ORIENT AIR SERVICES v CA and AMERICAN AIRLINESMay 29, 1991 | Padilla, J. | TopicDigester: 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: 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 Canadab. 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. 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. 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. 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.) 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. 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. 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. 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. 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.