Orient Air Services vs. CA

G.R. No. 76931, May 29, 1991

American Air, an air carrier offering passenger and air cargo transportation, entered into a General Sales Agency Agreement with Orient Air, authorizing the latter to act as its exclusive general sales agent for the sale of air passenger transportation. Orient air failed to remit the net proceeds of sales for several months prompting American Air to undertake the collection of the proceeds of tickets sold originally by Orient Air and terminating their agreement.

American air instituted suit against Orient Air for the settlement of past outstanding funds in possession of the latter. Orient Air contended that because of the unpaid overriding commissions it retained the sales proceeds before remitting the balance to American Air. American Air contended that the sale must be made by Orient Air and the sale must be done with the use of American Air’s ticket stocks in order for it to be entitled to the overriding commission. On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air because it was an exclusive General Sales Agent. CA held that Orient Air is entitled to commissions and ordered American Air to reinstate Orient Air as its General Sales Agent.

1) Whether or not Orient Air is entitled to commissions.
2) Whether CA is correct in ordering reinstatement of Orient Air as an agent.

1.) Yes. 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.

2.) 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.

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