ORIENT AIR SERVICES v CA and AMERICAN AIRLINES

May 29, 1991 | Padilla, J. | Topic

Digester: Angat, Christine Joy F.
SUMMARY: By virtue of an agreement, American Airlines
authorized Orient Air to be its exclusive general sales agent within
the Philippines for the sale of air passenger transportation. Later
on, American Air terminated the relationship and filed a suit
against Orient Air, alleging that the latter was remiss in its duties
to remit the amount collected from the sales. Orient Air, in its
defense, contended that the withheld amount represents the
overriding commission owed to them by American Airlines. The
Court held that the overriding commission should be on the total
revenue, not on ticketed sales only as argued by American Air. In
essence, American Air still owed Orient Air overriding
commissions, thus Orient Airs non-remittance was justified. On
the issue of the lower courts order compelling Orient Airs
reinstatement as American Airs agent, the Court held that the
creation of the relationship between the agent and the principal is
made with the consent of the principal; to compel the parties
would go against this very principle of agency.
DOCTRINE: Agency is defined by law as a contract whereby a
person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter.
FACTS:
January 15, 1977: American Airlines, an air carrier offering
passenger and air cargo transportation in the Philippines,
entered into a General Sales Agency Agreement with Orient Air
Services and Hotel Representative.
The General Sales Agency Agreement authorized Orient Air
to be American Airlines exclusive general sales agent
within the Philippines (including any US military installation
which are not serviced by an Air Carrier Representation Office)
for the sale of air passenger transportation. It also provides
that:
o As the exclusive general sales agent, Orient Air is obliged
to remit to American Airlines the ticket stock or exchange
orders, less commissions to which Orient Air Services is
entitled. Orient Air Services is therefore entitled to:
(1) Sales Agency Commission:

a. at the rate of 7% (or other rates as prescribed

by Air Traffic Conference of America), for flights
within the US or between US and Canada
b. at the rate of 8% (or other rates as prescribed),
for transportation between points other than
those prescribed
(2) Overriding Commission, at the rate of 3% of the
tariff fares and charges, for all sales of
transportation over Americans service by Orient Air
Service or its sub-agents.
o The agreement also provides that neither Orient Air
Services nor its sub-agents can perform services for any
other air carrier similar to those performed for American
Airlines.
o American Airlines may terminate the agreement on 2 days
notice if Orient Air does not remit to American the funds
payable. Either party may also terminate the agreement
without cause by giving the other 30 days notice by letter,
telegram, or cable.
May 11, 1981: American Airlines terminated the agreement,
alleging that Orient Air failed to promptly remit the net
proceeds of sales for the months of January to March 1981,
and that it itself undertook the collection of the proceeds of
tickets sold.
May 15, 1981: American Air then filed a case against Orient Air
for Accounting with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining Order.
Orient Air filed a counterclaim, contending that the unremitted
amounts were in fact the unpaid overriding commission that
American Air owed Orient Air Services. Orient Air further
contended that the termination of the agency agreement was
untenable and lacks basis.
CFI: ruled in favor of Orient Air and dismissed American Airs
complaint. American Air was ordered to pay Orient Air the
balance of the overriding commission, exemplary damages, and
attorneys fees, and to reinstate Orient Air as its general sales
agent
IAC (now CA): affirmed the CFIs ruling, but modified the
amount of the award of exemplary damages and attorneys
fees.
Both American Air and Orient Air moved for reconsideration
(Orient Air insofar as the reduction of monetary award is
concerned), but both were denied.
Hence, this consolidated petition.

RULING: CA decision affirmed. Petition denied.

Whether Orient Airs overriding commission is on ticketed
sales or on total revenue OVERRIDING COMMISSION ON
TOTAL REVENUE
The issue on the remittances stems from the extent of Orient
Airs overriding commission.
o American Air believes that the 3% overriding commission is
based only on sales of its services actually negotiated by
Orient Air, or the ticketed sales, as evidenced by the
Agreement (American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges
for all sales of transportation over Americans services by
Orient Air Services or its sub-agents.)
o Orient Air contends that the 3% overriding commission is
on the total revenue, based on the fact that it is the
exclusive General Sales Agent, hence all Orient Airs sales
of transportation over American Airs services (ticketed
stocks or not) are necessarily by Orient Air.
The Court upheld Orient Airs position and held that the 3%
overriding commission is on total revenue. Applying the
principle in interpretation of contract that the contracts
entirety must be taken into consideration to ascertain the
meaning of the provisionsthe Court concluded that the
Agreement meant to award the 3% overriding commission
based on total flown revenue.
o As the General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American
Airs services for air passenger transportation, and the
solicitation of sales. In return, it receives two kinds of
commission: sales agency commission, from sales made on
American Air ticket stock, and overriding commission, from
sales of passenger transportation over American Air
services.
o The fact that there is a distinction made between these two
commissions suggest that the overriding commission is not
limited to sales made on American Airs ticket stock, but on
the ticket stick of other carriers sold by such carriers or
other authorized ticketing facilities or travel agents.
o To limit the basis of such overriding commissions would
erase the said distinction and would mean that the parties
entered into a contract with meaningless provisions.

Moreover, it is clear from the records that American Air was

the party responsible for the preparation of the Agreement.
Thus, being a contract of adhesion, it should be taken contra
proferentem, i.e. construed against the party who caused the
ambiguity and who could have avoided it by the exercise of a
little more care.

Whether the termination of the sales agency agreement was

proper - NO
Since the withholding of the remittances by Orient Air was
justified, it being entitled to the unpaid overriding commission
and the retention of the full amount of its commission being
provided for by the Agreement itself, the termination by
American Air was without cause and basis. American Airs
perception that Orient Air was remiss or in default of its
obligation was, in fact, a situation where the latter acted in
accordance with the Agreement.

Whether CFI and CA was correct in reinstating Orient Air as

American Airs sales agent - NO
The CFI and CA, in ordering the reinstatement of Orient Air,
was in fact compelling American Air to extend its personality to
Orient Air. Such would be violative of the principles and
essence of agency.
o Agency is defined as a contract whereby a person
binds himself to render some service or to do
something in representation or on behalf of another,
with the consent or authority of the latter.
In a principal-agent relationship, the personality of the
principal is extended through the facility of the agent. Thus,
the agent, by legal fiction, becomes the principal authorized to
perform all acts which the latter would have him do. This
relationship can only be effected with the consent of the
principal; he cannot be compelled by law or by any court.
Moreover, the agreement itself provides that either party may
terminate the Agreement without any cause. While American
Airs termination on the basis of Orient Airs default was
improper, it still opted to terminate the relationship, and the
Court cannot compel it to reinstate Orient Air as its agent.