“ISLAMIC LAW OF AGENCY” &

“CONTRACT OF AGENCY”
UNDER CONTRACT ACT 1872

GROUP MEMBERS:
ABDULLAH (004)
AYESHA HAMMAD
SAROSH WAQAR
SHAHMER KHAN T (100)
AIMA AHMED
 TABLE OF CONTENT:

INTRODUCTION
Page# 3

ISLAMIC LAW OF AGENCY

Page# 4

CONTRACT OF AGENCY
Page# 8

DIFFERENCE BETWEEN ISLAMIC LAW OF AGENCY

AND CONTRACT OF AGENCY
Page#13

SUMMARY
Page#14
INTRODUCTION:

Throughout the ages in any period or area of the world the Local Laws and the
legislation behind it has always been something that the people affected by it are
aware of as common knowledge. However, every citizen cannot be expected to
become intimately acquainted with the legislation and legal system in a practical
sense. Thus, always arose the need to hire a legal agent already well versed in the
practice of Law to oversee the legal nature of any situation a citizen, not versed in
legislation, may find oneself in. This transfer of legal authority from one person to
another is what we would call giving someone agency.
The transfer of agency isn’t just limited to people with superior legislation
understanding, it can also be based on superiority due to expertise in a field that the
person transferring authority over wishes to be explored.
In the current time period “Contract of Agency” is the international system being
followed by the businesses operating across the earth. The “Islamic Law of
Agency” on the other hand is a more specified legal system being practiced in
Pakistan and other Islamic states that deals with the same issue. Let us compare
these two separate legal systems and make a proper assessment of both their
similarities and differences.
ISLAMIC LAW OF AGENCY(WAKALAH)

DEFINITION OF WAKALAH

Wakalah is an Arabic term that implies, in literal meaning, the act of taking
custody of something or applying a skill to the benefit of others. The word
"wakalah" literally has many meanings like caring, delegating, approving,
maintaining and executing a duty on behalf of others. Technically, wakalah refers
to a type of contract in which one person (the principal) commits someone else to
perform certain tasks on his behalf. In other terms, it's an agency arrangement that
authorizes an agent to perform and participate in any transactions on a principal's
behalf. In wakalah contract there are two negotiating parties: the principal (also
known as muwakkil), and the agent (also known as wakeel). In fact, wakalah is a
kind of duty while the agent must carry out his assigned role in the manner in
which the trustee discharges his obligation.

WHY WAKALAH IS NEEDED?

The Islamic scholars have reached consensus on wakalah permissibility based on

evidence from the Quran and the Prophet Muhammad's Sunna (peace be upon
him). It is because people need assistance in conducting other things that they
cannot do themselves. The main aim of a contract for an entity (wakalah) is to
facilitate commercial exchanges and transactions between a principal and a third
party when the principal is unable to do so directly or is unable to do so on his
own. Similarly, the agency contract is often needed because the principal has many
times no experience, skills or time available to perform those tasks. He has to
appoint somebody to discharge certain duties on his behalf in this kind of situation.
For example, a real estate agent is appointed on behalf of the principal to sell or
buy a particular property. In certain cases, in which someone has to deal with
various customers at their different locations, the agency contract is also required.
For example, takaful (Islamic insurance) agents or travel agents are assigned to
deal with different customers at various locations.1

1
https://blossomfinance.com/press/introduction-to-wakalah-agency-contracts-27-of-28
In general, wakalah can be classified into the following categories, all of which are
undertaken by the agent on behalf of the principal:

WAKALAH BIL KHUSOOMAH: agency for taking up disputes or legal cases.

WAKALAH BI TAQADHI AL-DAYN: agency for receiving debt.
WAKALAH BI QABDH AL-DAYN: agency for taking possession of debt.
WAKALAH BIL SHIRA’: agency for undertaking purchase.
WAKALAH BIL BA’I: agency for undertaking sale.2

TYPES OF WAKALAH

RESTRICTED WAKALAH
An agency contract (aqd al-wakalah) where the principal (muwakkel) is limiting
the agent's actions or ability (wakil). For example, it can include a principal asking
his agent to purchase a car with a specific color and model and at a price that does
not exceed a specific amount. The agent is not at liberty in this case to buy any car
but must stick to the requirements set by the principal. Restrictions differ
depending on the conditions, desires, resources and so on of the principal.3

UNRESTRICTED WAKALAH
An agency contract (aqd al-wakalah) in which the principal (muwakkel) imposes
no limitations on the agent's actions or authority (wakil). For instance, it can
include a principal asking his agent to purchase an office building without going
into any specifics about its location, features etc. In this situation the agent is free
to buy anything he finds to be in his principal's interest.4

BASIC RULES OF WAKALAH

2
https://www.financialencyclopedia.net/islamic-finance/questions/what-are-the-types-of-wakalah.html
3
https://www.investment-and-finance.net/islamic-finance/r/restricted-wakalah.html
4
https://www.investment-and-finance.net/islamic-finance/u/unrestricted-wakalah.html
There are four foundations or components of a wakalah contract, namely the
principal (muwakkil), the wakil agent, the bid & acceptance, and the subject
(muwakkal bihi)

CONTRACTING PARTIES: THE PRINCIPAL AND THE AGENT

1. A wakalah contract involves two parties namely the principal and the agent.
The basic condition for all parties is that they have the legal capacity to
conclude a contract. Because of the lack of legal power, therefore, an insane
or a minor cannot enter into a wakalah contract.
2. The principal will assign the duty and make a freewill director. If he does so
because of coercion on the part of others, then the contract will be void.
Similarly, the agent should not be forced to accept the agreement with the
agency and carry out the delegated tasks.
3. In an agency arrangement, all parties need to know each other. They do not
need to ask by name though. For example, whether the principal recognizes
the agent by name or physical appearance or attributes, this will be
appropriate for the legitimacy of an arrangement with an entity.

OFFER & ACCEPTANCE (IJAB & QABUL)

The bid and approval of a contract are important elements. The contract of wakalah
also requires offer and acceptance like any other contract. For instance, if the
principal says: "I allow you to sell my car on my behalf" and the agent says: "I
accept that," then the wakalah contract is completed. The jurists and scholars note
that approval of a wakalah contract may be formed in various ways such as verbal,
movement, writhing or signing etc.

SUBJECT MATTER (MUWAKKAL BIHI)

In a wakalah contract, the subject matter refers to an assigned duty or obligation
performed by an individual on behalf of a principal. In other words, it is an object
of a contract to wakalah. In the wakalah subject the following conditions must be
observed.
1. In Shariah, the assigned duty or act must be a legitimate and appropriate one.
It does not include the sale of forbidden goods in any non-Shariah
enforcement activity as such.
2. The agent will be aware of the subject matter and be open to it. So, to him,
his success is possible. For example, if the wakalah contract is for buying
things, then the price, quantity, kindness and other qualities that are required
should be defined and understood.
3. The topic of a wakalah must be anything suitable for delegation and
authorization such as financial transactions, sales and purchases, borrowing
and lending and gift making etc. The wakalah contract is not allowed for
pure worship activities (ibadat) such as prayer, fasting, and oath-taking etc.
The contract for wakalah or agency may or may not be paid depending on the
consent of the parties. Whether it is a paying agency arrangement it falls under the
ijarah arrangement rulings. And if it's a deal with a non-paid organization then it's
called a charitable deal.5

5
https://blossomfinance.com/press/basic-rules-for-wakalah-agency-contracts-28-of-28
CONTRACT OF AGENCY UNDER CONTRACT ACT 1872 6

INTRODUCTION

The agency contract is one of the most important contracts in the commercial
environment under both Islamic and traditional legal systems. Corporations,
partnerships, law firms, securities, accounting firms, insurance companies all
involve agency contracts.

DEFINITION OF CONTRACT OF AGENCY

In agency contracts, there exists a legal relationship between two people whereby
one person acts on behalf of the other. The person acting on behalf of the other is
called an agent, and the person from whom the agent derives authority to act is
called the principal. This contract is based on the need when one person is not able
to do an act or is unable to make a transaction, he may employ someone else to do
the job.

CREATION OF AGENCY

Agency can be created by five forms under the law:

1. EXPRESS AGENCY: can be made through express agreement which can
be verbal or in a written form by which the power of attorney is given to the
agent to act on behalf of the principal.

6
https://businessjargons.com/contract-of-agency.html
 https://www.slideshare.net/galaxy4u/agency-under-section-182-of-the-indian-contract-act-1872
 https://sgp1.digitaloceanspaces.com/edsmed/redactor/BBA%204th%20Semester%20Business%20Law
%20Unit%203%20Note.pdf
 https://grrajeshkumar.com/class-notes-on-contract-ii-unit-iii-2nd-sem-3-year-ll-b/
 2. IMPLIES AGENCY: is created when certain circumstances arise and is
necessary for the case. Implied agency may take further three forms;
 AGENCY BY ESTOPPEL: when one person behaves or acts as
they are an authorized agent, in front of a third party, agency by
estoppel is created.
 AGENCY OF NECESSITY: this agency is created out of necessity,
when one person acts on behalf of the other to save him from loss or
damage without being appointed.
 AGENCY BY RATIFICATION: this agency is created when one
person acts on behalf of the other without his knowledge and is later
given formal consent to contract.
 AGENCY BY HOLDING OUT: where any person is held out by
another as his agent, the third-party can hold that person liable for the
acts of the apparent agent.

TYPES OF AGENTS
1. GENERAL AGENT: is the agent appointed to perform all acts
within his authority granted by the principal.
2. SPECIAL AGENT: is the agent appointed to do a specific task
3. MERCANTILE AGENT: is an agent appointed for business
activities such as the sale or purchase of goods.
4. UNIVERSAL AGENT: is the agent who has unlimited power and
authority to act on behalf of the principle and substitute the principle
in transactions where the principle cannot participate.
5. COMMISSION AGENT: is an agent who acts on behalf of another
for commission
6. BROKER: is an agent appointed to buy and sell goods from third
parties on behalf of and for the principal but is not given possession of
the goods.
7. SUB AGENT: is an agent appointed by an agent
8. DEL CREDERE: an agent who acts as a sales person, broker and
guarantor for the principal
9. AUCTIONEER: is appointed by the principal to sell his goods
through public auction and obtaining higher bids
10.FACTOR: appointed for the sale of goods with the goods in his
possession.
FEATURES/CHARACTERISTICS OF AN AGENCY CONTRACT
 LEGALLY BINDING: as the principal is bound by the acts of the agent
and the agent is bound to perform actions as stated or instructed by the
principle.
 CONSIDERATION IS NOT REQUIRED: under contract act 1872 there
are exceptions under which the rule of no consideration no contract does not
hold and the agreement made without consideration is not void.
 THE PRINCIPAL MUST BE COMPETENT TO CONTRACT:
which means that a person must of the age of majority which is, 18 under
contract act 1872, and who is of sound mind and is not disqualified from
contracting by any law to which he is subject.
 AUTHORITY TO CONTRACT: is the requirement to become an agent.
According to section 184 any person can become an agent and there is no
need to have contractual capacity. Minors can also be agents.

DUTIES OF AN AGENT
 To strictly follow directions provided by the principle (section 211)
 Skill and diligence required from the agent. The agent should conduct the
business with as much skill as he possesses (section 212)
 Duty to communicate with the principal. In case of any problem or difficulty
the agent should communicate and obtain instructions from the principal.
(section 214)
 Not to make secret profit. It is the duty of the agent to stay loyal to the
principal and must disclose all profit made.
 The agent must not allow his interests to conflict with his duty.
 The agent should work directly for the principal and should not further
delegate authority. (section 190)
 To provide proper and correct accounts of all his transactions on the
principal’s behalf. (section 213)
 Not to deal on his own account without the consent of principal
 Duty to pay all sums received to the principal. (section 218)
 Duty to take equitable steps if agency is terminated due to the death or
insanity of the principal. (section 209)
DUTIES OF THE PRINCIPAL

 The principal is bound to pay remuneration to the agent and compensate all
expenses incurred by him. (section 219)
 The principle is liable to indemnify agent for acts in good faith. (section
223)
 Compensation should be made to the agent in case of any injury. (section
225)
 Duty to indemnify for lawful acts performed by the agent on behalf of the
principal in the presence of authority. (section 222)


RIGHTS OF AGENT

 The agent has a lien on the goods of the principal for his dues
 Right to receive remuneration. (section 219)
 Right to be indemnified for all lawful acts done. (section 222)
 Right to be compensated in case of any injury by the principal.
 Where the agent has bought goods for his principal by incurring a personal
liability, he has a right of stoppage in transit against the principal in respect
to the money he has paid. (section 228)

RIGHTS OF PRINCIPAL

 Right to recover damages or loss from the agent that has been caused by his
irresponsibility.
 Right to resist agent’s claim for indemnity. (section 215)
 Right to demand and obtain any secret profit made by the agent without the
consent of the principal. (section 216)
TERMINATION OF AGENCY

An agency may be terminated in the ways mentioned below:

 By a mutual agreement between the parties

 By the principal revoking his authority
 By the agent renouncing the business of agency
 By the business of agency being completed
 By either the principal or the agent dying or becoming of unsound mind
 By the principal being adjudicated an insolvent under the provisions of any
Act for the time being in force for relief of insolvent debtors.
 On expiry of fixed period
DIFFERENCE BETWEEN ISLAMIC LAW OF AGENCY AND
CONTRACT OF AGENCY UNDER CONTRACT ACT 1872:

Islamic law of agency is known as “Wakalah”, Wakalah is an Arabic word which

means the act of taking custody of something or applying a skill to the benefit of
others. The person made responsible or who act as a middle man is called
“Wakeel” and the person who authorize Wakeel to represent him to third party is
called “Muwakkil”. Where as in Contract act of agency an agency there exists a
legal relationship between two people whereby one person acts on behalf of the
other the person wo acts on behalf of other is called “Agent” and the person who
gave right to Agent to act on his behalf is called “Principal”. In Islamic law of
agency there are two types of Wakalah one is restricted wakalah and other one is
unrestricted wakalah whereas the contract of agency has diversified the types of
agents and specified them as General Agent, Special Agent, Mercantile Agent,
Universal Agent, Commission Agent, Broker, Sub Agent, Del Credere, Auctioneer
and Factor. The Restricted Wakalah and General agents are similar as the nature of
carrying out their jobs is same and Universal Agent and Unrestricted Agent also
perform their jobs in similar manner just that they are described with a different
name in Islamic Law and contact Act 1872 respectively. There is not that much of
a difference in the overall functioning of the Agency and its duties whether it is
working as per Islamic law of agency or the contract of agency under contract act
1872. The Islamic law of agency is based on shariah principles and forbids some
aspects of the business or transactions. Both of these laws give rights to Agent
(Wakeel) and Principal (Muwakkil).
SUMMARY:

Upon closer inspection, I can be discerned that both the Islamic law of agency and
the Contract of agency (1872) deal with the same matter. The discrepancies arrive
in the form of terminologies and the scope of the laws being implemented.
The Islamic Law of Agency derives its terminology from the Arabic roots of the
religion it is based on. Being a religious directive, its scope is rather generalized in
order to broaden its scope of encompassment and allow its implementation in an
expansive number of scenarios throughout daily lives. This system will have a
singular presiding authority behind it being implemented on different levels.
The Contract of Agency (1872) on the other hand was designed with its
implementation in a rigid legal system in mind rather than religious beliefs. Its
terminology is more precise and based on the legal system left behind by the
English. Its scope may not as vast, but it compartmentalizes and specifies the
nature of each form of contract in order to distribute the oversight of these
contracts to their specified authorities and courts rather than having all these
contracts go through the same presiding authority. This system supports a style of
bureaucracy where different bureaus preside over different areas on all levels.