THIRD DIVISION

[G.R. No. 83122. October 19, 1990.]

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.

Albino B. Achas for petitioners.

Angara, Abello, Concepcion, Regala & Cruz for private respondents.

DECISION

GUTIERREZ, JR. , J : p

This is a petition for review of the January 29, 1988 decision of the Court of Appeals and
the April 27, 1988 resolution denying the petitioners' motion for reconsideration, which
decision and resolution reversed the decision dated June 23, 1986 of the Court of First
Instance of Manila, Branch 34 in Civil Case No. 121126 upholding the petitioners' causes
of action and granting all the reliefs prayed for in their complaint against private
respondents. cdphil

The antecedent facts of the case are as follows:

Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private
respondent Philippine American General Insurance Company, Inc. (Philamgen for short)
since 1965. As such, he was authorized to solicit and sell in behalf of Philamgen all kinds
of non-life insurance, and in consideration of services rendered was entitled to receive the
full agent's commission of 32.5% from Philamgen under the scheduled commission rates
(Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine insurance from one
of his clients, the Delta Motors, Inc. (Division of Electronics Airconditioning and
Refrigeration) in the amount of P4.4 Million from which he was entitled to a commission of
32% (Exhibit "B"). However, Valenzuela did not receive his full commission which amounted
to P1.6 Million from the P4.4 Million insurance coverage of the Delta Motors. During the
period 1976 to 1978, premium payments amounting to P1,946,886.00 were paid directly
to Philamgen and Valenzuela's commission to which he is entitled amounted to
P632,737.00.
In 1977, Philamgen started to become interested in and expressed its intent to share in the
commission due Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C").
Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the
sharing of the commission with Valenzuela (Exhibit E). This was followed by another
sharing proposal dated June 1, 1978. On June 16, 1978, Valenzuela firmly reiterated his
objection to the proposals of respondents stating that: "It is with great reluctance that I
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 have to decline upon request to signify my conformity to your alternative proposal
regarding the payment of the commission due me. However, I have no choice for to do
otherwise would be violative of the Agency Agreement executed between our goodselves."
(Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido
Aragon, Carlos Catolico and Robert E. Parnell took drastic action against Valenzuela. They:
(a) reversed the commission due him by not crediting in his account the commission
earned from the Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b) placed agency
transactions on a cash-and-carry basis; (c) threatened the cancellation of policies issued
by his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has a
substantial account with Philamgen. All of these acts resulted in the decline of his
business as insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December 27, 1978,
Philamgen terminated the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3,
Decision Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition).
The petitioners sought relief by filing the complaint against the private respondents in the
court a quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the
trial court found:
xxx xxx xxx

"Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one

of defendant PHILAMGEN's General Agent by making it appear that plaintiff
Arturo P. Valenzuela has a substantial account with defendant PHILAMGEN,
particularly Delta Motors, Inc.'s Account, thereby prejudicing defendant
PHILAMGEN's interest (Exhibits 6, '11,' '11- ,' '12-A' and '13-A').

"Defendants also invoked the provisions of the Civil Code of the Philippines
(Article 1868) and the provisions of the General Agency Agreement as their basis
for terminating plaintiff Arturo P. Valenzuela as one of their General Agents.

"That defendants' position could have been justified had the termination of
plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the Civil
Code and the conditions of the General Agency Agreement. But the records will
show that the principal cause of the termination of the plaintiff as General Agent
of defendant PHILAMGEN was his refusal to share his Delta commission.

"That it should be noted that there were several attempts made by defendant
Bienvenido M. Aragon to share with the Delta commission of plaintiff Arturo P.
Valenzuela. He had persistently pursued the sharing scheme to the point of
terminating plaintiff Arturo P. Valenzuela, and to make matters worse, defendants
made it appear that plaintiff Arturo P. Valenzuela had substantial accounts with
defendant PHILAMGEN.

"Not only that, defendants have also started (a) to treat separately the Delta
Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission
due plaintiff Arturo P. Valenzuela by not crediting or applying said commission
earned to the account of plaintiff Arturo P. Valenzuela, (c) placed plaintiff Arturo
P. Valenzuela's agency transactions on a 'cash-and-carry' basis, (d) sending
threats to cancel existing policies issued by plaintiff Arturo P. Valenzuela's
agency, (e) to divert plaintiff Arturo P. Valenzuela's insurance business to other
agencies, and (f) to spread wild and malicious rumors that plaintiff Arturo P.
Valenzuela has substantial account with defendant PHILAMGEN to force plaintiff
Arturo P. Valenzuela into agreeing with the sharing of his Delta commission." (pp.
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 9-10, Decision, Annex 1, Petition).

xxx xxx xxx

"These acts of harassment done by defendants on plaintiff Arturo P. Valenzuela
to force him to agree to the sharing of his Delta commission, which culminated in
the termination of plaintiff Arturo P. Valenzuela as one of defendant
PHILAMGEN's General Agent, do not justify said termination of the General
Agency Agreement entered into by defendant PHILAMGEN and plaintiff Arturo P.
Valenzuela.

"That since defendants are not justified in the termination of plaintiff Arturo P.
Valenzuela as one of their General Agents, defendants shall be liable for the
resulting damage and loss of business of plaintiff Arturo P. Valenzuela. (Arts.
2199/2200, Civil Code of the Philippines). (Ibid, p. 11)

The court accordingly rendered judgment, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
defendants ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its
General Agent, and to pay plaintiffs, jointly and severally, the following:

"1. The amount of five hundred twenty-one thousand nine hundred sixty four
and 16/100 pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's
Delta Commission with interest at the legal rate from the time of the filing of the
complaint, which amount shall be adjusted in accordance with Article 1250 of the
Civil Code of the Philippines;

"2. The amount of seventy-five thousand pesos (P75,000.00) per month as

compensatory damages from 1980 until such time that defendant Philamgen
shall reinstate plaintiff Arturo P. Valenzuela as one of its general agents;

3. The amount of three hundred fifty thousand pesos (P350,000.00) for each
plaintiff as moral damages;

4. The amount of seventy-five thousand pesos (P75,000.00) as and for

attorney's fees;

5. Costs of the suit.' (Ibid., p. 12)

From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos
K. Catolico and PHILAMGEN respondents herein, and defendants-appellants below,
interposed an appeal on the following: LLpr

ASSIGNMENT OF ERRORS
I
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P.
VALENZUELA HAD NO OUTSTANDING ACCOUNT WITH DEFENDANT
PHILAMGEN AT THE TIME OF THE TERMINATION OF THE AGENCY.
II

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P.

VALENZUELA IS ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE
DELTA ACCOUNT.
III
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 THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF
PLAINTIFF ARTURO P. VALENZUELA WAS NOT JUSTIFIED AND THAT
CONSEQUENTLY DEFENDANTS ARE LIABLE FOR ACTUAL AND MORAL
DAMAGES, ATTORNEY'S FEES AND COSTS.

IV
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST DEFENDANT
PHILAMGEN WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES
EVEN AGAINST THE INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE
AGENTS ACTING WITHIN THE SCOPE OF THEIR AUTHORITY.

V
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF
PLAINTIFF ARTURO P. VALENZUELA WAS PROPER, THE LOWER COURT ERRED
IN AWARDING DAMAGES IN FAVOR OF HOSPITALITA VALENZUELA, WHO, NOT
BEING THE REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.

On January 29, 1988, respondent Court of Appeals promulgated its decision in the
appealed case. The dispositive portion of the decision reads:
"WHEREFORE, the decision appealed from is hereby modified accordingly and
judgment is hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the
sum of one million nine hundred thirty two thousand five hundred thirty-two
pesos and seventeen centavos (P1,932,532.17), with legal interest thereon from
the date of finality of this judgment until fully paid.

2. Both plaintiff-appellees to pay jointly and severally defendants-appellants

the sum of fifty thousand pesos (P50,000.00) as and by way of attorney's fees.

No pronouncement is made as to costs." (p. 44, Rollo)

There is in this instance irreconcilable divergence in the findings and conclusions of the
Court of Appeals, vis-a-vis those of the trial court particularly on the pivotal issue 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. In its questioned
decision the Court of Appeals observed that:
"In any event the principal's power to revoke an agency at will is so pervasive, that
the Supreme Court has consistently held that termination may be effected even if
the principal acts in bad faith, subject only to the principal's liability for damages
(Danon v. Antonio A. Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158
and Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of the
Philippines Annotated [1986] 696).

"The lower court, however, thought the termination of Valenzuela as General

Agent improper because the record will show the principal cause of the
termination of the plaintiff as General Agent of defendant Philamgen was his
refusal to share his Delta commission" (Decision, p. 9; p. 13, Rollo, 41).

Because of the conflicting conclusions, this Court deemed it necessary in the interest of
substantial justice to scrutinize the evidence and records of the cases. While it is an
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 established principle that the factual findings of the Court of Appeals are final and may not
be reviewed on appeal to this Court, there are however certain exceptions to the rule which
this Court has recognized and accepted, among which, are when the judgment is based on
a misapprehension of facts and when the findings of the appellate court, are contrary to
those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v.
Court of Appeals, 139 SCRA 576 [1986]). Where the findings of the Court of Appeals and
the trial court are contrary to each other, this Court may scrutinize the evidence on record
(Cruz v. Court of Appeals, 129 SCRA 222 [1984]; Mendoza v. Court of Appeals, 156 SCRA
597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion of the Court of
Appeals is grounded entirely on speculation, surmises or conjectures, or when the
inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse
of discretion, or when the judgment is based on a misapprehension of facts, and when the
findings of facts are conflicting the exception also applies (Malaysian Airline System
Bernad v. Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of the case and the findings of facts of
both the court a quo and respondent appellate court, we are constrained to affirm the trial
court's findings and rule for the petitioners.
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 axiomatic
that the findings of fact of a trial judge are entitled to great weight (People v. Atanacio, 128
SCRA 22 [1984]) and should not be disturbed on appeal unless for strong and cogent
reasons because the trial court is in a better position to examine the evidence as well as to
observe the demeanor of the 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 Appeals, 147 SCRA 82 [1987]). In the case at bar, the records show that the
findings and conclusions of the trial court are supported by substantial evidence and there
appears to be no cogent reason to disturb them (Mendoza v. Court of Appeals, 156 SCRA
597 [1987]). LibLex

As early as September 30, 1977, Philamgen told the petitioners of its desire to share the
Delta Commission with them. It stated that should Delta back out from the agreement, the
petitioners would be charged interests through a reduced commission after full payment
by Delta.
On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50%
thus giving them an agent's commission of 16.25%. On February 8, 1978, Philamgen
insisted on the reduction scheme followed on June 1, 1978 by still another insistence on
reducing commissions and proposing two alternative schemes for reduction. There were
other pressures. Demands to settle accounts, to confer and thresh out differences
regarding the petitioners' income and the threat to terminate the agency followed. The
petitioners were told that the Delta commissions would not be credited to their account
(Exhibit "J"). They were informed that the Valenzuela agency would be placed on a cash
and carry basis thus removing the 60-day credit for premiums due. (TSN., March 26, 1979,
pp. 54-57). Existing policies were threatened to be cancelled (Exhibits "H" and "14"; TSN.,
March 26, 1979, pp. 29-30). The Valenzuela business was threatened with diversion to
other agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the
Valenzuela agency (TSN., January 25, 1980, p. 41). The petitioners consistently opposed
the pressures to hand over the agency or half of their commissions and for a treatment of
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 the Delta account distinct from other accounts. The pressures and demands, however,
continued until the agency agreement itself was finally terminated.
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.
In the insurance business in the Philippines, the most difficult and frustrating period is the
solicitation and persuasion of the prospective clients to buy insurance policies. Normally,
agents would encounter much embarrassment, difficulties, and oftentimes frustrations in
the solicitation and procurement of the insurance policies. To sell policies, an agent exerts
great effort, patience, perseverance, ingenuity, tact, imagination, time and money. In the
case of Valenzuela, he was able to build up an agency from scratch in 1965 to a highly
productive enterprise with gross billings of about Two Million Five Hundred Thousand
Pesos (P2,500,000.00) premiums per annum. The records sustain the finding that the
private respondent started to covet a share of the insurance business that Valenzuela had
built up, developed and nurtured to profitability through over thirteen (13) years of patient
work and perseverance. When Valenzuela refused to share his commission in the Delta
account, the boom suddenly fell on him.
The private respondents by the simple expedient of terminating the General Agency
Agreement appropriated the entire insurance business of Valenzuela. With the termination
of the General Agency Agreement, Valenzuela would no longer be entitled to commission
on the renewal of insurance policies of clients sourced from his agency. Worse, despite the
termination of the agency, Philamgen continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums. Under these circumstances, 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 may be cases in which an
agent has been induced to assume a responsibility or incur a liability, in reliance upon the
continuance of the authority under such circumstances that, if the authority be withdrawn,
the agent will be exposed to personal loss or liability" (See MEC 569 p. 406).
Furthermore, 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. In these
cases, it is evident that the agency ceases to be freely revocable by the sole will of the
principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350). The following citations
are apropos:
"The principal may not defeat the agent's right to indemnification by a
termination of the contract of agency (Erskine v. Chevrolet Motors Co. 185 NC
479, 117 SE 706, 32 ALR 196).
"Where the principal terminates or repudiates the agent's employment in violation
of the contract of employment and without cause . . . the agent is entitled to
receive either the amount of net losses caused and gains prevented by the breach,
or the reasonable value of the services rendered. Thus, the agent is entitled to
prospective profits which he would have made except for such wrongful
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 termination provided that such profits are not conjectural, or speculative but are
capable of determination upon some fairly reliable basis. And a principal's
revocation of the agency agreement made to avoid payment of compensation for
a result which he has actually accomplished (Hildendorf v. Hague, 293 NW 2d
272; Newhall v. Journal Printing Co., 105 Minn 44, 117 NW 228; Gaylen Machinery
Corp. v. Pitman-Moore Co. [CA 2 NY] 273 F 2d 340)
"If a principal violates a contractual or quasi-contractual duty which he was his
agent, the agent may as a rule bring an appropriate action for the breach of that
duty. The agent may in a proper case maintain an action at law for compensation
or damages . . . A wrongfully discharged agent has a right of action for damages
and in such action the measure and element of damages are controlled generally
by the rules governing any other action for the employer's breach of an
employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v.
Stoehr, 54 Ohio 157, 43 NE 2798)

At any rate, the question of whether or not the agency agreement is coupled with interest
is helpful to the petitioners' cause but is not the primary and compelling reason. 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. This is in accordance with the precepts in Human Relations
enshrined in our Civil Code that "every person must in the exercise of his rights and in the
performance of his duties act with justice, give every one his due, and observe honesty and
good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or
negligently causes damages to another, shall indemnify the latter for the same (Art. 20, id).
"Any person who wilfully causes loss or injury to another in a manner contrary to morals,
good customs and public policy shall compensate the latter for the damages" (Art. 21, id.)
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
the amount of One Million Nine Hundred Thirty-Two Thousand Five Hundred Thirty-Two
and 17/100 Pesos (P1,932,532.17) with legal interest thereon until fully paid (Decision -
January 20, 1988, p. 16; Petition, Annex "A"), 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 —
"Sec. 77 . . . [N]otwithstanding any agreement to the contrary, no policy or contract
of insurance is valid and binding unless and until the premiums thereof have
been paid except in the case of a life or industrial life policy whenever the grace
period provision applies (P.D. 612, as amended otherwise known as the Insurance
Code of 1974)

In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979])
we held that the non-payment of premium does not merely suspend but puts an end to an
insurance contract since the time of the payment is peculiarly of the essence of the
contract. And in Arce v. The Capital Insurance and Surety Co., Inc. (117 SCRA 63-[1982]),
we reiterated the rule that unless premium is paid, an insurance contract does not take
effect. Thus: llcd

"It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9
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 SCRA 177 [1963] was decided in the light of the Insurance Act before Sec. 72 was
amended by the underscored portion. Supra. Prior to the Amendment, an
insurance contract was effective even if the premium had not been paid so that
an insurer was obligated to pay indemnity in case of loss and correlatively he had
also the right to sue for payment of the premium. But the amendment to Sec. 72
has radically changed the legal regime in that unless the premium is paid there is
no insurance." (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Italics
supplied)

In Philippine Phoenix Surety case, we held:

"Moreover, an insurer cannot treat a contract as valid for the purpose of collecting
premiums and invalid for the purpose of indemnity. (Citing Insurance Law and
Practice by John Alan Appleman, Vol. 15, p. 331; Emphasis supplied)
"The foregoing findings are buttressed by Section 776 of the Insurance Code
(Presidential Decree No. 612, promulgated on December 18, 1974), which now
provides that no contract of Insurance by an insurance company is valid and
binding unless and until the premium thereof has been paid, notwithstanding any
agreement to the contrary" (Ibid., 92 SCRA 425).

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. In this
instance, with the lapsing of the policies through the non-payment of premiums by the
insured there were no more insurance contracts to speak of. As this Court held in the
Philippine Phoenix Surety case, (supra) — "the non-payment of premiums does not
merely suspend but puts an end to an insurance contract since the time of the payment
is peculiarly of the essence of the contract."
The respondent appellate court also seriously erred in according undue reliance to the
report of Banaria and Banaria and Company, auditors, that as of December 31, 1978,
Valenzuela owed Philamgen P1,528,698.40. This audit report of Banaria was
commissioned by Philamgen after Valenzuela was almost through with the presentation of
his evidence. In essence, the Banaria report started with an unconfirmed and unaudited
beginning balance of account of P1,758,185.43 as of August 20, 1976. But even with that
unaudited and unconfirmed beginning balance of P1,758,185.43, Banaria still came up with
the amount of P3,865.49 as Valenzuela's balance as of December 1978 with Philamgen
(Exh. "38-A-3"). In fact, as of December 31, 1976, and December 31, 1977, Valenzuela had
no unpaid account with Philamgen (Ref: Annexes "D", "D-1" "E", Petitioner's Memorandum).
But even disregarding these annexes which are records of Philamgen and addressed to
Valenzuela in due course of business, the facts show that as of July 1977, the beginning
balance of Valenzuela's account with Philamgen amounted to P744,159.80. This was
confirmed by Philamgen itself not only once but four (4) times on different occasions, as
shown by the records.
On April 3, 1978, Philamgen sent Valenzuela a statement of account with a beginning
balance of P744,159.80 as of July 1977.
On May 23, 1978, another statement of account with exactly the same beginning balance
was sent to Valenzuela.

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 On November 17, 1978, Philamgen sent still another statement of account with
P744,159.80 as the beginning balance.
And on December 20, 1978, a statement of account with exactly the same figure was sent
to Valenzuela.
It was only after the filing of the complaint that a radically different statement of accounts
surfaced in court. Certainly, Philamgen's own statements made by its own accountants
over a long period of time and covering examinations made on four different occasions
must prevail over unconfirmed and unaudited statements made to support a position
made in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have presented its own records to refute the
unconfirmed and unaudited finding of the Banaria auditor. The records of Philamgen itself
are the best refutation against figures made as an afterthought in the course of litigation.
Moreover, Valenzuela asked for a meeting where the figures would be reconciled.
Philamgen refused to meet with him and, instead, terminated the agency agreement.
After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of
credits representing the commission due from Delta and other accounts, Valenzuela had
overpaid Philamgen the amount of P530,040.37 as of November 30, 1978. Philamgen
cannot later be heard to complain that it committed a mistake in its computation. The
alleged error may be given credence if committed only once. But as earlier stated, the
reconciliation of accounts was arrived at four (4) times on different occasions where
Philamgen was duly represented by its account executives. On the basis of these
admissions and representations, Philamgen cannot later on assume a different posture
and claim that it was mistaken in its representation with respect to the correct beginning
balance as of July 1977 amounting to P744,159.80. The Banaria audit report
commissioned by Philamgen is unreliable since its results are admittedly based on an
unconfirmed and unaudited beginning balance of P1,758,185.43 as of August 20, 1976. Cdpr

As so aptly stated by the trial court in its decision:

"Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela
after the controversy has started. In fact, after hearing plaintiffs have already
rested their case.
"The results of said audit were presented in Court to show plaintiff Arturo P.
Valenzuela's accountability to defendant PHILAMGEN. However, the auditor,
when presented as witness in this case testified that the beginning balance of
their audit report was based on an unaudited amount of P1,758,185.43 (Exhibit
46-A) as of August 20, 1976, which was unverified and merely supplied by the
officers of defendant PHILAMGEN.
"Even defendants very own Exhibit 38-A-3, showed that plaintiff Arturo P.
Valenzuela's balance as of 1978 amounted to only P3,865.59, not P826,128.46 as
stated in defendant Bienvenido M. Aragon's letter dated December 20, 1978
(Exhibit 14) or P1,528,698.40 as reflected in defendant's Exhibit 46 (Audit Report
of Banaria dated December 24, 1980).
"These glaring discrepancy (sic) in the accountability of plaintiff Arturo P.
Valenzuela to defendant PHILAMGEN only lends credence to the claim of plaintiff
Arturo P. Valenzuela that he has no outstanding account with defendant
PHILAMGEN when the latter, thru defendant Bienvenido M. Aragon, terminated the
General Agency Agreement entered into by plaintiff (Exhibit A) effective January
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 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that
as of October 31, 1978, he has overpaid defendant PHILAMGEN in the amount of
P53,040.37 (Exhibit "EEE", which computation was based on defendant
PHILAMGEN's balance of P744,159.80 furnished on several occasions to plaintiff
Arturo P. Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-
1, YY, YY-2, ZZ and ZZ-2).

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. Respondent Philamgen has been appropriating for itself all these years the
gross billings and income that it unceremoniously took away from the petitioners. The
preponderance of the authorities sustain the preposition that a principal can be held liable
for damages in cases of unjust termination of agency. 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 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", "O", "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 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.
LexLib

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.
SO ORDERED.
Bidin and Cortes, JJ., concur.
Fernan, C.J., took no part.
Feliciano, J., is on leave.

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