12. Valenzuela vs. CA witnesses while testifying (Chase v. Buencamino, Sr.

, 136 SCRA 365 [1985];

People v. Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of
G.R. No. 83122. October 19, 1990.* Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the
ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, findings and conclusions of the trial court are supported by substantial
petitioners, vs. THE HONORABLE COURT OF APPEALS, BIENVENIDO M. evidence and there appears to be no cogent reason to disturb them
ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and THE (Mendoza v. Court of Appeals, 156 SCRA 597 [1987]).
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., Agency; The agency ceases to be freely revocable by the sole will of
respondents. the principal when it has been given not only for the interest of the principal
Remedial Law;  Appeals;  Courts;  Evidence;  Where the findings of the but for the interest of third persons or for the mutual interest of the principal
Court of Appeals and the trial court are contrary to each other, the Supreme and the agent.—Furthermore, there is an exception to the principle that an
Court may scrutinize the evidence on record.—Because of the conflicting agency is revocable at will and that is when the agency has been given not
conclusions, this Court deemed it necessary in the interest of substantial only for the interest of the principal but for the interest of third persons or for
justice to scrutinize the evidence and records of the cases. While it is an the mutual interest of the principal and the agent. In these cases, it is evident
established principle that the factual findings of the Court of Appeals are final that the agency ceases to be freely revocable by the sole will of the principal
and may not be reviewed on appeal to this Court, there are however certain (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following
exceptions to the rule which this Court has recognized and accepted, among citations are apropos: “The principal may not defeat the agent’s right to
which, are when the judgment is based on a misapprehension of facts and indemnification by a termination of the contract of agency (Erskine v.
when the findings of the appellate court, are contrary to those of the trial Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32 ALR 196). “Where the
court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court principal terminates or repudiates the agent’s employment in violation of the
of Appeals, 139 SCRA 576 [1986]). Where the findings of the Court of contract of employment and without cause x x x the agent is entitled to
Appeals and the trial court are contrary to each other, this Court may receive either the amount of net losses caused and gains
scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222 3
_______________ VOL. 191, OCTOBER 19, 1990 3
*
 THIRD DIVISION. Valenzuela vs. Court of Appeals
2 prevented by the breach, or the reasonable value of the services
2 SUPREME COURT REPORTS ANNOTATED rendered. Thus, the agent is entitled to prospective profits which he would
Valenzuela vs. Court of Appeals have made except for such wrongful termination provided that such profits
[1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. are not conjectural, or speculative but are capable of determination upon
Santos, 156 SCRA 542 [1987]). When the conclusion of the Court of Appeals some fairly reliable basis. And a principal’s revocation of the agency
is grounded entirely on speculation, surmises or conjectures, or when the agreement made to avoid payment of compensation for a result which he has
inference made is manifestly mistaken, absurd or impossible, or when there actually accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v.
is grave abuse of discretion, or when the judgment is based on a Journal Printing Co., 105 Minn 44, 117 NW 228; Gaylen Machinery Corp. v.
misapprehension of facts, and when the findings of facts are conflicting the Pitman-Moore Co. [CA 2 NY] 273 F 2d 340) “If a principal violates a
exception also applies (Malaysian Airline System Bernad v. Court of Appeals, contractual or quasi-contractual duty which he owes his agent, the agent may
156 SCRA 321 [1987]). as a rule bring an appropriate action for the breach of that duty. The agent
Same;  Same; Same;  Same; Findings of fact of a trial judge are entitled may in a proper case maintain an action at law for compensation or damages
to great weight and should not be disturbed on appeal unless for strong and x x x. A wrongfully discharged agent has a right of action for damages and in
cogent reasons.—We agree with the court a quo that the principal cause of such action the measure and element of damages are controlled generally by
the termination of Valenzuela as General Agent of Philamgen arose from his the rules governing any other action for the employer’s breach of an
refusal to share his Delta commission. The records sustain the conclusions of employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass
the trial court on the apparent bad faith of the private respondents in Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)
terminating the General Agency Agreement of petitioners. It is axiomatic that Same;  Same; When the principal acts in bad faith and with abuse of
the findings of fact of a trial judge are entitled to great weight (People v. right in terminating the agency, he shall be liable for damages.—At any rate,
Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on appeal the question of whether or not the agency agreement is coupled with interest
unless for strong and cogent reasons because the trial court is in a better is helpful to the petitioners’ cause but is not the primary and compelling
position to examine the evidence as well as to observe the demeanor of the reason. For the pivotal factor rendering Philamgen and the other private

Page 1 of 8
respondents liable in damages is that the termination by them of the General Surety Co., Inc., 117 SCRA 66; Italics supplied) In Philippine Phoenix
Agency Agreement was tainted with bad faith. Hence, if a principal acts in Surety case, we held: “Moreover, an insurer cannot treat a contract as valid
bad faith and with abuse of right in terminating the agency, then he is liable in for the purpose of collecting premiums and invalid for the purpose of
damages. This is in accordance with the precepts in Human Relations indemnity. (Citing Insurance Law and Practice by John Alan Appleman, Vol.
enshrined in our Civil Code that “every person must in the exercise of his 15, p. 331; Italics supplied) “The foregoing findings are buttressed by Section
rights and in the performance of his duties act with justice, give every one his 776 of the Insurance Code (Presidential Decree No. 612, promulgated on
due, and observe honesty and good faith” (Art. 19, Civil Code), and every December 18, 1974), which now provides that no contract of Insurance by an
person who, contrary to law, wilfully or negligently causes damages to insurance company is valid and binding unless and until the premium thereof
another, shall indemnify the latter for the same (Art. 20, id). “Any person who has been paid, notwithstanding any agreement to the contrary” (Ibid., 92
wilfully causes loss or injury to another in a manner contrary to morals, good SCRA 425) Perforce, since admittedly the premiums have not been paid, the
customs and public policy shall compensate the latter for the damages” (Art. policies issued have lapsed. The insurance coverage did not go into effect or
21, id.). did not continue and the obligation of Philamgen as insurer ceased. Hence,
Insurance;  Premiums; Non-payment of premiums does not merely for Philamgen which had no more liability under the lapsed and inexistent
suspend but puts an end to an insurance contract since the time of the policies to demand, much less sue Valenzuela for the unpaid premiums
payment is peculiarly of the essence of the contract.—As to the issue of would be the height of injustice and unfair dealing. In this instance, with the
whether or not the petitioners are liable to Philamgen for the unpaid and lapsing of the policies through the
uncollected premiums which the respondent court ordered Valenzuela to pay 5
Philamgen the amount of One Million Nine Hundred VOL. 191, OCTOBER 19, 1990 5
4 Valenzuela vs. Court of Appeals
4 SUPREME COURT REPORTS ANNOTATED non-payment of premiums by the insured there were no more insurance
Valenzuela vs. Court of Appeals contracts to speak of.
Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos PETITION to review the decision and resolution of the Court of Appeals.
(P1,932,532.17) with legal interest thereon until fully paid (Decision—January The facts are stated in the opinion of the Court.
20, 1988, p. 16; Petition, Annex “A”), we rule that the respondent court erred      Albino B. Achas for petitioners.
in holding Valenzuela liable. We find no factual and legal basis for the award.      Angara, Abello,  Concepcion, Regala  &  Cruz for private respondents.
Under Section 77 of the Insurance Code, the remedy for the non-payment GUTIERREZ, JR., J.:
premiums is to put an end to and render the insurance policy not binding This is a petition for review of the January 29, 1988 decision of the Court of
—“Sec. 77 x x x [N]otwithstanding any agreement to the contrary, no policy Appeals and the April 27, 1988 resolution denying the petitioners’ motion for
or contract of insurance is valid and binding unless and until the premiums reconsideration, which decision and resolution reversed the decision dated
thereof have been paid except in the case of a life or industrial life policy June 23, 1986 of the Court of First Instance of Manila, Branch 34 in Civil
whenever the grace period provision applies (P.D. 612, as amended Case No. 121126 upholding the petitioners’ causes of action and granting all
otherwise known as the Insurance Code of 1974) In Philippine Phoenix the reliefs prayed for in their complaint against private respondents.
Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held The antecedent facts of the case are as follows:
that the non-payment of premium does not merely suspend but puts an end Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent
to an insurance contract since the time of the payment is peculiarly of the of private respondent Philippine American General Insurance Company, Inc.
essence of the contract. And in Arce v. The Capital Insurance and Surety (Philamgen for short) since 1965. As such, he was authorized to solicit and
Co., Inc. (117 SCRA 63 [1982]), we reiterated the rule that unless premium is sell in behalf of Philamgen all kinds of non-life insurance, and in
paid, an insurance contract does not take effect. Thus: “It is to be noted that consideration of services rendered was entitled to receive the full agent’s
Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9 SCRA 177 commission of 32.5% from Philamgen under the scheduled commission rates
[1963] was decided in the light of the Insurance Act before Sec. 72 was (Exhibits “A” and “1”). From 1973 to 1975, Valenzuela solicited marine
amended by the underscored portion. Supra. Prior to the Amendment, an insurance from one of his clients, the Delta Motors, Inc. (Division of
insurance contract was effective even if the premium had not been paid so Electronics Airconditioning and Refrigeration) in the amount of P4.4. Million
that an insurer was obligated to pay indemnity in case of loss and from which he was entitled to a commission of 32% (Exhibit “B”). However,
correlatively he had also the right to sue for payment of the premium. But the Valenzuela did not receive his full commission which amounted to P1.6
amendment to Sec. 72 has radically changed the legal regime in that unless Million from the P4.4 Million insurance coverage of the Delta Motors. During
the premium is paid there is no insurance.” (Arce v. Capitol Insurance and the period 1976 to 1978, premium payments amounting to P1,946,886.00

Page 2 of 8
were paid directly to Philamgen and Valenzuela’s commission to which he is “That defendants’ position could have been justified had the termination
entitled amounted to P632,737.00. of plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of
In 1977, Philamgen started to become interested in and ex- the Civil Code and the conditions of the General Agency Agreement. But the
6 records will show that the principal cause of the termination of the plaintiff as
6 SUPREME COURT REPORTS ANNOTATED General Agent of defendant PHILAMGEN was his refusal to share his Delta
Valenzuela vs. Court of Appeals commission.
pressed its intent to share in the commission due Valenzuela (Exhibits “III” “That it should be noted that there were several attempts made by
and “III-1”) on a fifty-fifty basis (Exhibit “C”). Valenzuela refused (Exhibit “D”). defendant Bienvenido M. Aragon to share with the Delta commission of
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing
insisted on the sharing of the commission with Valenzuela (Exhibit E). This scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to make
was followed by another sharing proposal dated June 1, 1978. On June 16, matters worse, defendants made it appear that plaintiff Arturo P. Valenzuela
1978, Valenzuela firmly reiterated his objection to the proposals of had substantial accounts with defendant PHILAMGEN.
respondents stating that: “It is with great reluctance that I have to decline “Not only that, defendants have also started (a) to treat separately the
upon request to signify my conformity to your alternative proposal regarding Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta
the payment of the commission due me. However, I have no choice for to do commission due plaintiff Arturo P. Valenzuela by not crediting or applying
otherwise would be violative of the Agency Agreement executed between our said commission earned to the account of plaintiff Arturo P. Valenzuela, (c)
goodselves.” (Exhibit B-1) placed plaintiff Arturo P. Valenzuela’s agency transactions on a ‘cash-and-
Because of the refusal of Valenzuela, Philamgen and its officers, namely: carry’ basis, (d) sending threats to cancel existing policies issued by plaintiff
Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic action Arturo P. Valenzuela’s agency, (e) to divert plaintiff Arturo P. Valenzuela’s
against Valenzuela. They: (a) reversed the commission due him by not insurance business to other agencies, and (f) to spread wild and malicious
crediting in his account the commission earned from the Delta Motors, Inc. rumors that plaintiff Arturo P. Valenzuela has substantial account with
insurance (Exhibit “J” and “2”); (b) placed agency transactions on a cash- defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into agreeing
and-carry basis; (c) threatened the cancellation of policies issued by his with the sharing of his Delta commission.” (pp. 9-10, Decision, Annex 1,
agency (Exhibits “H” to “H-2”); and (d) started to leak out news that Petition).
Valenzuela has a substantial account with Philamgen. All of these acts x x x      x x x      x x x
resulted in the decline of his business as insurance agent (Exhibits “N”, “O”, “These acts of harrassment done by defendants on plaintiff Arturo P.
“K” and “K-8”). Then on December 27, 1978, Philamgen terminated the Valenzuela to force him to agree to the sharing of his Delta commission,
General Agency Agreement of Valenzuela (Exhibit “J”, pp. 1-3, Decision Trial which culminated in the termination of plaintiff Arturo P. Valenzuela as one of
Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition). defendant PHILAMGEN’s General Agent, do not justify said termination of
The petitioners sought relief by filing the complaint against the private the General Agency Agreement entered into by defendant PHILAMGEN and
respondents in the court a quo (Complaint of January 24, 1979, Annex “F” plaintiff Arturo P. Valenzuela.
Petition). After due proceedings, the trial court found: “That since defendants are not justified in the termination of plaintiff
x x x      x x x      x x x Arturo P. Valenzuela as one of their General Agents, defendants shall be
“Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela liable for the resulting damage and loss of business of plaintiff Arturo P.
as one of defendant PHILAMGEN’s General Agent by making it appear that Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)
plaintiff Arturo P. Valenzuela has a substantial account with defendant 8
PHILAMGEN, particularly Delta Motors, Inc.’s Account, thereby prejudicing 8 SUPREME COURT REPORTS ANNOTATED
defendant PHILAMGEN’s interest (Exhibits 6, ‘11,’ ‘11- ,’ ‘12-A’ and ‘13-A’). Valenzuela vs. Court of Appeals
7 The court accordingly rendered judgment, the dispositive portion of which
VOL. 191, OCTOBER 19, 1990 7 reads:
Valenzuela vs. Court of Appeals “WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
“Defendants also invoked the provisions of the Civil Code of the Philippines against defendants ordering the latter to reinstate plaintiff Arturo P.
(Article 1868) and the provisions of the General Agency Agreement as their Valenzuela as its General Agent, and to pay plaintiffs, jointly and severally,
basis for terminating plaintiff Arturo P. Valenzuela as one of their General the following:
Agents. 1. “1.The amount of five hundred twenty-one thousand nine hundred
sixty four and 16/100 pesos (P521,964.16) representing plaintiff

Page 3 of 8
 Arturo P. Valenzuela’s Delta Commission with interest at the legal On January 29, 1988, respondent Court of Appeals promulgated its decision
rate from the time of the filing of the complaint, which amount shall in the appealed case. The dispositive portion of the decision reads:
be adjusted in accordance with Article 1250 of the Civil Code of the “WHEREFORE, the decision appealed from is hereby modified accordingly
Philippines; and judgment is hereby rendered ordering:
2. “2.The amount of seventy-five thousand pesos (P75,000.00) per 1. 1.Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen
month as compensatory damages from 1980 until such time that the sum of one million nine hundred thirty two thousand five
defendant Philamgen shall reinstate plaintiff Arturo P. Valenzuela hundred thirty-two pesos and seventeen centavos P1,932,532.17),
as one of its general agents; with legal interest thereon from the date of finality of this judgment
3. 3.The amount of three hundred fifty thousand pesos (P350,000.00) until fully paid.
for each plaintiff as moral damages; 2. 2.Both plaintiff-appellees to pay jointly and severally defendants-
4. 4.The amount of seventy-five thousand pesos (P75,000.00) as and appellants the sum of fifty thousand pesos (P50,000.00) as and by
for attorney’s fees; way of attorney’s fees.
5. 5.Costs of the suit.” (Ibid., p. 12) No pronouncement is made as to costs.” (p. 44, Rollo)
From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. There is in this instance irreconcilable divergence in the findings and
Parnell, Carlos K. Catolico and PHILAMGEN respondents herein, and conclusions of the Court of Appeals, vis-a-vis those of the trial court
defendants-appellants below, interposed an appeal on the following: particularly on the pivotal issue whether or not
ASSIGNMENT OF ERRORS 10
I 10 SUPREME COURT REPORTS ANNOTATED
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. Valenzuela vs. Court of Appeals
VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT Philamgen and/or its officers can be held liable for damages due to the
PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY. termination of the General Agency Agreement it entered into with the
II petitioners. In its questioned decision the Court of Appeals observed that:
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO “In any event the principal’s power to revoke an agency at will is so
P. VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON pervasive, that the Supreme Court has consistently held that termination may
THE DELTA ACCOUNT. be effected even if the principal acts in bad faith, subject only to the
9 principal’s liability for damages (Danon v. Antonio A. Brimo & Co., 42 Phil.
VOL. 191, OCTOBER 19, 1990 9 133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93 Phil.
Valenzuela vs. Court of Appeals 691, cited in Paras, Vol. V, Civil Code of the Philippines Annotated [1986]
III 696).
THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION “The lower court, however, thought the termination of Valenzuela as
OF PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND General Agent improper because the record will show the principal cause of
THAT CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND the termination of the plaintiff as General Agent of defendant Philamgen was
MORAL DAMAGES, ATTORNEY’S FEES AND COSTS. his refusal to share his Delta commission” (Decision, p. 9; p. 13, Rollo, 41)
IV Because of the conflicting conclusions, this Court deemed it necessary in the
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST interest of substantial justice to scrutinize the evidence and records of the
DEFENDANT PHILAMGEN WAS PROPER, THE LOWER COURT ERRED cases. While it is an established principle that the factual findings of the Court
IN AWARDING DAMAGES EVEN AGAINST THE INDIVIDUAL of Appeals are final and may not be reviewed on appeal to this Court, there
DEFENDANTS WHO ARE MERE CORPORATE AGENTS ACTING WITHIN are however certain exceptions to the rule which this Court has recognized
THE SCOPE OF THEIR AUTHORITY. and accepted, among which, are when the judgment is based on a
V misapprehension of facts and when the findings of the appellate court, are
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR contrary to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA
OF PLAINTIFF ARTURO P. VALENZUELA WAS PROPER, THE LOWER 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the
COURT ERRED IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA findings of the Court of Appeals and the trial court are contrary to each other,
VALENZUELA, WHO, NOT BEING THE REAL PARTY IN INTEREST IS this Court may scrutinize the evidence on record (Cruz v. Court of
NOT TO OBTAIN RELIEF. Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA
597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion

Page 4 of 8
of the Court of Appeals is grounded entirely on speculation, surmises or and “14”; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was
conjectures, or when the inference made is manifestly mistaken, absurd or threatened with diversion to other agencies. (Exhibit “NNN”). Rumors were
impossible, or when there is grave abuse of discretion, or when the judgment also spread about alleged accounts of the Valenzuela agency (TSN., January
is based on a misapprehension of facts, and when the findings of facts are 25, 1980, p. 41). The petitioners consistently opposed the pressures to hand
conflicting the exception also applies (Malaysian Airline System Bernad v. over the agency or half of their commissions and for a treatment of the Delta
Court of Appeals, 156 SCRA 321 [1987]). account distinct from other accounts. The pressures and demands, however,
11 continued until the agency agreement itself was finally terminated.
VOL. 191, OCTOBER 19, 1990 11 It is also evident from the records that the agency involving petitioner and
Valenzuela vs. Court of Appeals private respondent is one “coupled with an interest,” and, therefore, should
After a painstaking review of the entire records of the case and the findings of not be freely revocable at the unilateral will of the latter.
facts of both the court a quo and respondent appellate court, we are In the insurance business in the Philippines, the most difficult and
constrained to affirm the trial court’s findings and rule for the petitioners. frustrating period is the solicitation and persuasion of the prospective clients
We agree with the court a quo that the principal cause of the termination to buy insurance policies. Normally, agents would encounter much
of Valenzuela as General Agent of Philamgen arose from his refusal to share embarrassment, difficulties, and oftentimes frustrations in the solicitation and
his Delta commission. The records sustain the conclusions of the trial court procurement of the insurance policies. To sell policies, an agent exerts great
on the apparent bad faith of the private respondents in terminating the effort, patience, perseverance, ingenuity, tact, imagination, time and money.
General Agency Agreement of petitioners. It is axiomatic that the findings of In the case of Valenzuela, he was able to build up an agency from scratch in
fact of a trial judge are entitled to great weight (People v. Atanacio, 128 1965 to a highly productive enterprise with gross billings of about Two Million
SCRA 22 [1984]) and should not be disturbed on appeal unless for strong Five Hundred Thousand Pesos (P2,500,000.00) premiums per annum. The
and cogent reasons because the trial court is in a better position to examine records sustain the finding that the private respondent started to covet a
the evidence as well as to observe the demeanor of the witnesses while share of the insurance business that Valenzuela had built up, developed and
testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v. nurtured to profitability through over thirteen (13) years of patient work and
Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of perseverance. When Valenzuela refused to share his commission in the
Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the Delta account, the boom suddenly fell on him.
findings and conclusions of the trial court are supported by substantial The private respondents by the simple expedient of terminating the
evidence and there appears to be no cogent reason to disturb them General Agency Agreement appropriated the entire insurance business of
(Mendoza v. Court of Appeals, 156 SCRA 597 [1987]). Valenzuela. With the termination of the General Agency Agreement,
As early as September 30, 1977, Philamgen told the petitioners of its Valenzuela would no longer be entitled to commission on the renewal of
desire to share the Delta Commission with them. It stated that should Delta insurance policies of clients sourced from his agency. Worse, despite the
back out from the agreement, the petitioners would be charged interests termination of the agency, Philamgen continued to hold Valenzuela jointly
through a reduced commission after full payment by Delta. and severally liable with the insured for unpaid premiums. Under these
On January 23, 1978 Philamgen proposed reducing the peti-tioners’ circumstances, it is clear that Valenzuela had an
commissions by 50% thus giving them an agent’s commission of 16.25%. On 13
February 8, 1978, Philamgen insisted on the reduction scheme followed on VOL. 191, OCTOBER 19, 1990 13
June 1, 1978 by still another insistence on reducing commissions and Valenzuela vs. Court of Appeals
proposing two alternative schemes for reduction. There were other interest in the continuation of the agency when it was unceremoniously
pressures. Demands to settle accounts, to confer and thresh out differences terminated not only because of the commissions he should continue to
regarding the petitioners’ income and the threat to terminate the agency receive from the insurance business he has solicited and procured but also
followed. The petitioners were told that the Delta commissions would not be for the fact that by the very acts of the respondents, he was made liable to
credited to their account (Exhibit “J”). They were informed that the Philamgen in the event the insured fail to pay the premiums due. They are
Valenzuela agency would be placed on a cash and carry basis thus removing estopped by their own positive averments and claims for damages.
the 60-day credit for premiums due. (TSN., March 26, 1979, pp. 54-57). Therefore, the respondents cannot state that the agency relationship
12 between Valenzuela and Philamgen is not coupled with interest. “There may
12 SUPREME COURT REPORTS ANNOTATED be cases in which an agent has been induced to assume a responsibility or
Valenzuela vs. Court of Appeals incur a liability, in reliance upon the continuance of the authority under such
Existing policies were threatened to be cancelled (Exhibits “H”

Page 5 of 8
circumstances that, if the authority be withdrawn, the agent will be exposed every person who, contrary to law, wilfully or negligently causes damages to
to personal loss or liability” (See MEC 569 p. 406). another, shall indemnify the latter for the same (Art. 20, id). “Any person who
Furthermore, there is an exception to the principle that an agency is wilfully causes loss or injury to another in a manner contrary to morals, good
revocable at will and that is when the agency has been given not only for the customs and public policy shall compensate the latter for the damages” (Art.
interest of the principal but for the interest of third persons or for the mutual 21, id.).
interest of the principal and the agent. In these cases, it is evident that the As to the issue of whether or not the petitioners are liable to Philamgen
agency ceases to be freely revocable by the sole will of the principal (See for the unpaid and uncollected premiums which the respondent court ordered
Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following citations Valenzuela to pay Philamgen the amount of One Million Nine Hundred Thirty-
are apropos: Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532.17)
“The principal may not defeat the agent’s right to indemnification by a with legal interest thereon until fully paid (Decision—January 20, 1988, p. 16;
termination of the contract of agency (Erskine v. Chevrolet Motors Co. 185 Petition, Annex “A”), we rule that the respondent court erred in holding
NC 479, 117 SE 706, 32 ALR 196). Valenzuela liable. We find no factual and legal basis for the award. Under
“Where the principal terminates or repudiates the agent’s employment in Section 77 of the Insurance Code, the remedy for the non-payment of
violation of the contract of employment and without cause x x x the agent is premiums is to put an end to and render the insurance policy not binding—
entitled to receive either the amount of net losses caused and gains “Sec. 77 x x x [N]otwithstanding any agreement to the contrary, no policy or
prevented by the breach, or the reasonable value of the services rendered. contract of insurance is valid and binding unless and until the premiums
Thus, the agent is entitled to prospective profits which he would have made thereof have been paid except in the case of a life or industrial life policy
except for such wrongful termination provided that such profits are not whenever the grace period provision applies (P.D.
conjectural, or speculative but are capable of determination upon some fairly 15
reliable basis. And a principal’s revocation of the agency agreement made to VOL. 191, OCTOBER 19, 1990 15
avoid payment of compensation for a result which he has actually Valenzuela vs. Court of Appeals
accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal 612, as amended otherwise known as the Insurance Code of 1974)
Printing Co., 105 Minn 44, 117 NW 228; Gaylen Machinery Corp. v. Pitman- In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92
Moore Co. [CA 2 NY] 273 F 2d 340) SCRA 419 [1979]) we held that the non-payment of premium does not
“If a principal violates a contractual or quasi-contractual duty which he merely suspend but puts an end to an insurance contract since the time of
owes his agent, the agent may as a rule bring an appropriate action for the the payment is peculiarly of the essence of the contract. And in Arce v. The
breach of that duty. The agent may in a proper case Capital Insurance and Surety Co., Inc. (117 SCRA 63 [1982]), we reiterated
14 the rule that unless premium is paid, an insurance contract does not take
14 SUPREME COURT REPORTS ANNOTATED effect. Thus:
Valenzuela vs. Court of Appeals “It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v.
maintain an action at law for compensation or damages x x x. A wrongfully Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance Act
discharged agent has a right of action for damages and in such action the before Sec. 72 was amended by the underscored portion. Supra. Prior to the
measure and element of damages are controlled generally by the rules Amendment, an insurance contract was effective even if the premium had not
governing any other action for the employer’s breach of an employment been paid so that an insurer was obligated to pay indemnity in case of loss
contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, and correlatively he had also the right to sue for payment of the
54 Ohio 157, 43 NE 2798) premium. But the amendment to Sec. 72 has radically changed the legal
At any rate, the question of whether or not the agency agreement is coupled regime in that unless the premium is paid there is no insurance.” (Arce v.
with interest is helpful to the petitioners’ cause but is not the primary and Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Italics supplied)
compelling reason. For the pivotal factor rendering Philamgen and the other In Philippine Phoenix Surety case, we held:
private respondents liable in damages is that the termination by them of the “Moreover, an insurer cannot treat a contract as valid for the purpose of
General Agency Agreement was tainted with bad faith. Hence, if a principal collecting premiums and invalid for the purpose of
acts in bad faith and with abuse of right in terminating the agency, then he is indemnity. (Citing Insurance Law and Practice by John Alan Appleman, Vol.
liable in damages. This is in accordance with the precepts in Human 15, p. 331; Italics supplied)
Relations enshrined in our Civil Code that “every person must in the exercise “The foregoing findings are buttressed by Section 776 of the Insurance
of his rights and in the performance of his duties act with justice, give every Code (Presidential Decree No. 612, promulgated on December 18, 1974),
one his due, and observe honesty and good faith: (Art. 19, Civil Code), and which now provides that no contract of Insurance by an insurance company

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is valid and binding unless and until the premium thereof has been paid, VOL. 191, OCTOBER 19, 1990 17
notwithstanding any agreement to the contrary” (Ibid., 92 SCRA 425) Valenzuela vs. Court of Appeals
Perforce, since admittedly the premiums have not been paid, the policies a long period of time and covering examinations made on four different
issued have lapsed. The insurance coverage did not go into effect or did not occasions must prevail over unconfirmed and unaudited statements made to
continue and the obligation of Philamgen as insurer ceased. Hence, for support a position made in the course of defending against a lawsuit.
Philamgen which had no more liability under the lapsed and inexistent It is not correct to say that Valenzuela should have presented its own
policies to demand, much less sue Valenzuela for the unpaid premiums records to refute the unconfirmed and unaudited finding of the Banaria
would be the height of injustice and unfair dealing. In this auditor. The records of Philamgen itself are the best refutation against figures
16 made as an afterthought in the course of litigation. Moreover, Valenzuela
16 SUPREME COURT REPORTS ANNOTATED asked for a meeting where the figures would be reconciled. Philamgen
Valenzuela vs. Court of Appeals refused to meet with him and, instead, terminated the agency agreement.
instance, with the lapsing of the policies through the non-payment of After off-setting the amount of P744,159.80, beginning balance as of July
premiums by the insured there were no more insurance contracts to speak 1977, by way of credits representing the commission due from Delta and
of. As this Court held in the Philippine Phoenix Surety case, (supra)—“the other accounts, Valenzuela had overpaid Philamgen the amount of
non-payment of premiums does not merely suspend but puts an end to an P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to
insurance contract since the time of the payment is peculiarly of the essence complain that it committed a mistake in its computation. The alleged error
of the contract.” may be given credence if committed only once. But as earlier stated, the
The respondent appellate court also seriously erred in according undue reconciliation of accounts was arrived at four (4) times on different occasions
reliance to the report of Banaria and Banaria and Company, auditors, that as where Philamgen was duly represented by its account executives. On the
of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This basis of these admissions and representations, Philamgen cannot later on
audit report of Banaria was commissioned by Philamgen after Valenzuela assume a different posture and claim that it was mistaken in its
was almost through with the presentation of his evidence. In essence, the representation with respect to the correct beginning balance as of July 1977
Banaria report started with an unconfirmed and unaudited beginning balance amounting to P744,159.80. The Banaria audit report commissioned by
of account of P1,758,185.43 as of August 20, 1976. But even with that Philamgen is unreliable since its results are admittedly based on an
unaudited and unconfirmed beginning balance of P1,758,185.43, Banaria still unconfirmed and unaudited beginning balance of P1,758,185.43 as of
came up with the amount of P3,865,49 as Valenzuela’s balance as of August 20, 1976.
December 1978 with Philamgen (Exh. “38-A-3”). In fact, as of December 31, As so aptly stated by the trial court in its decision:
1976, and December 31, 1977, Valenzuela had no unpaid account with “Defendants also conducted an audit of accounts of plaintiff Arturo P.
Philamgen (Ref: Annexes “D”, “D-1” “E”, Petitioner’s Memorandum). But even Valenzuela after the controversy has started. In fact, after hearing plaintiffs
disregarding these annexes which are records of Philamgen and addressed have already rested their case.
to Valenzuela in due course of business, the facts show that as of July 1977, “The results of said audit were presented in Court to show plaintiff Arturo
the beginning balance of Valenzuela’s account with Philamgen amounted to P. Valenzuela’s accountability to defendant PHILAMGEN. However, the
P744,159.80. This was confirmed by Philamgen itself not only once but four auditor, when presented as witness in this case testified that the beginning
(4) times on different occasions, as shown by the records. balance of their audit report was based on an unaudited amount of
On April 3, 1978, Philamgen sent Valenzuela a statement of account with P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified
a beginning balance of P744,159.80 as of July 1977. and merely supplied by the officers of defendant PHILAMGEN.
On May 23, 1978, another statement of account with exactly the same 18
beginning balance was sent to Valenzuela. 18 SUPREME COURT REPORTS ANNOTATED
On November 17, 1978, Philamgen sent still another statement of Valenzuela vs. Court of Appeals
account with P744,159.80 as the beginning balance. “Even defendants very own Exhibit 38-A-3, showed that plaintiff Arturo P.
And on December 20, 1978, a statement of account with exactly the Valenzuela’s balance as of 1978 amounted to only P3,865.59, not
same figure was sent to Valenzuela. P826,128.46 as stated in defendant Bienvenido M. Aragon’s letter dated
It was only after the filing of the complaint that a radically different December 20, 1978 (Exhibit 14) or P1,528,698.40 as reflected in defendant’s
statement of accounts surfaced in court. Certainly, Philamgen’s own Exhibit 46 (Audit Report of Banaria dated December 24, 1980).
statements made by its own accountants over “These glaring discrepancy (sic) in the accountability of plaintiff Arturo P.
17 Valenzuela to defendant PHILAMGEN only lends credence to the claim of

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plaintiff Arturo P. Valenzuela that he has no outstanding account with amount of FIVE HUNDRED TWENTY-ONE THOUSAND NINE HUNDRED
defendant PHILAMGEN when the latter, thru defendant Bienvenido M. SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing the
Aragon, terminated the General Agency Agreement entered into by plaintiff petitioners Delta commission shall earn only legal interests without any
(Exhibit A) effective January 31, 1979 (see Exhibits “2” and “2-A”). Plaintiff adjustments under Article 1250 of the Civil Code and that the contractual
Arturo P. Valenzuela has shown that as of October 31, 1978, he has relationship between Arturo P. Valenzuela and Philippine American General
overpaid defendant PHILAMGEN in the amount of P53,040.37 (Exhibit Insurance Company shall be deemed terminated upon the satisfaction of the
“EEE”, which computation was based on defendant PHILAMGEN’s balance judgment as modified.
of P744,159.80 furnished on several occasions to plaintiff Arturo P. SO ORDERED.
Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1, Bidin and Cortés, JJ., concur.
YY, YY-2, ZZ and ZZ-2).      Fernan  (C.J., Chairman), No part due to close personal relationship
Prescinding from the foregoing, and considering that the private respondents with one of the parties.
terminated Valenzuela with evident mala fide, it necessarily follows that the      Feliciano, J., On leave.
former are liable in damages. Respondent Philamgen has been appropriating Petition granted. Decision and resolution set aside.
for itself all these years the gross billings and income that it unceremoniously Note.—Where findings of Court of Appeals and trial court are contrary to
took away from the petitioners. The preponderance of the authorities sustain each other, the Supreme Court may scrutinize the evidence on record. (Cruz
the preposition that a principal can be held liable for damages in cases of vs. Court of Appeals, 129 SCRA 222.)
unjust termination of agency. In Danon v. Brimo, 42 Phil. 133 [1921]), this ——o0o——
Court ruled that where no time for the continuance of the contract is fixed by 20
its terms, either party is at liberty to terminate it at will, subject only to the © Copyright 2020 Central Book Supply, Inc. All rights reserved.
ordinary requirements of good faith. The right of the principal to terminate his
authority is absolute and unrestricted, except only that he may not do so
in bad faith.
The trial court in its decision awarded to Valenzuela the amount of
Seventy Five Thousand Pesos (P75,000,00) per month as compensatory
damages from June 1980 until its decision becomes final and executory. This
award is justified in the light of the evidence extant on record (Exhibits “N”,
“N-10”, “0”, “0-1, “P” and “P-1”) showing that the average gross premium
collection monthly of Valenzuela over a period of four (4) months from
December 1978 to February 1979, amounted to over
19
VOL. 191, OCTOBER 19, 1990 19
Valenzuela vs. Court of Appeals
P300,000.00 from which he is entitled to a commission of P100,000.00 more
or less per month. Moreover, his annual sales production amounted to
P2,500,000.00 from where he was given 32.5% commissions. Under Article
2200 of the new Civil Code, “indemnification for damages shall comprehend
not only the value of the loss suffered, but also that of the profits which the
obligee failed to obtain.”
The circumstances of the case, however, require that the contractual
relationship between the parties shall be terminated upon the satisfaction of
the judgment. No more claims arising from or as a result of the agency shall
be entertained by the courts after that date.
ACCORDINGLY, the petition is GRANTED. The impugned decision of
January 29, 1988 and resolution of April 27, 1988 of respondent court are
hereby SET ASIDE. The decision of the trial court dated January 23, 1986 in
Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the

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