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 PHILIPPI…

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.

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 services rendered was entitled to receive the full agent’s commission of 32.5% from Philamgen
under the scheduled commission rates (Exhibits “A” and “J”).  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 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 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 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
(Article1868) 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 record 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
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. ValenzueIa has substantial
account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into
agreeing with the sharing of his Delta commission.” (pp.
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 Comission 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:  and

 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:

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

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 DAMGES
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 the 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 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 and 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 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]).

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 he 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 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. Chervolet  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 x x x 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 wrongful 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 owes 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 x x x.  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 x x x [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:

“It is to be noted that Delgado (Capital Insurance & Surety
Co., Inc., v. Delgado, 9 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; Underscoring 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; Underscoring 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
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.

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.

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 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”, “O-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.

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 hereby 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., (Chairman), no part.

Feliciano, J., on leave.