G.R. No. 83122, 19 October 1990


Petitioner Arturo P. Valenzuela is a General Agent of private respondent Philippine American General Insurance Company, Inc. 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. From 1973 to 1975, Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. in the amount of P4.4 Million from which he was entitled to a commission of 32% . 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 on a fifty-fifty basis. Valenzuela refused.

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 the Agency Agreement executed between our goodselves.”

Because of the refusal of Valenzuela, Philamgen and its officers 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;
(b) placed agency transactions on a cash and carry basis;
(c) threatened the cancellation of policies issued by his agency; 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. Then on December 27, 1978, Philamgen terminated the General Agency Agreement of Valenzuela.

The petitioners sought relief by filing the complaint against the private respondents in the court a quo.


Whether or not Philamgen could continue to hold Valenzuela jointly and severally liable with the insured for unpaid premiums.


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.

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, 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).

*Case digest by Catherine C. Velasco, LLB-IV, Andres Bonifacio College, SY 2019 – 2020