LAW 214 Business Organization

NATURE, FORM, & KINDS

of AGENCY
(Art. 1868)
 AGENCY
Art. 1868
Determination of Existence of Agency
In most circumstances, no formalities are
required for the creation of an agency relationship. The
question of whether an agency has been created is
ordinarily a question which may be established in the
same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of
intention.
 AGENCY
Art. 1868
Determination of Existence of Agency

1. Designation by the Parties.

- The manner in which the parties designate the
relationship is not controlling.

2. Fact of Existence.
- The question is to be determined by the fact that one
represents and is acting for another, and not by the
consideration that it will be inconvenient or unjust if
he is not held to be the agent of such other
 AGENCY
Art. 1868
Determination of Existence of Agency

3. Presumption of Existence.
- The relation of agency cannot be inferred from mere
relationship or family ties unattended by conditions,
acts, or conduct clearly implying an agency.
4. Intention to Create Relationship.
- On the part of the PRINCIPAL:
• there must be either an actual intention to
appoint or an intention naturally inferable from
his words or actions.
 AGENCY
Art. 1868
Determination of Existence of Agency
4. Intention to Create Relationship.
- On the part of the AGENT:
• there must be an intention to accept the
appointment and act on it.
• in the absence of such intent there is generally no
agency.
5. As Between the Principal & the Third
Person.
- agency may exist without the direct consent or
approval of the agent.
 AGENCY
Art. 1868
Nature of Relations Between Principal & Agent.
1. Relations fiduciary in character.
- The relations of an agent to his principal are fiduciary
in character since they are based on trust and
confidence on a degree which varies considerably
from situation to situation.
2. Agent Estopped from Asserting Interest
Adverse to his Principal.
- It is an elementary and very old rule that in regard to
property forming the subject matter of the agency,
the agent is estopped from asserting or acquiring a
title adverse to that of the principal.
 AGENCY
Art. 1868
Nature of Relations Between Principal & Agent.
2. Agent Estopped from Asserting Interest
Adverse to his Principal.
- The rule stands on the moral obligation to refrain
from placing one’s self in a position which ordinarily
conflicts between self-interest and integrity.
3. Agent must not act AS an adverse party.
- In matters touching the agency, agents cannot act so
as to bind their principals, where they have an
adverse interest in themselves.
 AGENCY
Art. 1868
Nature of Relations Between Principal & Agent.
3. Agent must not act AS an adverse party.
a. An agent cannot acquire by purchase, even at public
or judicial auction. The agent’s incapacity to buy his
principal’s property rests in the fact that the agent
and the principal form one juridical person.
b. Similarly, if the principal authorizes the agent to sell
goods, the agent must not sell to himself.
 AGENCY
Art. 1868
Nature of Relations Between Principal & Agent.
4. Agent must not act FOR an adverse party.
- An agent cannot serve two masters, unless both
consent, or unless he is a mere middleman or
intermediary with no independent initiative.
5. Agent must not use or disclose secret
information.
- Requirements of good faith and loyalty demand of
the agent the duty not to use or divulge confidential
information obtained in the course of his agency for
his own benefit to the principal’s injury and
expense.
 AGENCY
Art. 1868
Nature of Relations Between Principal & Agent.
6. Agent must give notice of material facts.
- Principles of good faith and loyalty to the principal’s
interests also require that an agent make known to
his principal
5. Agent must not use or disclose secret
information.
- Requirements of good faith and loyalty demand of
the agent the duty not to use or divulge confidential
information obtained in the course of his agency for
his own benefit to the principal’s injury and
expense.
 AGENCY
Art. 1868
Knowledge of Agent Imputed to Principal.
1. Agents’ duty of notification.
- The importance of the duty to give information of
material facts becomes readily apparent when it is
borne in mind that knowledge of the agent is imputed
to the principal even though the agent never
communicated such knowledge to the principal.

2. Relationship of attorney and client.

- The relationship being one of confi dence, there is
ever-present the need for the latter being adequately
and fully informed of the mode and manner in which
his interest is defended.
 AGENCY
Art. 1868
Knowledge of Agent Imputed to Principal.
3. Knowledge of the principal.
- theory of imputed knowledge ascribes the knowledge
of the agent to the principal, not the other way
around.

- The knowledge of the principal cannot be imputed to

his agent.
 AGENCY
Art. 1868
Exceptions:
- There are at least three exceptions to
the rule imputing knowledge of agent to the
principal:
1. Where the agent’s interests are adverse to those of the
principal;
2. Where the agent’s duty is not to disclose the
information, as where he is informed by way of
confidential information; and
3. Where the person claiming the benefit of the rule
colludes with the agent to defraud the principal.
 AGENCY
Art. 1868
Agent Subject to Principal’s Control.
1. Subject Matter of Agency.
- factor which most clearly distinguishes agency from
other legal concepts is control.
2. Act of Agent.
- The extent of the principal’s control over the agent’s
acts varies both with the type of the agency
relationship and the facts of the particular case.
- The general rule is that the principal may direct the
acts of his agent even though the principal has
promised not to do so.
 AGENCY
Art. 1868
Agency & Similar Contracts or Relations.

➢ Classification of Contracts.
- due regard must be given to its essential clauses.
- is what the law defines it to be and not what it is
called by the contracting parties.
- determines what law should apply to the relation
between the contracting parties.
 AGENCY
Art. 1868
Agency & Similar Contracts or Relations.
➢ The important characteristic feature of an
agency relationship which distinguishes it from
similar contracts or relations is the agent’s
power to bring about business relations
between his principal and third persons.

➢ General agents are to be distinguished from

certain particular kinds of agents.