CONTINENTAL AIRLINES, INC. AND AIR MICRONESIA, INC., PETITIONERS, VS. HON. CONSUELO Y. SANTIAGO, JUDGE, RTC, MAKATI, BR. 149, THE SECURITIES & EXCHANGE COMMISSION, ALBERTO P. AT…

The special civil action of certiorari at bar was
instituted for the nullification of a writ of preliminary injunction issued by
respondent Regional Trial Court Judge in Case No. 88-1466 shortly after
commencement of the suit.  The writ
enjoined the attempted cancellation by petitioners of their contracts with
respondent Arpan Air, Inc., and ordered the
maintenance of the status quo. 
The writ was predicated chiefly on the Court’s holding that the
stipulation in said contracts granting each of the parties the right to
terminate the agreements in its “complete discretion” and “with
or without cause,” by simply giving 90-day notice, was proscribed by
Article 70 of Presidential Decree No. 1789 (now Article 49, Executive Order No.
226).  Ordinarily, the resolution of such
a question would have entailed merely an ascertainment of whether or not there
was, prima facie, cause for the issuance of the provisional writ so
that, in turn, it might be determined if the respondent Court had acted with
grave abuse of discretion warranting extension of this Court’s correcting hand;
and final adjudication on the merits of the issue concerning the termination of
the agreements would have been reserved to the Trial Court in subsequent,
appropriate proceedings.  However, the
voluminous pleadings filed by the parties in this case, and the submission by
them of all the documentary evidence relevant to the issue — as well as the
related one of whether or not, under the facts, a collateral agreement
substantially varying the original contracts had come into being — ­have laid
before the Court all the material facts and legal propositions necessary to resolve
said questions on the merits, and very plainly evince the parties’ desire that
this Court do so.  This the Court will
now do, to the end that the ultimate disposition of the controversy may be
expedited, by limiting the issues to be ventilated before and decided by the
Trial Court.  Such a procedure is
indicated by logical and pragmatic considerations, is in line with analogous
jurisprudence,^[1]
and is consistent with the rule that when a new trial is granted, or a case is
otherwise remanded for further proceedings to the trial court, the appellate
court “shall pass upon all the questions of law involved for the final
determination of the action.”^[2]

The petitioners, Continental Airlines, Inc. (hereafter simply
CONTINENTAL) and Air Micronesia, Inc. (hereafter, MICRONESIA),
are foreign corporations licensed to do business in the Philippines
and engaged in the business of providing air transportation services to the
public.^[3]
They both appointed private respondent Arpan Air,
Inc. (hereafter, ARPAN) their passenger and cargo sales agent in virtue of
identical contracts dated February 12, and March 11, 1986, entitled
“General Passenger Sales Agency Agreement.”^[4]
After the contracts had been in force for two years, CONTINENTAL and MICRONESIA
gave notice of the termination of the agreements by letters dated May 31, 1988,^[5]
following oral advice thereof about a week earlier.^[6]
They did so in reliance on a provision in the agreements^[7]
allowing termination thereof by any party in its “complete
discretion” and “with or without cause,” viz.:

“This agreement shall terminate ninety (90) days following the
delivery of one party to the other of a notice of termination, and such
termination shall be in the complete discretion of the terminating party and
may be with or without cause.”

When the matter of the termination of the agreements was taken up
by the 5-member board of directors of ARPAN, shortly after being verbally
informed thereof, only one director, Custodio Parlade, opted to contest the termination; three voted not
to oppose it, namely, Artemio V. Panganiban,
Jr., Mathilde L. Castro and Edgardo
M. Tamoria; and one, Agustin Benitez abstained.^[8]

What Parlade did was to file, on May 30, 1988, a complaint with the
Securities and Exchange Commission against Panganiban,
Castro and Tamoria, the three directors who had
declined to contest the cancellation of the agency agreements.^[9]
In his complaint, which he amended on June
14, 1988,^[10] Parlade prayed for damages amounting to P9.3 million and
P50,000.00 as attorney’s fees.  The SEC
Hearing Officer (herein respondent Alberto Atas) to
whom the case was assigned, issued on June 23, 1988 a preliminary injunction
restraining the defendant directors “from (a) complying with the written
confirmation of the notice of termination of the** Agreements if such has been
served already; (b) delivering or remitting** all passenger and/or cargo sales
and other sales transactions for the month of May, 1988 and succeeding months
or period; and (c) performing any act which may render academic the final
outcome of this case.”1

Now, as of the date of Parlade’s
complaint, Arpan had in its possession the amount of
P44,997,998.71 representing collections for passenger and cargo ticket sales,
etc. for the months of May, June and July, 1988, which should have been
remitted to Continental and Micronesia pursuant to their Agreements of March
11, 1986.  The amount was retained by
ARPAN by reason of the preliminary injunction of the SEC Hearing Officer.2

CONTINENTAL and MICRONESIA
sought leave to intervene in the SEC proceeding by motion filed on July 4, 1988.3
This was opposed by Parlade who declared inter alia that he was willing to make “suitable
arrangements” for the release of the funds in excess of his claim.4
The intervention incident was however rendered inconsequential when Parlade and the defendant directors executed a compromise
agreement on September 14, 1988, and by Order dated September 15, 1988, the SEC
Hearing Officer (a) approved the compromise and rendered judgment in accordance
therewith; (b) dissolved the injunction and discharged the injunction bond; and
(c) declared moot the motion for intervention of Continental and Air
Micronesia.5

Some seven weeks after the filing of his complaint with the
Securities and Exchange Commission, as aforestated,
or more precisely on July 21, 1988, Parlade, in
representation of ARPAN, filed with the Regional Trial Court at Makati a complaint against CONTINENTAL and MICRONESIA,
basically on the theory that the stipulation allowing termination of the agency
agreements at a party’s “complete discretion” and “with or
without cause” was violative of Republic Act No.
5455 (The Omnibus Investments Act).6 The complaint prayed for
nullification of the attempted cancellation of the agency contracts; the
declaration that the agreements remain in full force, and for payment of
damages consisting of –

(a)     lost commission income
because of the so-called “cost plus” scheme put into effect by
Continental and Micronesia ostensibly in pursuance to the agency contracts, in
an amount estimated at an average of “not less than P300,000.00 a month,
or at least P9.3 million during the last two years and seven months”
consisting of three (3%) per cent of gross revenue from passenger sales with an
additional five (5%) per cent override commission, five (5%) per cent on cargo
sales plus nine (9%) on ‘walk-in’ passenger sales” (par. 7, amended
complaint):

(b)     underpayment under the
same “cost plus” scheme, in the amount of US $2,000.00 for 26 months,
or US $52,000.00 (par. 8, id.);

(c)     litigation expenses
and attorney’s fees of not less than P100,000.00 (par. 15, id.).

The case, docketed as Case No. 88-1466, was raffled to the sala of respondent Judge Santiago.  On August 26, 1988, the Judge issued a writ
of preliminary injunction on a bond of P120,000.00, (1) forbidding defendants
(a) “from carrying out the cancellation of their ** Agreements;” and
(b) “from demanding the remittance to them of the May 1988 collections
referred to in par. 14 (c) as well as subsequent monthly collections,” and
(2) “directing the defendants and their officers, employees,
representatives, agents or persons acting on their behalf, or for their
interest and benefit ** to respect the status quo” (Annex R).1
The Judge observed that while each of the contracts does indeed grant either of
the parties the right to terminate it on 90-day notice, such a stipulation
appears proscribed by Article 70, Presidential Decree No. 1789, now Article 49,
Executive Order No. 226, particularly paragraph 9 thereof; and therefore, to
prevent the action’s becoming moot, it was needful to maintain the status
quo.

Subsequently, at Arpan’s instance and
by Order dated September 15, 1988,
the Judge reduced the scope of the injunction to an amount equivalent to
“the aggregate net commission as well as stipulated compensation of which
** (Arpan) corporation had been unjustly deprived by
the defendants (Continental and Micronesia)
as alleged in pars. 7(c) and 8 (b) ** (or the amended complaint)”2

On September 17, 1988,
Arpan remitted to CONTINENTAL US $854,117.30 plus
P519,193.74 in “cash and checks.” The remittance was accompanied by a
letter signed by Arpan’s president, stating that the
remittance (representing “collections ** made for the period May, June and
July 1988”) had been made possible by the dissolution of the preliminary
injunction issued in SEC Case No. 3366; that the balance would “be
retained ** in accordance with the modified injunction” (in Civil Case No.
88-1466); and “the collections for August sales will be remitted ** on
September 30, 1988 as per usual remittance procedure.”3

Before the modification by respondent Judge of the preliminary
injunction, however, CONTINENTAL and MICRONESIA
instituted in this Court the present action of certiorari and
prohibition, seeking nullification not only of said injunction but also of that
issued by the SEC Hearing Officer, and the perpetual inhibition of further
proceedings in the Court and Commission a quo.4
Obviously, as regards the Securities and Exchange Commission, the case has
become moot and academic.  The action in
this Court will thus be limited to a determination of the relief, if any, that
should properly be accorded to the petitioners Continental and Micronesia
against the orders of respondent Judge Santiago, and against her
co-respondents, Arpan and Parlade.

The petitioners submit that the preliminary injunction of August 26, 1988 was issued by Judge
Santiago with grave abuse of discretion because —

1)      Assuming arguendo that the stipulation for unilateral
termination incorporated in the parties’ agency agreement is proscribed by
Article 70, PD 1789 (now ART. 49, EO 226) — the issuance of the injunction is
contrary to this Court’s decision in Top-Weld Mfg. Inc. v. ECED, S.A. 138
SCRA 119, also involving a violation of RA No. 5455, in which it was inferentially
ruled that said statute does not “appear to intend to prevent the courts
from enforcing contracts made in contravention of its licensing
provisions.” and the axiom was reiterated that parties must come to court
with clean hands.

2)      In truth, (a) EO 226
applies only to the sale of products, not services, such as those subject of
the parties’ agreements; (b) the law is inapplicable to contracts entered into
after a license has already been issued in accordance with its provisions; (c) it
is inapplicable to the case at bar also because no “expenses were incurred
by the licensee in developing a market for the products” (involved); (d)
it is inapplicable, too, because another sales agent will take the place of Arpan, hence, no prejudice will be caused to any licensee
or franchisee; and (e) actually, EO 226 allows termination of agreements for
“just cause” and evidently, a stipulation giving the parties the
option to terminate their agreement, must be deemed a “just cause;”

3)      The injunction
contravenes the familiar doctrine that the contract is the law between the
parties, and courts cannot create contracts thru injunction.

4)      Having voluntarily
entered into the agreements in question with full awareness of the law now
cited by them.  Arpan
is estopped, or barred by laches
to question their validity (an issue which, by the way, was not dealt with by
the respondent Judge at all).

5)      By the injunction, the
petitioners are being coerced to continue to employ Arpan
as their sales agent.

6)      The injunction was
issued by the Judge under the impression that the matter of irreparable injury
is a question of no importance.

7)      In the subject
contracts, Arpan had agreed to exempt petitioners
from “any costs incurred or damages sustained upon or as a consequence of
the termination of this Agreement, which costs or damages shall be the sole
responsibility of the General Sales Agent;” and respondent Judge’s holding
that the stipulation applies only in case of fraud has no basis.

On November 23, 1988, this Court issued a Resolution inter alia commanding ARPAN to remand to petitioner airlines
P16,092,692.68, it appearing that the amounts then in its possession —
P44,997,998.71, representing ticket sales for several months — were far in
excess of the aggregate sum specifically claimed by it in its complaint and the
amount turned over by it to said petitioners on September 17, 1988, conceding
to it only the right to retain the commissions and other compensation
stipulated in the agency agreements.1 ARPAN’s
motion for reconsideration of this resolution2 remains pending.

In the meantime, or about 4 days after the commencement by ARPAN
on July 21, 1988 of its suit in the Regional Trial Court at Makati,
petitioners CONTINENTAL and MICRONESIA appointed Citadel Holdings, Inc. its
General Sales Agent effective September 1,1988.3 Later, with the consent of
petitioners, Citadel Holdings assigned its rights as General Sales Agent to
Trans Pacific Air Services, Corporation;4 and a General Sales Agency
Agreement was executed between petitioner airlines and Trans Pacific Air
Services Corporations5 (hereafter referred to simply as
TRANS-PACIFIC). TRANS-PACIFIC then entered into contracts for the lease of
office space, for the renovation and interior decoration thereof, and purchased
furniture and equipment in anticipation of its discharge of functions as
petitioners’ general sales agent, all involving disbursements of more than a
million pesos.6
Under the circumstances, it can hardly be doubted that TRANS-PACIFIC has a
legal and material interest in the matter in litigation and in the success of
the petitioners, warranting its intervention in the action at bar as petitioner
in intervention.7
Its intervention will not furthermore unduly delay or prejudice the
adjudication of the rights of the original parties:8
and it goes without saying that it will be bound by whatever judgment is
rendered in the proceeding at bar.  It is
hereby granted leave to so intervene, and its petition in intervention dated
November 2, 1988 is admitted, together with all the motions and pleadings
subsequently filed by it.

The issues arising from the pleadings and extensively argued by
the parties are as follows:

1.       Whether or not the
stipulation in the sales agreements between petitioner airlines and ARPAN —
giving to each airline and to ARPAN the reciprocal right to unilaterally
terminate their contracts by simply giving 90-day notice, in the entire
discretion of the cancelling party and regardless of
cause — is void as being contrary to law and public policy and the airlines’
undertakings.

a.        Corollarily, whether or not ARPAN may be considered as
having waived its objection, or as being estopped
from objecting to such a stipulation.

2.       Whether or not the
minds of the parties had met on a collateral agreement to convert the so-called
“cost-plus” scheme in their sales agency contracts into a
“standard general sales agency system of compensation.”

3.       Whether or not under
the admitted or undisputed facts, ARPAN had the right to retain funds otherwise
due to petitioner airlines under their agency contracts, as security for its
claimed damages.

The law applicable at the time the parties executed their sales
agency agreements on March 31, 1986
was Presidential Decree No. 1789 (effective Jan. 16, 1981), which amended Republic Act No. 5455 (eff. Sept. 30,
1968).  Article 70 of PD 17891
empowered the Board of Investments to impose certain specific requirements —
“in addition to those set forth in the Corporation Code of the Philippines
for authorizing foreign corporations to transact business in the Philippines —
on an “alien or firm, association, partnership, corporation or other form
of business organization that is not organized or existing under the laws of
the Philippines,” which had been granted by the Board a certificate of
authority to engage in business or economic activity in the Philippines. Among
these was the requirement set out in paragraph (9) of Article 70 –

” ** Not to terminate any franchise, licensing or other
agreement that applicant may have with a resident of the Philippines,
authorizing the latter to assemble, manufacture or sell within the Philippines
the products of the applicant, except for violation thereof or other just cause
and upon payment of compensation and reimbursement of investment and other
expenses incurred by the licensee in developing a market for the said
products:  Provided however; That
in case of disagreement, the amount of compensation or reimbursement shall be
determined by the court where the licensee is domiciled or has its principal
office who shall require the applicant to file a bond in such amount as, in its
opinion, is sufficient for this purpose.”

The sanction for an infringement of the requirements above
mentioned is prescribed by Article 71, reading in part as follows:

“ART. 71.  Cause for
Cancellation of Certificate of Authority. – A violation of any of the
requirements set forth in Article 70 or of the terms and conditions which the
board may impose shall be sufficient cause to cancel the certificate of authority
issued pursuant to this Book ***.”

1.       The first question is
whether the above quoted provisions rendered void ab
initio the unilateral termination of the agency
agreements between ARPAN, on the one hand, and the petitioner airlines, on the
other, sought to be effected by the latter on the strength of the stipulation
in said agreements reading as follows:

“This agreement shall terminate ninety (90) days following the
delivery of one party to the other of a notice of termination, and such
termination shall be in the complete discretion of the terminating party and
may be with or without cause.”

At the time that ARPAN signed its agency contracts with
CONTINENTAL and MICRONESIA
in May, 1986, it could not but have known of the provisions of PD 1789 above
referred to.  Its plea of ignorance
thereof is unavailing.  It is axiomatic
that “parties are charged with knowledge of the existing law at the time
they enter into the contract and at the time it is to become operative.  ** (Indeed), a person is presumed to be more
knowledgeable about his own state law than his alien or foreign
contemporary.  * * “2
Being thus aware of the requirement imposed on CONTINENTAL and MICRONESIA that,
among others, it should “(n)ot ** terminate any
franchise, licensing or other agreement that applicant may have with a resident
of the Philippines, authorizing the latter to assemble, manufacture or sell
within the Philippines the products of the applicant, except for violation
thereof or other just cause and upon payment of compensation and reimbursement
of investment and other expenses incurred by the licensee in developing a
market for the said products **.” ARPAN’s
execution of contracts with said firms which inter alia
accorded to each of them — and to it (ARPAN) as well — the right to
terminate said agreements by mere 90-day notice, “in the complete
discretion of the terminating party and ** with or without cause,” can
only be construed either as a waiver or renunciation of the requirement, or as
the constitution of an additional proper cause for the contracts’
cancellation.  It is quite significant
that the right of unilateral termination was a mutual one, conceded not only to
CONTINENTAL and/or MICRONESIA,
but to ARPAN also, and was not challenged by ARPAN prior to the signing of the
contracts.  It is not unreasonable to
assume that had it done so then, and the parties had not been able to agree on
a satisfactory modification or clarification of the provision, the contracts
would have been aborted.  The fact is
that ARPAN signed the agency agreements, and fulfilled its commitments,
enforced its rights and accepted benefits thereunder
for more than two (2) years, without once demurring to or seeking modification
or clarification of the provision for unilateral cancellation.  Indeed, it is obvious that during that period
of two years, it could have itself invoked and applied the provision in
question, had it wished to.  ARPAN
impugned the validity of the provision only after its principals sought to
apply it.  The impugnation comes too late
in the day.  After consenting to the
stipulation with full knowledge of the relevant provisions of law, and
accepting benefits under the contracts containing said stipulation for two (2)
years, ARPAN is now estopped from invoking those
legal provisions to deny validity or propriety to the stipulation.

Of no little significance too is the fact that — even on the
assumption that the stipulation for unilateral termination be deemed violative of PD 1789 (ART. 70, par. [9]) — the contracts
are not on that account declared to be void either ab
initio or at time of challenge.  What the law says (ART. 71, supra) is
that the violation, if that it be, merely gives rise to a sufficient cause
for cancellation of a certificate of authority by the Board of Investments.  ARPAN can take small comfort from this
prescription of the law, however, since the Board of Investments, in response
to inquiries by CONTINENTAL and MICRONESIA,1
had formally opined2 that –

“With respect to the validity of the termination/cancellation
of the Sales Agreement(s), ** the same is valid provided that sufficient
notice was given to the other party as stipulated in the Agreement(s). Where
the parties agreed to terminate/cancel the agreement even without cause, the Defendant
may not be considered to have violated paragraph 9 of the Undertaking
(executed by the holder of a certificate of authority from the BOI [i.e.,
CONTINENTAL and MICRONESIA]) because this paragraph contemplates that there
must be grounds for termination which be either a violation of the franchise,
licensing or other agreement or other just cause.”

In other words, the stipulation in
question must be regarded as valid until declared void by competent authority,
and enforceable until the certificate of authority of the alleged violator is
cancelled by the Board of Investments. 
And that the Board of Investments will not cancel the certificates of
authority of either petitioner airline on the ground precisely that the
stipulation is violative of the law, seems fairly
certain in light of its resolution above quoted.1 Upon this consideration, and those
previously stated, the validity of the stipulation and the propriety of its
application to the instant case must be sustained.

2.  The second issue raised,
and ventilated by the parties, is whether or not there had been a meeting of
minds among them on a collateral or additional agreement to convert the
so-called “cost-plus” scheme in their sales agency contracts into a
“standard general sales agency system of compensation,” or “percentage
of sales” plan.  In this Tribunal,
ARPAN insists that there had in truth been a meeting of minds on the additional
covenant,2
that petitioner airlines had not complied therewith, and had thus caused no
inconsiderable loss to it.  In
substantiation of this theory, ARPAN relies on the sworn declaration of John R.
Green, Regional Director of CONTINENTAL and MICRONESIA
from February, 1982 to May, 1988,3 and his letter to Artemio V. Panganiban, President
of ARPAN dated November 11, 1987.4
The petitioner airlines, on the other hand, allege that although there had
actually been negotiations for such a conversion from the “cost-plus”
scheme (provided for in their contracts with ARPAN) to a “percentage of
sales” system (prescribing a higher rate of compensation), the parties had
failed to agree on all the details and therefore failed to finalize and execute
the corresponding additional pact; and in proof thereof, they point to several
letters written to them by said A. V. Panganiban, in
behalf of ARPAN.5

A careful analysis of the documents thus adverted to by the
parties — the authenticity of which is not disputed, although petitioner
airlines do say that the Green affidavit is inadmissible under the Parol Evidence Rule and that, in any event, as mere Regional
Director, he had no authority to bind the airlines, that power being reserved
to the president of the Pacific Region6 — ­discloses no such collateral,
additional compact, but merely negotiations towards such a covenant, or an
intention to execute it after the threshing out of certain details and at such
time as may be deemed appropriate.

Panganiban’s letter to petitioner
airlines dated September 28, 1987 merely requested for an adjustment in its
fees either by reverting to a normal GSA7 arrangement or retaining the
“cost-plus” scheme on “Route 1” and granting it additional
cost plus 1 1/2% override on all tickets in the Philippines flown on
CONTINENTAL.  This proves a request, not
an “understanding” or “agreement” regarding a change in
compensation plan.

Panganiban’s letter dated October 22,
1987, suggested that in lieu of a new GSA agreement, the parties just implement
the already existing contract based on cost plus $2,000 per month effective
November 1, 1987, i.e., $4,000 per month effective said date, with the
understanding that within one (1) year from November 1, 1987, the contracts
shall mature into normal IATA-GSA contracts where compensation is based on 3%
of gross receipts from Philippine sales (passenger and cargo) of both
airlines.  This communication makes even
clearer the absence of any “understanding” at this time; all it
proves is that ARPAN desired to have a modification of its existing agreements.  Now, Green’s reply dated November 11, 1987 to
Panganiban’s aforesaid letter of October 22, 1987,
simply accepted the suggestion for a “total compensation” of “$4,000
per month plus expenses of the ARPAN unit assigned to our office ** effective
November 1st, 1987,” but made clear that no “conforme”
could be given to the request for conversion to a compensation system of 3% of
gross receipts for the reason that “there still needs to be more
discussion about ** (such an) eventual conversion to the ‘normal’ GSA contract
with a three percent over-ride, expressed preference “that we not
establish a specific date for the turn-over **, and to have the letter (Panganiban’s) re-written with that portion removed”
and “re-worded to acknowledge that we have an understanding that our goal
would be to place the relationship between our three companies in a more
conventional remuneration system consistent with Continental’s other GSA
agreements.”1 No conclusion of a meeting of minds
on a covenant to change the remuneration system can be extracted from the Green
letter; there is just an understanding upon a future arrangement, an
understanding to achieve a future goal: 
to convert to “a more conventional remuneration system
consistent with Continental’s other GSA agreements.” In his letter dated November 16, 1987, Panganiban confirmed that as soon as opportunity allows,
the existing contracts would be converted into a “normal” IATA-GSA
contract consistent with Continental’s other general agreements.  Again, the advertence is to a future
conversion, not to one already consented to.

The uncertainty as to the ultimate form of the additional
agreement regarding ARPAN’s compensation scheme —
and obviously the non existence of any such additional covenant — was further
stressed in Green’s letter of November 24, 1987 in response to that of Panganiban just mentioned (dated November 16, 1987).  Green there says that he had discussed Panganiban’s letter with a certain “Clyde”
and while they were “for the most part in general agreement, there **
(were) some things we will (still) need to clarify.”2
Green in fact suggested other possible arrangements:  “I believe it would be appropriate if
there was either a new GSA contract with a territory clause allowing the three
percent over-ride or, if this adjustment can be handled with merely a side agreement
to the present contract.”3 The absence of any meeting of minds
on a definite amendment of the remuneration plan is, again, quite evident.  The parties were obviously still in process
of negotiations, proposing and considering alternatives and options.

Panganiban’s subsequent communications
further emphasize the absence of any conversion compact.  His letter dated March 11, 1988 expressed the hope that
CONTINENTAL should then already consider ARPAN’s
repeated requests for the conversion. 
His letter of May 26, 1988
once more adverts to ARPAN’s desire for such a
conversion, which it had made known many times, and its belief that the
conversion to a 3% override was necessary to pinpoint responsibility and
authority, and give it the incentive to increase sales.

The statement in the Green affidavit — that “it was the
firm understanding of the parties that such compensation scheme (set out in the
existing GSA contracts) was only tentative or temporary and that the same was
intended to be the more conventional ‘percentage on gross’ remuneration system
**,” but the corresponding agreement was not executed during his term
because of many internal matters that occupied his time and attention and those
of his superiors — is acknowledgment that the “cost-plus” scheme had
indeed been agreed upon and implemented by the parties, albeit with the
intention in the future to change to the “more conventional percentage
on gross remuneration system,” and, more importantly, that such a
conversion compact had never been executed during his term of office.  The declaration in the affidavit that
“the real intention was to implement from the beginning the more
conventional remuneration system” is obviously false, flying as it does in
the teeth of the actuality that the “cost plus” scheme had been
incorporated in the GSA contracts, and the facts established by the
correspondence between Green and Panganiban
themselves, just specified.

It may furthermore be observed, although no longer necessary to
the conclusion now affirmed — relative to the non-existence of any collateral
or additional agreement modifying the compensation scheme set forth in the GSA
contracts in question — that any verbal arrangements, if any, arrived at
between ARPAN and an officer of either of the petitioner airlines, would not be
binding on the latter, as they now precisely contend, not only because Green
had no authority to speak for them,1but also because proof of such
verbal arrangements, offered to vary the terms of the parties’ written
agreements, would be inadmissible under the Parol
Evidence Rule.2

The conclusion here laid down — i.e., that no agreement was ever
executed between petitioner airlines and ARPAN for a change in the remuneration
system from the so-called “cost-plus” to
“percentage-of-sales” scheme — pulls out the rug from under ARPAN,
as the saying goes.  It deprives ARPAN of
any legal basis to recover damages consisting of lost commission income because
of the implementation of said “cost plus” scheme (instead of the
desired “percentage-of-sales” plan): 
in an amount estimated at an average of “not less than P300,000.00
a month, or at least P9.3 million during the last two years and seven
months,” which amount, it is theorized, ARPAN would have earned in
accordance with said “percentage­-of-sales” mode of compensation.

Whether or not there had been underpayment to ARPAN under the
“cost-plus” plan observed and implemented by the parties conformably
with their GSA contracts as written, and whether or not, as ARPAN also
contends, it had incurred expenses in developing a market for petitioners’
services for which it may be entitled to be reimbursed, are questions which the
Court does not now resolve, and reserves for final determination by the Trial
Court.  What the Court does hereby
conclude and adjudge is that:

(1)            the
stipulation in the agency sales agreements dated March 11, 1986, conferring on all the parties including
ARPAN, mutually and reciprocally, the right to unilaterally terminate the
agreements upon 90-day notice in, the entire discretion of the terminating
party and with or without cause is not in the premises void or otherwise
defective, and that in any event. ARPAN is estopped
to challenge the stipulation after having voluntarily and knowingly signed the
agreements containing it, and for two years complied with the terms of said
agreements and accepted benefits thereunder, and

(2)            as
sufficiently demonstrated by the established or undisputed facts laid before
this Court by the parties, no additional covenant was ever executed between
petitioner airlines and ARPAN altering the compensation system from a
“cost-plus” to a “percentage of sales” scheme.

3.  The last question
relates to ARPAN’s asserted right to retain the funds
otherwise due to petitioner airlines under their agency contracts, as security
for its claimed damages.  ARPAN’s retention of funds is predicated upon the
respondent Court’s preliminary injunction restraining petitioner airlines (a)
“from carrying out the cancellation of their ** Agreements;” and (b)
“from demanding the remittance to them of ** the aggregate net commission
as well as stipulated compensation of which** (Arpan)
corporation had been unjustly deprived by the defendants (Continental and
Micronesia) as alleged in pars. 7(c) and 8 (b) ** (or the amended complaint),”
and otherwise to preserve the status quo.  The preliminary injunction is, in turn,
founded on the Trial Court’s opinion that the stipulation in the agency
contracts granting the parties the right to terminate them on 90-day notice,
regardless of cause, in the terminating party’s absolute discretion, was
“proscribed by ART. 70, PD 1789, now ART. 49, EO 226, particularly par.
9.” But since this stipulation has not been invalidated but has been
sustained by this Court, it follows that the general agency sales agreements of
February 12, and March 11, 1986 had been validly and effectually terminated by
written notice given on May 31, 1988 to ARPAN by petitioner airlines, the
termination becoming effective 90 days thereafter, or on or about the end of, August,
1988.  It also follows that ARPAN had the
obligation to remit to CONTINENTAL and MICRONESIA all the receipts for cargo
and passenger sales earned or collected during all the months following the
notice of termination; and since that remuneration scheme in the agency
agreements in question had never been altered, ARPAN had the right to retain
only the compensation due it pursuant to the remuneration scheme provided for
in the agency sales agreements of February 12, and March 11, 1986, but nothing
more.

Nor does ARPAN have the right, in virtue of the Trial Court’s
preliminary injunction, to retain the sum of US$52,000.00 which it believes
corresponds to the “underpayment” under the “cost-plus”
scheme in its agreements with petitioner airlines, or P100,000.00 as alleged
litigation expenses and attorney’s fees, or other amounts as damages for injury
yet to be proven.  An injunction is
intended chiefly to preserve or restore the status quo.1 It
is not meant to furnish security for the satisfaction of any judgment that a
claimant might obtain, this being the office of a preliminary attachment which
may issue upon specified grounds other than those set for a preliminary
injunction.1
The status quo in this case is of course the state of affairs prior to
the controversy, i.e., before notice of termination was served by CONTINENTAL
and MICRONESIA on ARPAN, during which the latter was making regular remittances
to the former without retaining any amount to make up for any
“underpayment” supposedly resulting from the compensation system then
being observed, and during which ARPAN was making no claim of any other injury.

WHEREFORE, judgment is hereby rendered:  (1) nullifying and setting aside the
challenged order and writ of preliminary injunction issued by the respondent
Court and modified by this Court’s Resolution of November 23, 1988, and denying
the respondents’ motion for reconsideration of said Resolution which has been
rendered functus officio by this and
the following dispositions; (2) declaring valid the stipulation in the parties’
General Passenger Sales Agency Agreements dated February 12, 1986 and March 11,
1986 providing that said agreements “shall terminate ninety (90) days
following the delivery of one party to the other of a notice of termination, **
such termination ** (being) in the complete discretion of the terminating party
** (and whether or not it) be with or without cause;” (3) declaring proper
and efficacious the termination of said General Passenger Sales Agency
Agreements by petitioner airlines through service of notice to that effect on
private respondent ARPAN on May 31, 1988, the termination becoming effective
ninety (90) days thereafter; (4) declaring also that the compensation scheme in
said General Passenger Sales Agency Agreements had not been validly modified or
converted into another remuneration system prior or subsequent to the
termination of said agreements; (5) commanding private respondents ARPAN and Custodio Parlade to remit and pay
to the petitioner airlines (a) the sum of P26,308,342.98 which said respondents
allege to be on deposit in ARPAN’s name with the Hongkong and Shanghai Banking Corporation and the Far East
Bank and Trust Co. as of February 20, 1989, (b) the sum of US$130,755 alleged
to be in a safe deposit box in the Hongkong and
Shanghai Banking Corporation, also in ARPAN’s name,
as of February 20, 1989, as well as (c) such other sums of money as are in
private respondents’ custody rightfully pertaining to the petitioner airlines
conformably with the General Sales Agency Agreements; (6) authorizing ARPAN to
retain only such amounts as correspond to it in accordance with the
remuneration scheme explicitly prescribed in said agreements; and (7) remanding
the case to the Trial Court a quo for trial and determination on the merits of
the issues of (a) whether or not there had been underpayment to ARPAN under the
“cost-plus” plan observed and implemented by the parties conformably
with their GSA contracts, (b) whether or not, as ARPAN also contends, it had
incurred expenses in developing a market for petitioners’ services for which it
was entitled to be reimbursed, and (c) such other issues as have not been
hereby passed upon and resolved.  Costs
against private respondents.

IT IS SO ORDERED.

Cruz, Gancayco, Griño-Aquino,
and Medialdea,
JJ., concur.

^[1]
SEE Zook v. Coker, 24 Phil. 434, Lichauco v. Limjuco, 19
Phil. 12, Esperanza, et al. v. Catindig, 27
Phil. 397, Hilario v. Paulist
Congregation, 27 Phil. 593, all cited in Moran, Comments on the
Rules, 1979 ed., Vol. 2, p. 518; SEE, also, Que
v. IAC, G.R. No. 66865, Jan. 13, 1989; Peo. v.
Escober, G.R. Nos. 69564-69658, Jan. 29, 1988; Amante v. C.A., 155 SCRA 46, 58-59; Valenzuela v.
C.A., G.R. No. 56168, Dec. 22, 1988

^[2]
Sec. 3, Rule 51, in relation to Sec. 1, Rule 56, Rules of Court

^[3] Rollo, pp. 3-4

^[4] Id.,
pp. 28-46, 47-62

^[5] Id.,
p. 63

^[6] lbid.

^[7]
Par. 18.1, General Sales Agency Agreement dtd. Feb. 12, 1986 (Rollo,
p. 41) and Par, 17.1, General Sales Agency Agreement dtd.
March 11, 1986 (Rollo, p. 58)

^[8] Rollo, p. 66

^[9]
Docketed as SEC Case No. 03366, Rollo, pp.
64-77

^[10] Rollo, pp. 78-91

1 Order dtd. June 23,1988 (Rollo,
pp. 92-96)

2 Rollo, p. 23

3 Id.,
pp. 97-100

4 Id.,
pp. 102-105

5 Id.,
pp. 261-262

6 Id ., pp. 132-145

1 Rollo, pp. 224-230

2 Annex 5, Urgent Manifestation dated September 19, 1988

3 Annexes 6 and 7, id.

4 Rollo, pp. 24-25

1 Rollo, p. 432-436

2 Id.,
p. 495

3 Rollo, p. 366,
Annex A, Petition in Intervention

4 Id.,
p. 367, Annex A-1, Petition in Intervention

5 Id.,
p. 368, Annex B, Petition in Intervention

6 Id.,
pp. 370-385

7 Sec. 2, Rule 12, Rules of Court

8 Sec. 2 (b), Rule 12

1 The provisions of which are identical to the second
part of SEC. 4, RA 5455, as well as to Art. 49 of Executive Order No. 226, eff. July
16, 1987

2 Top-Weld Manufacturing, Inc. v. ECED, S.A.,
etc., 138 SCRA 118, supra, citing Twiehaus v.
Rosner, 245 SE 2d 107; Hall v. Bucher, 227 SW
2d 98

1 The last being contained in a letter dated Sept. 23,
1988 by CONTINENTAL’ s Finance Manager (Annex B of Intervenor
Trans Pacific’s REPLY [To ARPAN’s Manifestation and
Comment]) dated Jan. 6, 1989; Rollo, p. 565

2 Resolution reproduced as Annex A of Trans Pacific’s
REPLY, supra; italics supplied, authenticity of which is not disputed by
private respondents

1 The resolution is entitled to great respect.  “As a general rule, the findings of
government agencies with respect to the construction of statutes the
implementation of which has been reposed in them, are controlling on the
court.” Greenhills Mining Company v.
Office of the President, G.R. No, 75962, June 30, 1988.  SEE
also Commissioner of Internal Revenue v. Wander Philippines,
Inc., G.R. No. 68375, April 15, 1988,
and Presidential Commission on Good Government v. Peña,
G.R. No, 77663, April 12, 1988.

2 Rollo, p. 442:  Comment dtd, Nov. 3, 1988

3 Id.,
p, 627:  Annex 1 of ARPAN’s
Reply and Opposition dated Feb. 20,
1989

4 Id.,
p. 628:  Annex 2 of same pleading

5 Id.,
pp. 501-511

6 Id.,
pp. 643-644

7 General Sales Agency

1 Rollo, p. 628

2 Id.,
629; italics supplied

3 Ibid.

1 SEE footnote 5, p. 9, supra

2 Sec, 7, Rule 130, Rules of Court, to the effect that
subject to specified exceptions, “When the terms of an agreement have been
reduced to writing, there shall be between the parties and their successors in
interest, no proof of the agreement other than the writing itself **.”

1 Moran, Comments on the Rules, 1980 ed., Vol. 3, p.
74, citing Calo, et al. v. Roldan,
et al., 76 Phil. 445; De los Reyes v. Elepaño, et al., L-5282, May 29, 1953; De la Cruz v.
Tan Torres, L-14925, April 30, 1960

1 Sec.1, Rule 57, in relation to Sec.8, Rule 58, Rules
of Court; Moran, op. cit., pp. 2-3