G.R. No. L-36585 July 16, 1984
MARIANO DIOLOSA and ALEGRIA VILLANUEVA-DIOLOSA, petitioners, vs. THE HON. COURT OF APPEALS, and QUIRINO BATERNA (As owner and proprietor of QUIN BATERNA REALTY), respondents.

FACTS

Petitioners Mariano Diolosa and Alegria Villanueva-Diolosa, owners of the Villa Alegre Subdivision, entered into an exclusive agency agreement (Exhibit “A”) on June 20, 1968, with licensed real estate broker Quirino Baterna, the private respondent. The contract appointed Baterna as the exclusive sales agent to dispose of all subdivision lots “until out the subject property as subdivided is fully disposed of.” On September 27, 1968, the petitioners terminated the agency via a letter (Exhibit “B”), stating their decision to reserve the remaining unsold lots for their grandchildren. Baterna filed a complaint in the Court of First Instance of Iloilo to recover damages for the alleged wrongful termination, including commission on unsold lots. The trial court dismissed the complaint, but the Court of Appeals reversed the decision, awarding Baterna damages and attorney’s fees.

ISSUE

Whether the petitioners could lawfully terminate the exclusive agency agreement without incurring liability for damages to the private respondent.

RULING

The Supreme Court ruled in the negative, affirming the Court of Appeals’ decision. The legal logic is anchored on the nature of the contract and the law on rescission. The agency agreement (Exhibit “A”) was a valid contract granting Baterna an exclusive authority to sell until all lots were disposed of. The Court held that this authority could not be extinguished arbitrarily before the fulfillment of that condition. The petitioners’ unilateral revocation, based on a desire to reserve lots for family use, constituted a breach of contract. The Court emphasized that a contract, once perfected, binds both parties. Its rescission is only permissible on specific grounds enumerated in Articles 1381 and 1382 of the Civil Code, such as lesion, fraud of creditors, or contracts involving things in litigation. None of these statutory grounds for rescission were present. The petitioners’ stated reason—reserving lots for grandchildren—was deemed insufficient and not a legal justification for termination, especially as evidence suggested other lands were available for such purpose. Consequently, the termination was unlawful, making the petitioners liable for damages for violating the contractual undertaking. The award of damages by the appellate court was thus sustained.