ARTURO P. VALENZUELA and HOSPITALITA N.
VALENZUELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E.
PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.
FACTS
(Valenzuela for short) is a General Agent of . (Philamgen for short) since 1965. he was
authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, was entitled
to receive the full agent's commission of 32.5% from Philamgen
Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc in the
amount of P4.4 Million. "). However, Valenzuela did not receive his full commission which
amounted to P1.6 Million. During the period 1976 to 1978, premium payments amounting
to P1,946,886.00 were paid directly to Philamgen
Philamgen started to become interested in and expressed its intent to share in the
commission due Valenzuela on a fifty-fifty basis
Valenzuela firmly reiterated his objection to the proposals of respondents
Philamgen and its officers took drastic action against Valenzuela which resulted in the decline of
his business as insurance agent
petitioners sought relief by filing the complaint against the private respondents
trial court
judgment is hereby rendered in favor of the plaintiffs VALENZUELA and against defendants
ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its General Agent
Court of Appeals hereby modified accordingly
Valenzuela to pay defendant-appellant Philamgen the sum of one million nine hundred thirty two
thousand five hundred thirty-two pesos and seventeen centavos (P1,902,532.17),
ISSUE
WON the agency between Valenzuela and Philamgem is freely revocable- NO
whether or not Philamgen and/or its officers can be held liable for damages due to the
termination of the General Agency Agreement it entered into with the petitioners.- YES
We agree with the court a quo that the principal cause of the termination of Valenzuela as
General Agent of Philamgen arose from his refusal to share his Delta commission. The records
sustain the conclusions of the trial court on the apparent bad faith of the private
respondents in terminating the General Agency Agreement of petitioners
It is also evident from the records that the agency involving petitioner and private respondent is
one "coupled with an interest," and, therefore, should not be freely revocable at the unilateral
will of the latter.
it is clear that Valenzuela had an interest in the continuation of the agency when it was
unceremoniously terminated not only because of the commissions he should continue to
receive from the insurance business he has solicited and procured but also for the fact that by
the very acts of the respondents, he was made liable to Philamgen in the event the insured
fail to pay the premiums due. They are estopped by their own positive averments and claims
for damages. Therefore, the respondents cannot state that the agency relationship between
Valenzuela and Philamgen is not coupled with interest.
there is an exception to the principle that an agency is revocable at will and that is when the
agency has been given not only for the interest of the principal but for the interest of third
persons or for the mutual interest of the principal and the agent
For the pivotal factor rendering Philamgen and the other private respondents liable in damages
is that the termination by them of the General Agency Agreement was tainted with bad faith.
Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he
is liable in damages
As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and
uncollected premiums which the respondent court ordered Valenzuela to pay Philamgen
we rule that the respondent court erred in holding Valenzuela liable. We find no factual and legal
basis for the award. Under Section 77 of the Insurance Code, the remedy for the non-payment
of premiums is to put an end to and render the insurance policy not binding —
Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed.
The insurance coverage did not go into effect or did not continue and the obligation of
Philamgen as insurer ceased. Hence, for Philamgen which had no more liability under the
lapsed and inexistent policies to demand, much less sue Valenzuela for the unpaid premiums
would be the height of injustice and unfair dealing
Prescinding from the foregoing, and considering that the private respondents terminated
Valenzuela with evident mala fide it necessarily follows that the former are liable in damages
In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no time for the continuance
of the contract is fixed by its terms, either party is at liberty to terminate it at will, subject only to
the 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 circumstances of the case, however, require that the contractual relationship between the
parties shall be terminated upon the satisfaction of the judgment
