G.R. No. L-36585 - Diolosa vs. Court of Appeals

Case Summary (G.R. No. L-36585)

Factual Background

The parties entered into an agreement on June 20, 1968, whereby the petitioners, as owners of the VILLA ALEGRE SUBDIVISION, engaged the private respondent as their exclusive sales agent to dispose of the subdivided lots “until all the subject property as subdivided is fully disposed of.” On September 27, 1968 the petitioners sent a letter rescinding the agency agreement and notifying the private respondent that they had decided to reserve the remaining unsold lots for their grandchildren. At the time of rescission twenty-seven lots remained unsold and the petitioners had six grandchildren. The private respondent sued for recovery of unpaid commissions and alleged damages; the trial court dismissed the complaint but the Court of Appeals reversed and awarded damages, attorney’s fees, and costs.

Pre-Trial Admissions and Issues Submitted

The parties stipulated in a pre-trial order that the plaintiff was a licensed real estate broker and that Exhibit “A” constituted an exclusive sales agency authorizing the plaintiff to sell the lots until all were disposed of. The parties further admitted the contents of Exhibit “B,” the rescission letter dated September 27, 1968. The plaintiff reserved the right to prove that he sold lots in several subdivisions and claimed substantial moral and special damages, attorney’s fees, and commissions on unsold lots. The defendants admitted that the complaint was vexatious in their view and claimed moral and exemplary damages and attorney’s fees. The issues the parties submitted were whether Exhibit “A” gave the plaintiff an irrevocable right to sell all lots and whether the defendants could terminate the agreement by a letter such as Exhibit “B.”

Trial Court Proceedings and Dismissal

The Court of First Instance of Iloilo resolved the case on the basis of the facts admitted in the pleadings and in the pre-trial order and after trial dismissed the private respondent’s complaint. The trial court’s pre-trial order expressly recorded the parties’ admissions concerning the exclusive agency, the rescission letter, and the claims each party intended to prove at trial.

Court of Appeals Decision

On appeal the Court of Appeals reversed the trial court and ordered the petitioners to pay the private respondent “the sum of P10,000.00 as damages and the sum of P2,000.00 as attorney’s fees, and the costs.” The Court of Appeals concluded that the petitioners could not terminate the agency agreement at will because Exhibit “A” expressly provided that the authority to sell continued “until all the subject property as subdivided is fully disposed of.”

Issues on Review

The sole issue before the Supreme Court was whether the petitioners could lawfully terminate the exclusive agency agreement, Exhibit “A,” without incurring liability for damages to the private respondent for breach of contract.

Parties’ Contentions

The private respondent contended that Exhibit “A” conferred an unrevocable, exclusive authority to sell the subdivision lots until all lots were disposed of and that the petitioners’ rescission constituted breach entitling him to commissions and damages. The petitioners contended that they had the legal right to terminate the agency because they needed certain unsold lots for family use and that the plaintiff had no entitlement to commissions on lots that they had not sold.

Supreme Court Ruling

The Court held that the petitioners could not terminate the agency agreement at will without paying damages. The Court found the language of Exhibit “A” clear and unambiguous in vesting authority in the private respondent to sell the lots “until all the subject property as subdivided is fully disposed of,” and it rejected testimonial evidence purportedly showing a contemporaneous agreement to reserve lots for the petitioners’ family as contrary to the written contract. The Court noted that on September 27, 1968 twenty-seven lots remained unsold an

Case Syllabus (G.R. No. L-36585)

Parties and Procedural Posture

MARIANO DIOLOSA AND ALEGRIA VILLANUEVA-DIOLOSA, PETITIONERS are the owners of Villa Alegre Subdivision and defendants below.
QUIRINO BATERNA, RESPONDENT is a licensed real estate broker and plaintiff below who sued for unpaid commissions and damages.
The action originated as Civil Case No. 7864 in the Court of First Instance of Iloilo where the complaint was dismissed after hearing.
The Court of Appeals reversed and ordered the petitioners to pay the respondent P10,000 as damages and P2,000 as attorney's fees, plus costs.
The petitioners filed the present appeal by certiorari seeking to annul the Court of Appeals' decision.

Key Factual Allegations

The parties admitted an agency agreement dated June 20, 1968 constituting the respondent as exclusive sales agent for the Villa Alegre Subdivision under Exhibit "A".
The agency agreement expressly authorized the respondent to dispose of the lots "until all the subject property as subdivided is fully disposed of."
On September 27, 1968 the petitioners sent Exhibit "B", a letter purporting to rescind the agency and reserve the remaining unsold lots for their grandchildren.
It was admitted that twenty-seven lots remained unsold on September 27, 1968 and that the petitioners then had six grandchildren.
The respondent denied any prior agreement to reserve lots for the petitioners' family, while testimony of Roberto Malundo suggested the respondent agreed to the reservation.

Contract Provision

Exhibit "A" expressly appointed the respondent as exclusive sales agent to "dispose of, sell, cede, transfer and convey the above-described property ... until all the subject property as subdivided is fully disposed of."
Exhibit "B" expressly rescinded the agency on the ground that the remaining unsold lots were to be reserved for the petitioners' grandchildren.

Issues Presented

Whether the petitioners could validly terminate the agency agreement in Exhibit "A" by sending Exhibit "B" without incurring liability for damages.

Contentions of the Parties

QUIRINO BATERNA contended that Exhibit "A" conferred an unrevocable exclusive authority to sell until all lots were disposed and that rescission caused him damages, moral and to his good will, and entitled him to attorney's fees.
MARIANO DIOLOSA AND ALEGRIA VILLANUEVA-DIOLOSA contended that they had the right to terminate the agency because they needed the lot