Simply defined by Sharia

1. Group Members:
Madiha Rafiq
M.Wahaj Ashraf
Fahad Mehmood
Shahnawaz Bhamani
Syed Bilal Wasti

2. INTRODUCTION
Agency Contract
Contract which creates relationship between a principal and
the agent is called agency contract

3. Principal:
The person who authorizes another person to
act on his behalf is called principal.
Agent:
A person who acts on behalf of another person is
called agent.

4. EXAMPLES
 A order b to buy 10 kg sugar on behalf of A
 Someone hire agent to purchase house on his behalf
 Person hires an agent to sell his watch
 A person appoints an agent to make contracts for him
 A person appoints lawyer to appear in the court on his
behalf

5. ELEMENTS OF AGENCY
 Subject matter
 Parties to the contract
 Form of agency

6. Forms of agency
 Immediate agency: contract become effective as
soon as it is entered.
 Conditional agency: here the validity of contract
is made subject to fulfillment of certain condition
 Future agency: contracts become valid at specific
date.
 Free or limited agency: in case of free agency ,the
agency is free of conditions.

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 Two things to focus
 Interest of principal
 Customary practice
 Limited Agency
 Agent have to work according to specific limitations
 Disposing through defined conditions

8. Conditions on the agent
 Minor and lunatic cannot become an agent
 The agent should be aware of his status as an agent
 The acts of agent should be as prescribed in the
agency contract
Conditions on the principal
 The principal should possess legal capacity to enter
into the contract.
 Lunatic person and minor(partially capable) cannot
become the principal, if minor becomes then
agreement proceeds with the approval of guardian.

9. Conditions on the subject matter
 The subject matter should be known to agent e.g. : problem in
car.
 It should be owned by principal e.g. of house.
 It should be something that can be disposed of through agency
e.g. any kind of financial contract.
 Subject matter should be permissible by shari’ah and it should
not involve shari’ah banned practices e.g. buying of alcoholic
drinks or criminal activities.

10. Types of Agency
 General Agency:
 Includes all methods of disposing of assets.
 Interest of the principal and customary practice well
observed.
 Donation is not permissible unless principal tell to do
so.
 Example; Insurance Agent

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 Absolute Agency:
 Selling or purchasing at low or high price than market
price not permissible.
 Neither barter nor differed payment sales cannot
perform unless with consent of principal.
 Bounded by customary practices and interest of
principal.

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 Paid Agency:
 Permissible in Shari’a.
 Remuneration could be predefined in the contract or to be paid
accordance with the customary service.
 To leave remuneration for agency undetermined and allow agent to
take unspecified amount from principal is not permissible.
 More than specified remuneration can be paid to agent as a
motivation.

13.  If the agent refrain the contract for no reasonable excuse and has
done beneficial part of work, than he would be paid for the specific
part of job he had performed.
 Incase of any loss due to the refusal of agent, he will be liable to
indemnify the principal.
 If principal forces the agent to discontinue job with any reasonable
excuse, then principal have to pay full remuneration on which they
agreed.
 In case of damage of the subject matter, principal however will pay
remuneration to agency.
 If damage has occur by agency then agency will indemnify.

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 Binding versus Non-Binding Agency:
 Agency is not binding as both parties have right to
revoke the contract.
 However, it can bind in the following circumstances.
 When agency is paid.
 When the certain time period is defined.
 When it involves the right of others.(e.g. Repayment of Loan)
 Unless agent or principal not able to perform the task because
of injury.

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 Temporary Agency:
 Agency has no time limit.
 Agent can be terminated any time.
 After a certain time (defined in the contract), agency
become invalid without any request from both parties.
 Due to time limit, agency restrain the agent to start new
operations.

16. Commitments of Principal
 Price and expenses should be borne by principal in
contract (transportation, taxation, storage,
maintenance, insurance e.t.c).
 Principal should repay the amount of remuneration to
agent.

17. Commitments of Agent
 Incase of any damage to the subject matter, agent is
not liable to indemnify unless he is responsible for that
loss.
 Breach of contract must not involve the interest of
principal like selling at higher price or buying at low
price.
 In shari’a,
 It is not permissible to work for both parties at the same
time.
 Conflict will occur.

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 Agent must not guarantor of investment or it turns into
interest based transaction.
 Could provide personal guarantee independently(of the
agency contract) if guarantee is not stipulated in the
contract.
 In this case agent will remain liable as guarantor even he
discharged from acting as an agent.

19. Conditions on the Agent
 Deal with self and relatives
Deal with relatives which are not under the his
guardianship and nor agent’s spouse is permissible.
Unless with the permission of principal and without
any injustice and favoritism.
Agent cannot deal with himself, son/daughter under
guardianship or with his partner in the same contract.
Agent should not act for both parties.
An agent may purchase what he has bought for
principal by way of offer and acceptance.

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 Monitoring of the Provision and the Right of
Contract
Monitoring the provision of the contract is the
responsibility of principal whereas monitoring the
activities stipulates in the contract is the responsibility
an agent.

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 Breach of the Contract Stipulations
 In the case if agent breaches the contract, principal will
latter continue the contract or declare as invalid.
 For example: price, on spot or differed payment,
possession or transfer of ownership.
 Agent cannot purchase or sale at low/high price than
market or price set by principal, if agent do so than he
has to compensate.

22. Appointing a Sub-Agent
 Agent has no right to appoint sub-agent without
permission of principal.
 Termination of subagent does not impact on the first
agent, however, principal can terminate him.

23. Appointing more than one Agent
 If more than one agent appointed in same contract but
they cannot take sole decision unless principal tell to
do so.
 If they have been appointed by separate contract,
agents have right to perform individual responsibilities
unless principal require joint action.

24. Expiry of Agency
 Contract will expire;
 When agent or principal will die or loses legal capacity.
 When principal terminate the agent.
 When agent refuse to continue the work.
 When agent complete the task or principal perform task
himself.
 When the principal no longer owns the assets.
 When incidence has occur which lead to expiry of
contract.

25. Un commissioned Agent(Fodooli)
 An un commissioned agent is a person who intervenes
or interferes in others' affairs without being invited or
called on.
 In shari’ah terminology, an un commissioned agent
sale is a type of sale undertaken by a person who is not
a principal, agent or custodian with respect to the sale
contract.
 Act of an un commissioned agent depend on the
approval of owner.

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 In case of approval contract becomes effective.
 In case of denial un commissioned agent have to
indemnify the owner.
 The ruling of the un commissioned agent are
applicable to all financial contracts.
 Example;