B2022 REPORTS ANNOTATED October 19, 1990

Valenzuela v. CA Valenzuela v. CA

I. Recit-ready summary When the agency falls under the exception, the agency ceases to be revocable
by the sole will of the principal.
Valenzuela, a General Agent of PAGIC (the principal), is authorized
to solicit and sell all kinds of non-life insurance, and is entitled to receive a II. Facts of the case
32.5% commission from such sale. Valenzuela was able to solicit a P4.4
Mil Marine Insurance deal with Delta Motors. Petitioner Valenzuela is a General Agent of Respondent PHL American
General Insurance Company (PAGIC). As an agent, he is authorized to solicit
With such a big sale, PAGIC expressed their intent to share the and sell in behalf of PAGIC all kinds of non-life insurance, and is entitled to
commission, but Valenzuela refused. PAGIC continued to coerce receive the full agent’s commission of 32.5%.
Valenzuela to agree to the commission sharing, even going so far as to
threaten to cancel his insurance policies, not crediting his commission from From 1973 to 1975, Valenzuela was able to solicit marine insurance
his clients, and even spreading ill rumors in the industry so as to jeopardize amounting to PHP 4.4 Mil to Delta Motors, Inc., which he is entitled to a
Valenzuela’s repute as an insurance agent. Still, Valenzuela refused to share commission. HOWEVER, Valenzuela did not receive his full commission
the Delta commission, which led PAGIC to terminate the General Agency from the insurance coverage from Delta Motors.
Agreement with Valenzuela. Because of his termination, Valenzuela sought
for damages against PAGIC. During 1976 to 1978, premium payments amounting to PHP 1.9 Mil
were paid directly to PAGIC, and from this amount, Valenzuela is entitled to
The Issue in this case is whether or not PAGIC can be held liable for PHP 633K.
damages for terminating the Agency Agreement with Valenzuela.
In 1977, PAGIC expressed their intent to share the commission due
The court ruled in the affirmative, stating that PAGIC terminated the Valenzuela, but Valenzuela refused.
Agency Agreement in bad faith. It is evident that the agency between
Valenzuela and PAGIC is “one coupled with interest,” and therefore it could PAGIC continued to pressure Valenzuela to share his commissions, but
not be freely revocable at the unilateral will of the latter. The insurance Valenzuela continually refused. This prompted PAGIC to take drastic action
business is already taxing as it is for the agent, combined with Valenzuela’s against Valenzuela: PAGIC didn’t credit Valenzuela’s commissions,
interest on the agency agreement as its unjust termination will jeopardize his threatened to cancel the policies issued by Valenzuela’s agency, and leaked
commissions but it will also make him solidarily liable for non-payment of out news that Valenzuela has a substantial account with PAGIC. All of these
insurance premiums by the insured (clients). actions resulted in the decline of Valenzuela’s business as an insurance agent.

If a principal act in bad faith and with abuse of right in terminating the Eventually, PAGIC terminated the General Agency Agreement of
agency, then such principal is liable for damages (in accordance with Arts. Valenzuela. Valenzuela filed a case against PAGIC in the RTC. Judgment
19-21of the Civil Code). Hence, PAGIC is liable for damages as the was rendered in favor of Valenzuela, and the RTC ordered PAGIC to
termination by PAGIC of the General Agency Agreement was tainted with reinstate Valenzuela as its General Agent, and to pay him his commission,
bad faith. compensatory and moral damages, and attorney’s fees.

Doctrine: When PAGIC appealed to the CA, the court ordered Valenzuela to pay
General Rule: A contract of agency is revocable at will by the principal unpaid insurance premium from Delta Motors with legal interest and
Exception: When the (contract of) agency has been given for the interest of attorney’s fees.
the principal, 3rd persons, or the mutual benefit of the principal and the agent

G.R. NO: 83122 PONENTE: Guetierrez Jr., J.

ARTICLE; TOPIC OF CASE: Agency coupled with interest DIGEST MAKER: Rocky
 B2022 REPORTS ANNOTATED October 19, 1990
Valenzuela v. CA Valenzuela v. CA

III. Issue Unfortunately, however, the pressures and demands continued until
the agency agreement itself was finally terminated. It is evident as well that
1. WON PAGIC can be held liable for damages for terminating the agency involving Valenzuela and PAGIC is “one coupled with an
the Agency Agreement with Valenzuela? YES interest,” and therefore should not be freely revocable at the unilateral will of
the latter.
2. WON Valenzuela is liable to PAGIC for the unpaid premiums of
Delta? NO In the insurance business, the most difficult and frustrating period is
the solicitation and persuasion of the prospective clients to buy insurance
3. WON Valenzuela has unremitted insurance payments due to policies. To sell policies, an agent exerts great effort, patience, perseverance,
PAGIC? NO ingenuity, tact, imagination, time and money.

It is clear that Valenzuela had an interest in the continuation of the

IV. Ratio/Legal Basis agency when it was unceremoniously terminated not only because of the
commissions he should continue to receive from the insurance business he
1. WON PAGIC ne held liable for damages for terminating the has solicited and procured but also for the fact that by the very acts of PAGIC,
Agency Agreement with Valenzuela? Yes he was made solidarily liable to PAGIC in the event the insured (clients) fail
to pay the premiums due.
In the CA’s assailed decision, it observed that: “In any event the
principal’s power to revoke an agency at will is so pervasive, that the PAGIC, therefore, cannot state that the agency relationship between
Supreme Court has consistently held that termination may be effected even them and Valenzuela is not coupled with interest.
if the principal acts in bad faith, subject only to the principal’s liability for Thus, this is an exception to the principle that an agency is revocable at will:
damages” When the agency has been given not only for the interest of the principal, but
for the interest of 3rd persons or for the mutual interest of the principal and
The lower court, however, thought the termination of Valenzuela as the agent.
General Agent improper because the record will show the principal cause of
the termination of the plaintiff as General Agent of PAGIC was his refusal In these cases, it is evident that the agency ceases to be freely
to share his Delta commission. revocable by the sole will of the principal. If a principal act in bad faith and
with abuse of right in terminating the agency, then such principal is liable for
.PAGIC is held liable for damages as the records of the case show the damages (in accordance with Arts. 19-21of the Civil Code). Hence, PAGIC
apparent bad faith of PAGIC in terminating the General Agency Agreement is liable for damages as the termination by PAGIC of the General Agency
of Valenzuela. As early as September 1977, PAGIC already told Valenzuela Agreement was tainted with bad faith.
their desire to share in the Delta Commission, even employing threatening
and coercive measures for Valenzuela to bend to their will. 2. WON Valenzuela is liable to PAGIC for the unpaid and uncollected
premiums which CA ordered Valenzuela to pay? NO
However, Valenzuela consistently opposed the pressure to hand
over the agency or half of their commissions and for a treatment of the Delta There is no factual and legal basis for the award. Jurisprudence and Sec. 77
account distinct from other accounts. of the Insurance code provide that non-payment of premium puts an end to
an insurance contract since the time of the payment is the essence of the

G.R. NO: 83122 PONENTE: Guetierrez Jr., J.

ARTICLE; TOPIC OF CASE: Agency coupled with interest DIGEST MAKER: Rocky
 B2022 REPORTS ANNOTATED October 19, 1990
Valenzuela v. CA Valenzuela v. CA

contract. Thus, PAGIC had no more liability under the lapsed and inexistent
policies to demand, much less sue Valenzuela for the unpaid premiums.

3. WON Valenzuela is liable to PAGIC for the unpaid and uncollected

premiums which CA ordered Valenzuela to pay? NO

The unaudited report used by PAGIC was not consistent with what
PAGIC presented to the court showing the real starting balance of
Valenzuela’s account. The unaudited report was only produced after the
filing of the complaint in court. In fact, Valenzuela even overpaid PAGIC by
PHP 530K.

V. Disposition
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 amount of FIVE HUNDRED TWENTY-ONE THOUSAND NINE
HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16)
representing the petitioners Delta commission shall earn only legal interests
without any adjustments under Article 1250 of the Civil Code and that the
contractual relationship between Arturo P. Valenzuela and Philippine
American General Insurance Company shall be deemed terminated upon
the satisfaction of the judgment as modified.

VI. Notes

G.R. NO: 83122 PONENTE: Guetierrez Jr., J.

ARTICLE; TOPIC OF CASE: Agency coupled with interest DIGEST MAKER: Rocky