ORIENT AIR SERVICES AND HOTEL REPS. v.

CA and AMERICAN AIRLINES (1991)

Padilla, J. | GR No. 76931 | Definition

SUMMARY:
American Air and Orient Air entered into a General Sales Agency Agreement (GSAA), where
Orient Air served as American Air’s sales agent in the Philippines. Orient Air failed to remit ticket
proceeds to American Air, so the latter terminated the GSAA and filed this case against Orient
Air.
The CFI declared the termination illegal and ordered American Air to reinstate Orient Air as its
agent, and to pay Orient Air commission and damages. The SC reversed the reinstatement of
Orient Air, ruling that American Air cannot be compelled to make Orient Air its agent.

DOCTRINE:
Art. 1868, NCC: By the contract of agency a person binds himself to render some service or to
do something in representation or in behalf of another, with the consent or authority of the
latter.
A principal cannot be compelled by any authority to establish an agent-principal relationship
without its consent.

FACTS
1. This is a consolidation of two petitions for certiorari from a CA decision which
dismissed American Air’s civil case against Orient Air and granted Orient Air’s
counterclaim for agent’s overriding commission and damages.
2. 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 (GSAA), whereby
American Air authorized Orient Air to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation.
 Under the GSAA, Orient Air shall remit (in US dollars) to American Air the ticket
stock or exchange orders, less commissions due to Orient Air, at least semi-
monthly. On the other hand, American Air will pay Orient Air Services
commission on transportation sold by Orient Air Services or its sub-agents.
3. American Air alleged that Orient Air had reneged on its obligations under the GSAA by
failing to promptly remit the net proceeds of sales for January-March 1981 in the amount
of US $254,400.40.
 American Air then undertook the collection of the proceeds of tickets sold
originally by Orient Air and terminated forthwith the GSAA in accordance with
par. 13, which authorizes termination in case Orient Air is unable to transfer to
the funds payable by Orient Air to American Air.
4. American Air filed a civil case against Orient Air before CFI Manila for accounting with
preliminary attachment/ garnishment, mandatory injunction, and restraining order
averring the aforesaid basis for the termination of the GSAA, as well as Orient Air’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."
5. Orient Air denied the material allegations of the complaint with respect to American Air's
entitlement to the alleged unremitted amounts, contending that after application thereof
to the commissions due it under the GSAA, American Air in fact still owed Orient Air a
balance in unpaid overriding commissions.
 Further, Orient Air contended that the actions taken by American Air in the
course of terminating the GSAA, as well as the termination itself, were untenable.
 6. CFI Manila ruled in favor of Orient Air, ruling that the termination of the GSAA by
American Air was illegal and improper, and ordering American Air to pay the balance of
the overriding commission on total flown revenue of US$84,821.31, plus the additional
amount of US$8,000.00 (3% overriding commission); Pl,500,000 in exemplary damages;
and P300,000 in attorney's fees.
7. IAC (now CA) affirmed with modification the CFI decision with respect to the damages
granted, reducing exemplary damages to P200,000, and attorney’s fees to P25,000.

ISSUES and HELD

1. WON the CFI erred in ordering American Air to reinstate Orient Air as its agent --- YES.

RATIO
1. By affirming this ruling of the trial court, respondent IAC, 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
(Art. 1868) 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” (emphasis supplied)
 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.
 The GSAA itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram
or cable." (emphasis supplied)

DISPOSITIVE
Lower court judgment affirmed with modification.