EMETERIO CUI, PLAINTIFF AND APPELLANT, VS. ARELLANO UNIVERSITY, DEFENDANT AND APPELLEE.

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
counterclaim, 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 Exhibit 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 semesters
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 “Scholarships”,
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 ward 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 Pl,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
record, 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 examinations
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 Zeigler 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 in 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. Scholarships 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 educational 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 value but to reward merit or help gifted
students in whom society has an established interest or a first lien.”
(Italics 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, Paredes, Dizon, De Leon and Natividad,
JJ., concur.