G.R. No. 156841; June 30, 2005
GF EQUITY, INC., petitioner, vs. ARTURO VALENZONA, respondent.

FACTS

Petitioner GF Equity, Inc. hired respondent Arturo Valenzona as head coach of its Alaska PBA team under a two-year employment contract from January 1, 1988, to December 31, 1989. The contract contained a provision allowing GF Equity to terminate the agreement if, “in the sole opinion of the CORPORATION,” Valenzona failed to exhibit sufficient skill or competitive ability. Despite his lawyer’s advice on the one-sidedness of this clause, Valenzona signed the contract. After the team placed third in two 1988 conferences, GF Equity terminated Valenzona’s services in September 1988, invoking the said contractual provision.
Nearly six years later, in 1994, Valenzona filed a complaint for breach of contract with damages before the Regional Trial Court (RTC). He argued that the termination clause violated the principle of mutuality of contracts under Article 1308 of the Civil Code, rendering his dismissal arbitrary. The RTC dismissed the complaint, upholding the validity of the contractual stipulation. The Court of Appeals reversed the RTC, ruling in favor of Valenzona.

ISSUE

Whether the termination clause in the employment contract, which allowed termination based solely on the employer’s opinion, is valid and enforceable.

RULING

The Supreme Court affirmed the Court of Appeals and ruled the termination clause void for violating the principle of mutuality of contracts under Article 1308 of the Civil Code. The clause made Valenzona’s continued employment dependent solely on GF Equity’s subjective opinion, without any reference to an objective standard of skill or competitive ability. This granted GF Equity absolute and unbridled authority to terminate the contract, reducing Valenzona’s right to security of tenure to a mere illusion. Contracts must bind both parties equally; their validity cannot be left to the will of one alone.
Consequently, the termination was unlawful. GF Equity was ordered to pay Valenzona his unpaid salaries for the unexpired portion of the fixed-term contract, amounting to ₱560,000.00. The Court also awarded moral damages for the besmirched reputation of a respected coach, exemplary damages, and attorney’s fees due to GF Equity’s evident bad faith in insisting on an invalid stipulation to justify arbitrary dismissal. The action was not barred by prescription, as actions upon a written contract prescribe in ten years, nor was it a labor case, as it involved a fixed-term employment contract breach cognizable by regular courts.