Case Summary (G.R. No. L-58927)
Facts of the Case
- From 1973 to 1975, Valenzuela placed P4.4 million in marine insurance for Delta Motors, earning a 32% commission (≈ P1.6 million), which remained unpaid.
- Between 1976 and 1978, premiums totaling P1,946,886 were remitted directly to Philamgen, generating a further P632,737 in commissions to which Valenzuela was entitled.
- Beginning September 1977, Philamgen, through its president and officers, proposed sharing Valenzuela’s commission equally. He declined repeatedly (February 8 and June 16, 1978).
- In retaliation, Philamgen and its officers:
- Withheld Valenzuela’s Delta commissions from his account;
- Imposed cash-and-carry terms on his transactions;
- Threatened policy cancellations;
- Circulated rumors of his alleged indebtedness to Philamgen.
- On December 27, 1978, Philamgen terminated the General Agency Agreement effective January 31, 1979.
Procedural History
• January 24, 1979 – Petitioners filed a complaint in the Court of First Instance of Manila (Civil Case No. 121126), alleging bad-faith termination, damages, and recovery of unpaid commissions.
• June 23, 1986 – Trial court rendered judgment for petitioners: reinstatement of agency; payment of Delta commission with interest; P75,000/month compensatory damages until reinstatement; P350,000 moral damages each; attorneys’ fees and costs.
• January 29, 1988 – Court of Appeals reversed: ordered Valenzuela to pay Philamgen P1,932,532.17 (unpaid premiums) with interest; awarded P50,000 attorneys’ fees to Philamgen; no costs.
• April 27, 1988 – Court of Appeals denied petitioners’ motion for reconsideration.
• October 19, 1990 – Supreme Court granted review.
Legal Issues
- Whether Valenzuela had an outstanding account with Philamgen at the time of termination.
- Whether Valenzuela was entitled to full commission on the Delta account.
- Whether termination was justified under the Civil Code and agency agreement.
- Whether individual officers could be held liable for damages.
- Whether Hospitalita Valenzuela could recover as a real party in interest.
- Whether Valenzuela was liable for unpaid premiums under the Insurance Code.
Applicable Law
- 1987 Philippine Constitution (post-1990 decision) – principles of due process, good faith and equal protection.
- Civil Code of the Philippines
• Articles 19–21: obligations of good faith, indemnity for wrongful acts, public policy.
• Articles 2199–2200: measure of damages and indemnities.
• Article 1250: adjustment of awards for inflation or value. - Insurance Code (P.D. 612 as amended)
• Section 72: validity of insurance subject to premium payment.
• Section 77: nonpayment effecting lapse and unenforceability of policy.
Trial Court Decision
The trial court found that Philamgen’s principal motive for terminating Valenzuela was his refusal to share commissions, constituting bad faith and abuse of contractual right. It held that:
- Valenzuela had no outstanding indebtedness at termination.
- The agency was coupled with interest and not freely revocable at will in bad faith.
- Philamgen and its officers were jointly and severally liable for damages.
Judgment awarded:
- Reinstatement of Valenzuela as General Agent.
- P521,964.16 (Delta commission) plus legal interest and Article 1250 adjustment.
- P75,000/month compensatory damages from 1980 until reinstatement.
- P350,000 moral damages each.
- P75,000 attorneys’ fees and costs.
Court of Appeals Decision
The Court of Appeals held that:
- A principal may revoke an agency at will, even in bad faith, subject only to liability for damages.
- Valenzuela owed Philamgen P1,932,532.17 in unpaid premiums.
- Petitioners were liable for premiums; awarded Philamgen P50,000 attorneys’ fees; no costs.
Supreme Court Ruling
Upon review, the Supreme Court:
- Found patently bad-faith termination motivated by refusal to share commissions.
- Confirmed that Valenzuela’s agency was coupled with interest and entitled him to indemnity for wrongful revocation.
- Held Philamgen’s audit evidence (Banaria report) unreliable compared to its own repeated account statements confirming Valenzuela’s credit balance (overpayment of P530,040.37).
- Determined that nonpayment of premiums terminated the insurance contracts under Section 77, thus extinguishing any obligation to remit unpaid premiums; Philamgen could not enforce lapsed policies.
Ratio Decidendi
- A principal’s right to revoke an agency at will is limited by the duty of good faith; wrongful revocation to avoid payment of earned co
Case Syllabus (G.R. No. L-58927)
Procedural History
- Petitioners Arturo P. Valenzuela and Hospitalita N. Valenzuela filed Civil Case No. 121126 in the Court of First Instance (CFI) of Manila, Branch 34, on January 24, 1979, against Philamgen and its officers for wrongful termination of agency and refusal to pay commissions.
- On June 23, 1986, the trial court rendered judgment in favor of the petitioners, granting reinstatement of Arturo as general agent, payment of his Delta commission with interests, monthly compensatory damages, moral damages, attorneys’ fees, and costs.
- Respondents appealed to the Court of Appeals (CA), which on January 29, 1988, reversed the CFI decision, ordering petitioner Valenzuela to pay Philamgen ₱1,932,532.17 and awarding attorneys’ fees to respondents. A motion for reconsideration was denied on April 27, 1988.
- Petitioners then sought review before the Supreme Court by filing this petition for review under Rule 45.
Antecedent Facts
- Arturo P. Valenzuela had been a general agent of Philamgen since 1965, authorized to solicit and sell non-life insurance at a commission rate of 32.5%.
- From 1973 to 1975, Valenzuela placed P4.4 million marine insurance with Philamgen for client Delta Motors, Inc., earning a commission of 32%. He never received his full P1.6 million commission on this account.
- Between 1976 and 1978, premiums totaling ₱1,946,886.00 were paid by Delta directly to Philamgen, generating commissions of ₱632,737.00 due to Valenzuela.
- Beginning in September 1977, Philamgen expressed intent to share commissions on a 50–50 basis (Exhibits C, III, III-1), but Valenzuela persistently refused (Exhibits D, B-1).
- Respondents then took retaliatory measures:
• Withholding Delta commission credits from Valenzuela’s account (Exhibits J, 2)
• Imposing cash-and-carry basis on his agency transactions
• Threatening policy cancellations (Exhibits H–H-2)
• Spreading rumors about substantial unpaid accounts in Valenzuela’s name (Exhibits N, O, K, K-8) - On December 27, 1978, Philamgen terminated the general agency agreement effective January 31, 1979 (Exhibit J, pp. 1–3).
Issues
- Whether Valenzuela had any outstanding unpaid account with Philamgen at the time of termination.
- Whether Valenzuela was entitled to the full 32.5% commission on the Delta