Diolosa v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioners (Diolosa spouses) and private respondent (Quirino Baterna, a licensed real estate broker) entered into an exclusive sales agency agreement (Exhibit "A") on June 20, 1968, for the sale of lots in the Villa Alegre Subdivision. On September 27, 1968, petitioners terminated the services of private respondent via a letter (Exhibit "B"), citing the need to reserve the unsold lots for their grandchildren. Procedural History: Private respondent filed a case for recovery of unpaid commission for the unsold lots against petitioners before the Court of First Instance of Iloilo. The trial court dismissed the complaint. Private respondent appealed to the Court of Appeals, which reversed the trial court's decision, ordering petitioners to pay damages and attorney's fees. The Petition: Petitioners filed a petition for certiorari with the Supreme Court, seeking to annul the decision of the Court of Appeals. The main issue raised was whether petitioners could terminate the agency agreement without paying damages to the private respondent, arguing they were within their legal right to terminate the agency because they needed the undisposed lots for their family's use and that the agent had no right to claim commission on unsold lots.
Issue(s)
Whether the petitioners could terminate the agency agreement, Exhibit "A", without paying damages to the private respondent. Whether the termination of the agency agreement was justified under the terms of Exhibit "A" and relevant provisions of the Civil Code.
Ruling
The petition is manifestly without merit and is hereby dismissed. The Court of Appeals' decision ordering petitioners to pay private respondent the sum of P10,000.00 as damages and P2,000.00 as attorney's fees, and costs, is affirmed.
Ratio Decidendi
On Issue 1: The Supreme Court held that the petitioners could not terminate the agency agreement, Exhibit "A", without paying damages to the private respondent. The agency agreement expressly stipulated that the private respondent was constituted as the exclusive sales agent "until all the subject property as subdivided is fully disposed of." This clause indicated that the authority to sell was not extinguished until all lots were sold. Therefore, the unilateral revocation of the contract by the petitioners, as evidenced by Exhibit "B", constituted a breach of contract, making them liable for damages. The Court noted that the reason provided for termination – reserving lots for grandchildren – was not a legal ground for rescission under the Civil Code. The Court also pointed out that even if the grandchildren were to be given one lot each, there would still be numerous lots available for sale, and that the petitioners had other lands available for their grandchildren. On Issue 2: The Court affirmed that the termination of the agency agreement was not justified. Citing Article 1920 of the Civil Code, which allows termination of agency at will, the Court clarified that this is subject to the terms of the contract. In this case, the contract explicitly stated the duration of the agency until full disposition of the lots. The Court further stated that the agency agreement, being a valid contract, could only be rescinded on grounds specified in Articles 1381 and 1382 of the Civil Code. The Court found that none of the grounds for rescission were present, nor did the private respondent violate the terms of the agreement, such as failing to deliver the proceeds of sale. Therefore, the termination was wrongful.
Main Doctrine
The Supreme Court reiterated that an agency agreement, particularly one stipulating that the agent's authority continues until all the subject property is fully disposed of, cannot be arbitrarily terminated by the principal without incurring liability for damages. While Article 1920 of the Civil Code allows for termination of agency at will, this is subject to the terms of the contract and the potential for damages if the termination is wrongful or breaches express stipulations. The Court emphasized that personal reasons, such as reserving lots for grandchildren, do not constitute legal grounds for rescission under Articles 1381 and 1382 of the Civil Code, and thus, such termination constitutes a breach of contract.