FACTS:

The case involves a petition for review of the decision of the Court of Appeals, which reversed the decision of the trial court. The petitioners, including Arturo P. Valenzuela, were agents of Philippine American General Insurance Company, Inc. (Philamgen). Valenzuela was authorized to solicit and sell non-life insurance on behalf of Philamgen and was entitled to receive a commission.

In 1977, Philamgen expressed its intent to share in Valenzuela's commission, but Valenzuela refused. As a result, Philamgen took drastic actions against Valenzuela, such as not crediting his commission, placing transactions on a cash-and-carry basis, threatening to cancel policies, and spreading rumors about Valenzuela having substantial accounts with Philamgen.

Philamgen eventually terminated Valenzuela's General Agency Agreement. The petitioners filed a complaint against Philamgen, claiming that the termination was unjustified and that they suffered damages. The trial court ruled in favor of the petitioners, but the Court of Appeals reversed the decision.

The plaintiff, Arturo P. Valenzuela, entered into a General Agency Agreement with the defendant, Philamgen. However, Philamgen terminated the agreement citing the plaintiff's refusal to share his Delta commission as the principal cause for the termination. The plaintiff filed a complaint seeking reinstatement as a general agent and damages. The trial court ruled in favor of the plaintiff and ordered Philamgen to reinstate the plaintiff as a general agent and to pay various amounts for commissions, damages, and attorney's fees. The defendants, including Philamgen and its officers, appealed the decision of the trial court. The Court of Appeals modified the decision, ordering the plaintiff to pay a sum to Philamgen and the defendants to pay attorney's fees.

The principal cause of termination was Valenzuela's refusal to share his Delta commission. Philamgen notified Valenzuela of its desire to share the Delta commission with them on September 30, 1977, stating that if Delta backs out from the agreement, the petitioners would be charged interests through a reduced commission after full payment by Delta. Philamgen continued to insist on the reduction scheme and proposed alternative schemes on February 8, 1978, and June 1, 1978. There were also other pressures on the petitioners, such as demands to settle accounts, threats to cancel existing policies, removal of the 60-day credit for premiums due, and threats to divert the Valenzuela business to other agencies. Eventually, the private respondents terminated the General Agency Agreement of the petitioners.

ISSUES:

1. Whether the agency agreement between the petitioner and the private respondent is "coupled with an interest" and therefore not freely revocable.

2. Whether the termination of the agency agreement by the private respondent is valid.

3. Whether the termination of the General Agency Agreement was tainted with bad faith.

4. Whether the petitioners are liable to Philamgen for the unpaid and uncollected premiums.

5. Whether the unaudited and unconfirmed beginning balance of Valenzuela's account with Philamgen is reliable and valid.

6. Whether or not the petitioner is entitled to the award of damages based on lost profits.

7. Whether or not the contractual relationship between the parties shall be terminated upon the satisfaction of the judgment.

RULING:

1. The agency agreement between the petitioner and the private respondent is "coupled with an interest" and therefore not freely revocable. The records show that the petitioner has built up and developed the agency over thirteen years of work and perseverance. The private respondent's termination of the agreement would result in the petitioner losing the commissions he should continue to receive and being held liable with the insured for unpaid premiums. The court held that under these circumstances, the agency relationship is not freely revocable.

2. The termination of the agency agreement by the private respondent is not valid. The court found that the termination was done in violation of the contract of employment and without cause. The petitioner is entitled to receive the amount of net losses caused and gains prevented by the breach or the reasonable value of the services rendered.

3. The termination of the General Agency Agreement was found to be tainted with bad faith. The principal, Philamgen, acted in bad faith and with an abuse of right in terminating the agency. This rendered Philamgen and the other private respondents liable in damages.

4. The petitioners (Valenzuela) are not liable to Philamgen for the unpaid and uncollected premiums. The insurance policies issued by Philamgen lapsed due to the non-payment of premiums. Under the Insurance Code, unless the premium is paid, no contract of insurance is valid and binding. The non-payment of premiums puts an end to the insurance contract. Therefore, Philamgen had no more liability under the lapsed policies, and demanding payment for unpaid premiums would be unjust and unfair.

5. The unaudited and unconfirmed beginning balance of Valenzuela's account with Philamgen is unreliable and invalid. The statements of account sent by Philamgen on multiple occasions, which consistently showed a beginning balance of P744,159.80, are more credible than the unaudited and unconfirmed figures produced in court. The reconciliation of accounts was arrived at four times on different occasions, with Philamgen being represented by its account executives. Therefore, Philamgen cannot now claim that it made a mistake in its representation of the correct beginning balance. The Banaria audit report, which was based on the unreliable unaudited beginning balance, is also deemed unreliable.

6. Yes, the petitioner is entitled to the award of damages based on lost profits. The evidence on record shows that the petitioner had a significant average gross premium collection and annual sales production, from which he was entitled to a commission. Indemnification for damages under Article 2200 of the Civil Code includes the value of the loss suffered and the profits that the obligee failed to obtain.

7. Yes, 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.

PRINCIPLES:

• An agency relationship may be considered "coupled with an interest" when the agent has been induced to assume a responsibility or incur a liability in reliance upon the continuance of the authority, and if the authority is withdrawn, the agent will be exposed to personal loss or liability.

• The principle that an agency is revocable at will has an exception 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 such cases, the agency ceases to be freely revocable by the sole will of the principal.

• Termination of an agency agreement tainted with bad faith renders the principal liable in damages.

• Non-payment of premiums puts an end to an insurance contract.

• The time of payment is of the essence in an insurance contract.

• The insurer cannot treat a contract as valid for collecting premiums while invalid for indemnity.

• No contract of insurance is valid and binding unless the premium has been paid, according to the Insurance Code.

• The records of a company itself are the best refutation against figures made in the course of litigation.

• A principal can be held liable for damages in cases of unjust termination of agency, provided that the termination is done in bad faith.

• Indemnification for damages under Article 2200 of the Civil Code includes the value of the loss suffered and the profits that the obligee failed to obtain.

• The contractual relationship between parties may be terminated upon the satisfaction of a judgment. No more claims arising from or as a result of the terminated relationship shall be entertained by the courts after that date.