ORIENT AIR SERVICES & HOTEL REPRESENTATIVES vs.
CA actions taken by American Air in the course of terminating the Agreement as well as
FACTS: American Airlines, Inc. (American Air), an air carrier offering passenger and
air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (Orient Air), entered into a General Sales Agency Agreement
(Agreement), whereby the former authorized the latter to act as its exclusive general
sales agent within the Philippines for the sale of air passenger transportation.
In the agreement, Orient Air shall remit in United States dollars to American the ticket
stock or exchange orders, less commissions to which Orient Air Services is entitled,
not less frequently than semi-monthly. On the other hand, American will pay Orient
Air Services commission on transportation sold by Orient Air Services or its sub-
agents. In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
Thereafter, American alleged that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with paragraph 13 which authorize
the termination of the thereof in case Orient Air is unable to transfer to the United
States the funds payable by Orient Air Services to American.
American Air instituted suit against Orient Air with the CFI Manila “for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order”
averring the aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding refunds of
which there were available funds in the possession of the defendant, . . . to the
damage and prejudice of plaintiff."
Orient Air denied the material allegations of the complaint with respect to plaintiff's
entitlement to alleged unremitted amounts, contending that after application thereof
to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the defendant contended that the
the termination itself were untenable.
CFI: ruled in favor of the defendant Orient Air with modification as to the monetary
awards granted.
CA: Affirmed CFI’s decision. It held the termination made by the latter as affecting the
GSA agreement illegal and improper and ordered the plaintiff to reinstate defendant
as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA agreement.
ISSUE:
1. Whether or not Orient Air is entitled to commissions.
2. Whether CA is correct in ordering reinstatement of Orient Air as an agent.
HELD:
1. Yes. It is a well settled principle that in the interpretation of a contract, the entirety
thereof must be taken into consideration to ascertain the meaning of its provisions.
The various stipulations in the contract must be read together to give effect to all the
Agreement, when interpreted in accordance with the foregoing principles, entitles
Orient Air to the 3% overriding commission based on total revenue or as referred to
by the parties, “total flown revenues”.
As the designated General Sales Agent of American Air, Orient Air was responsible
for the promotion and marketing of American Air’s services for air passenger
transportation and the solicitation of sales therefor. In return for such efforts and
services, Orient Air was to be paid commissions of 2 kinds: first, a sales agency
commission, ranging from 7 to 8% of tariff fares and charges from sales by Orient Air
when made on American Air ticket stock; and second, an overriding commission of
3% of tariff fares and charges for all sales of passenger transportation over American
Air services. It is immediately observed that the precondition attached to the first type
of commission does not obtain for the second type of commissions. The latter type of
commissions would accrue for sales of American Air services made not on its ticket
stock but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis
of such overriding commissions to sales from American Air ticket stock would erase
any distinction between the two (2) types of commissions and would lead to the
absurd conclusion that the parties had entered into a contract with meaningless
provisions. Such an interpretation must at all times be avoided with every effort
exerted to harmonize the entire Agreement.
It is also clear from the records that American Air was the party responsible for the
preparation of the Agreement. Consequently, any ambiguity in this "contract of
adhesion" is to be taken "contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of a little more care.
Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the obscurity. To put
it differently, when several interpretations of a provision are otherwise equally proper,
that interpretation or construction is to be adopted which is most favorable to the
party in whose favor the provision was made and who did not cause the ambiguity.
We therefore agree with the respondent appellate court's declaration that: Any
ambiguity in a contract, whose terms are susceptible of different interpretations, must
be read against the party who drafted it.
We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations
under the Agreement was, in fact, a situation where the latter acted in accordance
with the Agreement—that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air was clearly justified in
retaining and refusing to remit the sums claimed by American Air. The latter's
termination of the Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.
3. No. CA in effect compels American Air to extend its personality to Orient Air.
Such would be violative of the principles and essence of agency, 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. In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would have him
do. Such a relationship can only be effected with the consent of the principal, which
must not, in any way, be compelled by law or by any court
VALERA vs. VELASCO
FACTS: By virtue of the powers of attorney executed by the plaintiff-appellant, the
defendant-appellee Velasco was appointed attorney-in-fact of plaintiff Valera with
authority to manage his property in the Philippines, consisting of the usufruct of a real
property. The liquidation of accounts revealed that the plaintiff-appellant owed the
defendant P1,100, and as misunderstanding arose between them, the defendant-
appellee brought suit against the plaintiff-appellant . The trial court decided in favor of
agent; sheriff levied upon plaintiff-appellant’s right of usufruct, sold it at public auction
and adjudicated it to defendant-appellee in payment of his claim. Plaintiff-appellant
sold his right of redemption to Eduardo Hernandez for P200 who later conveyed the
same right of redemption back to plaintiff Valera for P200. After the plaintiff had
recovered his right of redemption, one Salvador Vallejo, who had an execution upon
a judgment against the plaintiff rendered in a civil case against the latter, levied upon
said right of redemption, which was sold by the sheriff at public auction to Salvador
Vallejo for P250 and was definitely adjudicated to him. Later, he transferred said right
of redemption to the defendant Velasco. Later, he transferred the said right of
redemption to defendant-appellee Velasco. The title was consolidated in his name,
thus, the agent got the title to the right of usufruct to the aforementioned property.
ISSUE: WON the agency was terminated
HELD: YES.
Art 1732- Agency is terminated by: a) revocation, b) withdrawal of agent, c) death,
interdiction, bankruptcy, or insolvency of the principal or of the agent.
Art 1736- An agent may withdraw by giving notice to principal. If principal suffer any
damage, agent must indemnify him unless the agent’s reason should be the
impossibility of continuing to act as such without serious detriment to himself.
The misunderstanding between the plaintiff and the defendant over the payment of
the balance of P1,000 due the latter more than prove the breach of the juridical
relation between them; for, although the agent has not expressly told his principal
that he renounced the agency, yet neither dignity nor decorum permits the latter to
continue representing a person who has adopted such an antagonistic attitude
towards him. When the agent filed a complaint against his principal for recovery of a
sum of money arising from the liquidation of the accounts between them in
connection with the agency, principal could not have understood otherwise than that
agent renounced the agency; because his act was more expressive than words and
could not have caused any doubt. In order to terminate their relations by virtue of the
agency the defendant, as agent, rendered his final account on March 31, 1923 to the
plaintiff, as principal.
Briefly, then, the fact that an agent institutes an action against his principal for the
recovery of the balance in his favor resulting from the liquidation of the accounts
between them arising from the agency, and renders and final account of his
operations, is equivalent to an express renunciation of the agency, and terminates
the juridical relation between them. If, as we have found, the defendant-appellee
Miguel Velasco, in adopting a hostile attitude towards his principal, suing him for the
collection of the balance in his favor, resulting from the liquidation of the agency
accounts, ceased ipso facto to be the agent of the plaintiff-appellant, said agent's
purchase of the aforesaid principal's right of usufruct at public auction held by virtue
of an execution issued upon the judgment rendered in favor of the former and against
the latter, is valid and legal.
Hence, the said agent's purchase of the aforesaid principal's right of usufruct at
public auction held by virtue of an execution issued upon the judgment rendered in
favor of the former and against the latter, is valid and legal. Moreover, the defendant-
appellee, having acquired right of redemption from Salvador Vallejo, who had
acquired it at public auction by virtue of a writ of execution issued upon the judgment
obtained by the said Vallejo against the said plaintiff, the latter lost all right to said
usufruct. Summarizing, the conclusion is reached that the disagreements between an
agent and his principal with respect to the agency, and the filing of a civil action by
the former against the latter for the collection of the balance in favor of the agent,
resulting from a liquidation of the agency accounts, are facts showing a rupture of
relations, and the complaint is equivalent to an express renunciation of the agency,
and is more expressive than if the agent had merely said, "I renounce the agency."
PALMA vs. CRISTOBAL
FACTS: A parcel of land in Tondo, Manila covered by TCT No. 31073 of Registered
Deeds of Manila issued in favor of Petitioner Pablo Palma is the subject contention
between the parties.
Petitioner Palma sought, at first, to eject respondent Eduardo Cristobal Reyes from
the land in question in a complaint filed with the Municipal Court of Manila. As
respondent raised the question of ownership, the complaint was dismissed, and
petitioner filed with the CFI Manila the complaint which initiated this case, petitioner
praying that he be declared the owner of the land and that respondent be ordered to
restore its possession and to remove his house therefrom.
CFI: Dismissed the complaint.
CA: Affirmed CFI’s decision.
In 1909, OCT No. 1627 was issued in the names of petitioner and his wife Luisa
Cristobal. In 1923, said certificate was cancelled and substituted by TCT No. 20968.
It was later substituted by TCT No. 26704, also in the name of petitioner and his wife.
After the latter's death in 1922,a new TCT was issued in 1923 only in the name of the
name of the petitioner, substituted in 1928 by TCT No. 31073.
The CA concluded with the CFI Manila that the parcel of land in question is a
community property held by petitioner in trust for the real owners (the respondent
being an heir of one of them), the registration having been made in accordance with
an understanding between the co-owners, by reason of the confidence they had in
petitioner and his wife. This confidence, close relationship, and the fact that the co-
owners were receiving their shares in the rentals, were the reasons why no step had 2. Petitioner's pretension of building his right to claim ownership by prescription
been taken to partition the property. upon his own breach of a trust cannot be countenanced by any court, being
subversive of generally accepted ethical principles.
On her deathbead, Luisa called her husband, the petitioner, and enjoined him to give
her co-owners their shares in the parcel of land; petitioner answered his wife that she Upon the premise that the registration in 1909 in the name of petitioner and his
should not worry because he would take care of the matter by giving the co-owners wife, Luisa Cristobal, was in accordance with an agreement among the co-
their respective shares. owners, petitioner advances the theory that when he, upon the death of his wife
in 1922, caused the trust property to be registered in his sole name in 1923, and
ISSUE: subsequently partitioned between himself and his daughter, Ildefonsa Cristobal
Ditangco, as heirs of the decedent, "he openly breached the agreement of 1909
1. WON the oral testimony adduced in behalf of respondent sufficient to rebut
as well as the promise made to his dying wife of giving the co-owners their
the legal presumption that petitioner is the owner of the land in controversy.
respective shares," concluding that "that breach was an assumption of
2. WON the CA erred in not holding that, as against respondent, petitioner had
ownership, and could be the basis of title by prescription."
acquired absolute ownership of the same through prescription.
This theory holds no water because, according to the pronouncement of the
HELD:
Court of Appeals, upon the evidence, petitioner held the property and secured its
1. Untenable. registration in his name in a fiduciary capacity, and it is elementary that a trustee
cannot acquire by prescription the ownership of the property entrusted to him.
In Severino vs. Severino, this court declared that "the relations of an agent to his The position of a trustee is of representative nature. His position is the position of
principal are fiduciary and it is an elementary and very old rule that in regard to a cestui que trust. It is logical that all benefits derived by the possession and acts
property forming the subject-matter of the agency, he is estopped from acquiring or of the agent, as such agent, should accrue to the benefit of his principal.
asserting a title adverse to that of the principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of good faith, be allowed to
create in himself an interest in opposition to that of his principal or cestui que trust."
Affirming the said doctrine in Barretto vs. Tuason, the Supreme Court declared that
the registration of the property in the name of the trustees in possession thereof,
must be deemed to have been effected for the benefit of the cestui que trust. In Palet
vs. Tejedor, it was declared that whether or not there is bad faith or fraud in obtaining
a decree with respect to a registered property, the same does not belong to the
person in whose favor it was issued, and the real owners be entitled to recover the
ownership of the property so long as the same has not been transferred to a third
person who has acquired it in good faith and for a valuable consideration. This right
to recover is sanctioned by section 55 of Act No. 496, as amended by Act No. 3322.