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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-15127 May 30, 1961

EMETERIO CUI, plaintiff-appellant,

vs.
ARELLANO UNIVERSITY, defendant-appellee.

G.A.S. Sipin, Jr., for plaintiff-appellant.

E. Voltaire Garcia for defendant-appellee.

CONCEPCION, J.:

Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant
Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's counter
claim, for insufficiency of proof thereon.

In the language of the decision appealed from:

The essential facts of this case are short and undisputed. As established by the agreement of facts Exhibits X
and by the respective oral and documentary evidence introduced by the parties, it appears conclusive that
plaintiff, before the school year 1948-1949 took up preparatory law course in the defendant University. After
finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from the school
year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first
semester of the fourth year. During all the school years in which plaintiff was studying law in defendant law
college, Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law and
legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law studies in the
defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having
severed his connection with defendant and having accepted the deanship and chancellorship of the College
of Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of
his fourth year law in the college of law of the Abad Santos University graduating from the college of law of
the latter university. Plaintiff, during all the time he was studying law in defendant university was awarded
scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends
of semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by
plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first
semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law
from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he
needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to
him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which
defendant refunded to him as above stated. As he could not take the bar examination without those
transcripts, plaintiff paid to defendant the said sum under protest. This is the sum which plaintiff seeks to
recover from defendant in this case.

Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the
following contract covenant and agreement:

"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to
another school without having refunded to the University (defendant) the equivalent of my scholarship cash.

(Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of 1949,
on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities," reading:

1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial
scholarships to deserving students — for excellence in scholarship or for leadership in extra-curricular
activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition
that such scholarships are good only if the students concerned continue in the same school nullifies the
principle of merit in the award of these scholarships.
 2. When students are given full or partial scholarships, it is understood that such scholarships are merited and
earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently
charged to the recipient students when they decide to quit school or to transfer to another institution.
Scholarships should not be offered merely to attract and keep students in a school.

3. Several complaints have actually been received from students who have enjoyed scholarships, full or
partial, to the effect that they could not transfer to other schools since their credentials would not be released
unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes
that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such
transfer.

that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools to
pass upon the issue on his right to secure the transcript of his record in defendant University, without being required
to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the plaintiff and so
advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript of records, unless
said refund were made, and even recommended to said Bureau that it issue a written order directing the defendant
to release said transcript of record, "so that the case may be presented to the court for judicial action." As above
stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said sum of P1,033.87, in order that
he could take the bar examination in 1953. Subsequently, he brought this action for the recovery of said amount,
aside from P2,000 as moral damages, P500 as exemplary damages, P2,000 as attorney's fees, and P500 as
expenses of litigation.

In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the
provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null and
void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees.

The issue in this case is whether the above quoted provision of the contract between plaintiff and the defendant,
whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his
scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, upon the ground that
the aforementioned memorandum of the Director of Private Schools is not a law; that the provisions thereof are
advisory, not mandatory in nature; and that, although the contractual provision "may be unethical, yet it was more
unethical for plaintiff to quit studying with the defendant without good reasons and simply because he wanted to
follow the example of his uncle." Moreover, defendant maintains in its brief that the aforementioned memorandum of
the Director of Private Schools is null and void because said officer had no authority to issue it, and because it had
been neither approved by the corresponding department head nor published in the official gazette.

We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had
sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the issue
before us, and its far reaching effects, transcend personal equations and demand a determination of the case from a
high impersonal plane. Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for,
regardless of the same, we are of the opinion that the stipulation in question is contrary to public policy and, hence,
null and void. The aforesaid memorandum merely incorporates a sound principle of public policy. As the Director of
Private Schools correctly pointed, out in his letter, Exhibit B, to the defendant,

There is one more point that merits refutation and that is whether or not the contract entered into between Cui
and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs.
Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy
of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes, and
the practice of government officers.' It might take more than a government bureau or office to lay down or
establish a public policy, as alleged in your communication, but courts consider the practices of government
officials as one of the four factors in determining a public policy of the state. It has been consistently held in
America that under the principles relating to the doctrine of public policy, as applied to the law of contracts,
courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is
calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life
Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano
University understood clearly the real essence of scholarships and the motives which prompted this office to
issue Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on
September 10, 1951, which is a direct violation of our Memorandum and an open challenge to the authority of
the Director of Private Schools because the contract was repugnant to sound morality and civic honesty. And
finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a
contract void as against public policy, a court must find that the contract as to consideration or the thing to be
done, contravenes some established interest of society, or is inconsistent with sound policy and good morals
or tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38,
s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in
school to bolster its prestige. In the understanding of that university scholarships award is a business scheme
designed to increase the business potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is
good customs; those generally accepted principles of morality which have received some kind of social and
practical confirmation. The practice of awarding scholarships to attract students and keep them in school is
not good customs nor has it received some kind of social and practical confirmation except in some private
institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article
XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require
scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also
 with the leading colleges and universities of the United States after which our educational practices or policies
are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in
school for their propaganda mine but to reward merit or help gifted students in whom society has an
established interest or a first lien. (Emphasis supplied.)

WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the
defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1,
1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so
ordered.

Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Barrera, Parades, Dizon, De Leon and Natividad, JJ., concur.
Bautista Angelo, J., reserves his vote.

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