the Regional Trial Court (RTC) of Manila for br