G.R. No. L-15127; May 30, 1961
EMETERIO CUI, plaintiff-appellant, vs. ARELLANO UNIVERSITY, defendant-appellee.

FACTS

Emeterio Cui was a law student at Arellano University who received scholarship grants based on scholastic merit, resulting in the refund of his tuition fees totaling P1,033.87. As a condition for these grants, he signed an agreement waiving his right to transfer to another school without first refunding the university the cash equivalent of his scholarships. In his final semester, Cui transferred to Abad Santos University after his uncle, the dean of Arellano’s law college, severed ties with Arellano. Upon graduating and applying to take the bar, Arellano University refused to release his academic transcripts unless he reimbursed the scholarship amount. Cui paid the sum under protest to obtain his transcripts and subsequently filed an action to recover the payment.
The Director of Private Schools had earlier issued Memorandum No. 38, s. 1949, which stated that scholarships awarded for merit are earned and should not be charged back to students who transfer, emphasizing that such awards should not be used merely to attract and retain students. The Bureau of Private Schools upheld Cui’s position and advised Arellano to release the transcripts, but the university refused, maintaining the validity of its contract and challenging the memorandum’s authority.

ISSUE

Whether the contractual provision requiring a scholarship recipient to refund the grant upon transferring to another school is valid and enforceable.

RULING

The Supreme Court reversed the lower court’s decision, declaring the contractual provision void as contrary to public policy. The Court held that scholarships awarded for academic merit are earned recognitions, not mere inducements to bind a student to an institution. Conditioning such awards on a penalty for transfer undermines the principle of rewarding merit and restricts the student’s educational freedom. Memorandum No. 38, issued by the Director of Private Schools, embodies this sound public policy aimed at preventing the commercial exploitation of scholarships.
The Court emphasized that contracts contravening established societal interests or sound policy and good morals are void. The practice of using scholarships as a business tactic to bolster an institution’s prestige at the expense of a student’s right to transfer is inconsistent with this policy. Consequently, Arellano University’s refusal to release the transcripts unless the refund was made constituted an unjust enrichment, as the scholarships were rightfully earned by Cui’s academic performance. The Court ordered the university to return the amount paid by Cui, with legal interest.