POINTS TO REMEMBER:

 FACTS
 Cui enrolled in the Arellano University then transferred to the Abad Santos University on his
4th year last semester and graduated from the latter university.
 Cui signed a scholarship contract/agreement containing this provision:
 "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.”
 Cui desired to take the bar exam; part of the requirement is to secure and/or submit
TRANSCRIPT OF RECORDS
 In order to obtain said school document, Arellano demanded that the equivalent of
scholarship extended to Cui be refunded by the latter in view of their Contract/Agreement
over the same matter.
 Constrained with the circumstances given the refusal of Arellano University to release Cui’s
TOR, the latter paid/refunded the amount representing the scholarship extended to him
under protest.
 Director of Private Schools(Bureau of Private of Schools) issued a Memorandum
addressing Cui’s concerns:
 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.
 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.
 RTC
 MEMORANDUM OF THE DIRECTOR OF PRIVATE SCHOOLS IS NOT A LAW ; that the
provisionsthereofare 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.
 Defendant (Arellano University
 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.

 ISSUE(s)
 Whether the stipulation in the scholarship contract between Cui and the Arellano University
requiring the former to refund the equivalent of scholarship benefits (extended to him) in
case of desire to transfer to another school is valid in view of the autonomy principle as one
of the characteristics of a valid contract under the Civil Code.
 NO. According to the Civil Code, there are five basic characteristics of a valid
contract, and these are the following: (1) consensuality; (2) autonomy; (3)
mutuality; (4) relativity; and (5) obligatory.
 In this case, the Court focused on the autonomy of contract.
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
(1255a)

The stipulation being against public policy and good morals, the contract between
Cui and the Arellano University is void.
Note: (should Atty. Dizon ask about other characteristics of a valid contract)
CONSENSUALITY
 Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
(1254a)
 Art. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law. (1258)
 Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not
perfected until the delivery of the object of the obligation. (n)
MUTUALITY
 Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them. (1256a)
 Art. 1309. The determination of the performance may be left to a third person, whose
decision shall not be binding until it has been made known to both contracting
parties. (n)
 Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In
such case, the courts shall decide what is equitable under the circumstances. (n)
RELATIVITY
 Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
 If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person. (1257a)
OBLIGATORY
 Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. (1091a)

 Whether the Arellano University is correct in its argument saying that the MEMORANDUM
issued by the Bureau of Private Schools, by the fact of not being in the nature of a LAW, the
stipulation in question is valid.
 NO. Although the MEMORANDUM IS NOT A LAW, THE BASIS OF DECLARING THE
STIPULATION AS VOID IS THE FACT THAT IT IS AGAINST PUBLIC POLICY AND GOOD
MORALS.
 Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.

 IMPORTANT DEFINITIONS
 PUBLIC POLICY
- 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.
- 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.
- 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.

 MORAL
- 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.