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ORIENT AIR SERVICES v. CA

FACTS:

American Airlines, Inc. and Orient Air Services and Hotel Representatives entered into a General Sales Agency Agreement, authorizing Orient Air to act as American Air's exclusive general sales agent in the Philippines for the sale of air passenger transportation. American Air alleged that Orient Air failed to promptly remit the net proceeds of sales, amounting to US$254,400.40, and terminated the agreement. American Air filed legal proceedings against Orient Air, seeking accounting, preliminary attachment or garnishment, mandatory injunction, and restraining order. Orient Air denied the allegations and counterclaimed that American Air still owed them a balance in unpaid overriding commissions. The trial court ruled in favor of Orient Air, dismissing American Air's complaint and declaring the termination of the agreement as illegal and improper. The court ordered American Air to reinstate Orient Air as its general sales agent, pay Orient Air the balance of the overriding commission plus additional amounts, and pay exemplary damages.

ISSUES:

  1. What is the extent of Orient Air's right to the 3% overriding commission?

  2. Does the 3% overriding commission only cover ticketed sales?

  3. Whether the overriding commission should be based on total flown revenue or limited to sales made on American Air ticket stock.

  4. Whether the termination of the Agreement by American Air was justified.

  5. Whether or not American Air is liable for the unpaid commissions of its sales agent.

  6. Whether or not the Court of Appeals erred in affirming the decision and resolution of the lower court.

RULING:

  1. The Court held that the 3% overriding commission covers the total revenue of American Air and is not limited to ticketed sales made by Orient Air. As the exclusive General Sales Agent of American Air, Orient Air is responsible for the promotion and solicitation of American Air's services, and all sales of transportation over American Air's services are considered to be made by Orient Air.

  2. The Court ruled that the 3% overriding commission is not limited to ticketed sales. This interpretation is based on a holistic examination of the contract, taking into consideration the entirety of its provisions. The clear meaning of the contractual provision is that Orient Air is entitled to the 3% overriding commission for all sales of transportation over American Air's services made by Orient Air or its sub-agents. There is no requirement that the sales must be done with the use of American Air's ticket stocks.

  3. The overriding commission should be based on total flown revenue. The stipulations in the contract must be read together and harmonized. To limit the basis of the overriding commissions to sales from American Air ticket stock would render the provisions of the contract meaningless. Any ambiguity in the contract is to be construed against the party who caused the ambiguity, which in this case is American Air. The interpretation most favorable to the party in whose favor the provision was made must be adopted. Therefore, Orient Air is entitled to the 3% overriding commission based on total flown revenue.

  4. The termination of the Agreement by American Air was not justified. Orient Air was entitled to retain the commissions owed to them before remitting the balance to American Air. American Air's perception that Orient Air was remiss in their obligations was incorrect. Orient Air acted in accordance with the Agreement by retaining the accrued commissions. Therefore, American Air's termination of the Agreement was without cause and basis, and they should be held liable to Orient Air.

  5. Yes, American Air is liable for the unpaid commissions of its sales agent.

  6. No, the Court of Appeals did not err in affirming the decision and resolution of the lower court.

PRINCIPLES:

  • In the interpretation of a contract, the entirety thereof must be considered to ascertain the meaning of its provisions.

  • The various stipulations in a contract must be read together to give effect to all.

  • Contracts must be interpreted to give effect to all stipulations. Ambiguities in a contract should be construed against the party who caused the ambiguity.

  • In an agency relationship, the personality of the principal is extended through the agent. The agent acts on behalf of the principal with the latter's consent or authority.

  • Either party may terminate a contract without cause by giving the other party notice. The termination should not be compelled by law or any court.

  • An employer is generally responsible for the actions of its employees acting within the scope of their employment.

  • The decision of the Court of Appeals should not be reversed on appeal unless there is clear showing of grave abuse of discretion.