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.

FACTS

Petitioner Arturo Valenzuela was a General Agent of respondent Philippine American General Insurance Company (Philamgen). From 1973 to 1975, he secured a marine insurance account from Delta Motors, Inc., entitling him to substantial commissions. From 1977 to 1978, Philamgen, through its officers, demanded that Valenzuela share fifty percent of his commissions from the Delta account. Valenzuela repeatedly refused, citing his rights under the General Agency Agreement.
Due to his refusal, Philamgen and its officers undertook a series of coercive actions against Valenzuela. These included withholding his earned commissions, placing his agency on a restrictive cash-and-carry basis, threatening to cancel policies he issued, and spreading rumors about his supposed substantial debts to the company. These acts severely damaged his business reputation and operations. Ultimately, Philamgen terminated his General Agency Agreement on December 27, 1978.

ISSUE

Whether the termination of the agency agreement by Philamgen was valid and done in good faith, or whether it constituted a wrongful termination rendering the respondents liable for damages.

RULING

The Supreme Court ruled that the termination was done in bad faith and was therefore wrongful, making the respondents liable for damages. While the Civil Code grants a principal the right to revoke an agency at will, this right is not absolute and must be exercised in good faith. The Court found that the principal cause of termination was Valenzuela’s refusal to accede to the unlawful demand to share his commissions, not any legitimate ground under the agency agreement or the law.
The subsequent harassing actions—withholding commissions, imposing cash-and-carry terms, and spreading malicious rumors—were clear badges of bad faith intended to force compliance or to manufacture a pretext for termination. Consequently, Philamgen was not justified in terminating the agreement. For a termination executed in bad faith, the principal becomes liable for damages under Articles 19, 20, and 21 of the Civil Code. The Court reinstated the trial court’s award of compensatory damages, representing lost commissions, as justified under Article 2200, which allows recovery for lost profits. The contractual relationship was ordered terminated only upon satisfaction of the judgment.