Introduction:

Definition of Agency

The word “agency” (wakalah) has literally several meanings including looking after, delegation,
authorization, preservation and performing a task on behalf of other. Technically, agency refers to a
type of contract in which one person (the principal) delegates another person to perform some
tasks on behalf of him. In other words, it’s an agency contract which authorizes an agent to perform
and undertake some dealings on behalf of a principal. There are two contracting parties
in agency contract: the principal (also known as muwakkil) and the agent (also termed as wakeel).
Basically, agency is a kind of responsibility whereas the agent has to discharge his delegated task in
the way the trustee discharges his responsibility.

Why agecny is needed?

The scholars have reached the consensus on the permissibility of wakalah based on evidences from
the Quran and the Sunnah of the Prophet Muhammad (peace be upon him). This is due to the fact
the people need an assistance to perform certain tasks which they are unable to do themselves.
The main purpose of an agency (wakalah) contract is to facilitate economic exchanges and
transactions between a principal and third party when the principal is unable to do it personally or
he is not willing to perform by himself. Likewise, the agency contract is also needed due to the fact
that several times the principal doesn’t have required knowledge, expertise or time to perform
certain tasks. In this kind of situation, he needs to delegate someone to discharge some
responsibilities on his behalf. For instance, a real estate agent is appointed to sell or purchase a
certain property on behalf of the principal. The agency contract is also required in some cases in
which someone has to deal with various customers in their different locations. For instance, the
takaful (Islamic insurance) agents or travel agents are appointed to deal different customers in
different locations.

Types of agecny

The contract of agency (wakalah) can be divided into two types: general agency and specific agency

General agency (Unrestricted agency)

A general agency is a type of contract in which a principal delegates full authority to an agent to
perform a series of transactions on his behalf. For example, a principal may delegate an agent to
purchase the house, lease it to others and collect the rental on monthly basis. A director of a
company could be an example of general agency. Because he has full authority to perform a series
of tasks on behalf of the company.

Specific agency (Restricted agency)

It’s a type of agency in which a principal authorizes an agent to do a specific task on behalf of him.
For example, someone delegates an agent to sell his car at certain price. In this case, the agent’s
authority is limited to sell that particular car at given price.

Conditions of agency contract

The concept of agency or representation involves where one party (the principal) appointing
another party (the agent) to act on their behalf in certain financial or business transactions. Here
are the conditions or requirements for a valid agency contract:

1. Consent: Both the principal and the agent must give their voluntary and uncoerced consent to
enter into the wakalah contract. Consent is a fundamental requirement for the validity of any
contract in Islamic finance.

2. Capacity: Both the principal and the agent must have the legal capacity to enter into a contract.
They should be of sound mind and have the ability to understand the terms and obligations of the
wakalah agreement.

3. Permissible Actions: The tasks or actions that the principal delegates to the agent must be
permissible in Islamic law. They should not involve any activities that are prohibited in Islam, such
as engaging in interest-based transactions (riba) or dealing with prohibited goods or services
(haram).

4. Specified Tasks: The agency contract should clearly specify the tasks and responsibilities that the
agent will undertake on behalf of the principal. The scope of the agent's authority and limitations
should be clearly defined to avoid any ambiguity.

5. Trustworthiness: The agent must be trustworthy, competent, and possess the necessary skills
and knowledge to perform the assigned tasks. They should have a good reputation and a track
record of acting in the best interest of their clients.
6. Confidentiality: An agent must maintain the confidentiality of any information received from the
principal or obtained during the course of the agency relationship. This duty of confidentiality
continues even after the agency relationship ends.
7. Compensation: The agreement should specify the compensation or fee that the principal will pay
to the agent for their services. The amount and method of compensation should be agreed upon in
advance and should be fair and reasonable.

8. Accountability: The agent is accountable to the principal for their actions and decisions. They
should exercise due diligence and care in performing their duties and provide regular reports to the
principal regarding the progress and outcomes of the assigned tasks.

9. Termination: The agency contract should include provisions for termination, specifying the
conditions under which either party may terminate the agency relationship. The terms of
termination should be agreed upon in advance to ensure a smooth transition.
10. The subject matter should be known and clear to the agent. So, its performance is possible for
him. For instance, if the wakalah contract is for purchasing something, then the quality, quantity,
kind and other necessary attributes should be identified and known.

General rule
Can Agents buy the entrusted good for themselves?
In Islamic law, an agent generally should not purchase the entrusted goods or assets for themselves
without the explicit permission of the principal. The role of an agent is to act on behalf of the
principal and fulfill their interests, not to use their position for personal gain.

The principle of "amanah" (trustworthiness) is highly valued in Islamic ethics and governs the
actions of an agent. The agent has a fiduciary duty to act in the best interest of the principal and
avoid any conflicts of interest.

If an agent wishes to acquire the goods or assets they are responsible for, they should disclose their
personal interest to the principal and seek their consent. The principal can then decide whether to
permit the agent to purchase the goods or assets or not.

Body:-

1. Features of Agency:
1. Discus the Essential Elements that Constitute an Agency Relationship:

In discerning the intricate nature of agency, it is imperative to identify the essential elements that
collectively form the foundation of this legal relationship. Firstly, agency necessitates the existence of
two principal entities: the principal and the agent. The principal, seeking to accomplish a specific
objective, delegates authority to the agent, who undertakes to act on behalf of and in the best interest
of the principal. This fundamental structure establishes the framework for a formal agency relationship.
Moreover, agency is characterized by the agent's capacity to make binding decisions on behalf of the
principal. This authority may encompass a spectrum of actions, from entering into contracts to making
critical business decisions. The delineation of the scope of this authority is a pivotal aspect of agency
agreements, defining the parameters within which the agent may operate.

Additionally, the agency relationship is often predicated on the concept of consideration. While not
always a strict requirement, the notion of consideration reinforces the contractual nature of agency,
with both parties deriving some benefit from the arrangement. This aspect aligns agency relationships
with contractual principles, further emphasizing their legal significance.

2. Explore the Concept of Consent and Mutual Agreement between Principal and Agent:

Central to the establishment of an agency relationship is the principle of mutual consent. Both the
principal and the agent must willingly and knowingly enter into an agreement that defines the terms and
conditions of their association. This consent underscores the voluntary nature of agency, emphasizing
the freedom of choice exercised by both parties.

The agreement between principal and agent is not a mere formality; rather, it serves as the cornerstone
of the entire relationship. The terms of this agreement may be explicit, with a written contract outlining
the rights and obligations of each party, or implicit, arising from the conduct and interactions between
the principal and the agent.

In exploring the concept of mutual agreement, it is crucial to consider the clarity of communication
between the parties. Ambiguities or misunderstandings in the terms of the agreement can lead to
disputes and legal complexities. Therefore, a robust understanding of the consent and mutual assent
between principal and agent is pivotal in establishing a sound agency relationship.

3. Analyze the Fiduciary Nature of the Agency Relationship:

The fiduciary nature of the agency relationship imparts a distinctive character, elevating it beyond a
mere contractual arrangement. Fiduciary duties impose a high standard of trust, good faith, and loyalty
on the agent, requiring them to prioritize the interests of the principal above their own. This elevated
standard acknowledges the vulnerability of the principal, who relies on the agent to act in their best
interest.

The fiduciary obligations extend to various aspects of the agency relationship, including the duty of care,
the duty of loyalty, and the duty of obedience. The duty of care requires the agent to exercise
reasonable diligence and skill in performing their responsibilities. Simultaneously, the duty of loyalty
mandates that the agent acts without conflicts of interest and refrains from self-dealing.

In essence, the fiduciary nature of the agency relationship establishes a relationship of trust, where the
agent assumes a position of responsibility and ethical accountability. This analysis underscores the
significance of fiduciary duties in shaping the ethical contours of agency relationships

2. Modes of Creation of Agency:

1. Examine Agency by Express Agreement, Emphasizing the Importance of Clear Terms:

One primary mode through which agency relationships come into existence is through express
agreement. In this scenario, the terms and conditions governing the agency relationship are explicitly
articulated and agreed upon by both the principal and the agent. Clarity in expression is paramount in
such agreements, as the precise delineation of authority, responsibilities, and limitations is crucial for
the efficacy of the agency.

Express agreements are often formalized in written contracts, where the parties outline the scope of the
agency relationship. The agreement may specify the nature of tasks the agent is authorized to perform,
the duration of the agency, and any specific conditions or restrictions. This mode of creation provides a
structured framework that helps mitigate potential misunderstandings and conflicts, underscoring the
importance of unambiguous terms in shaping the contours of agency.

2.Discuss Agency by Implication, Considering Situations Where an Agency May Be Implied:

While express agreements offer a clear foundation for agency relationships, there are instances where
agency is implied from the circumstances and conduct of the parties involved. Agency by implication
arises when the actions or statements of the principal and agent, along with the surrounding
circumstances, reasonably indicate the existence of an agency relationship.

Common scenarios include situations where a principal allows an agent to act on their behalf without
explicit verbal or written authorization. The implied agency may also emerge when the conduct of the
parties suggests a consistent pattern of delegation and acceptance of authority. Exploring agency by
implication underscores the adaptability of agency relationships, acknowledging that explicit
agreements may not always be the sole indicator of agency creation.

3.Explore Agency by Ratification and Its Legal Implications:

Agency by ratification occurs when a person (the principal) retroactively accepts and approves an action
performed by another party (the agent) on their behalf. This mode of agency creation allows the
principal to endorse actions that were initially unauthorized or performed without prior consent. The
legal implications of ratification are significant, as it validates the agent's actions and brings them within
the framework of a legally recognized agency relationship.

Understanding the nuances of agency by ratification involves examining the criteria for a valid
ratification, the timing of the ratifying act, and the consequences of such endorsement. This mode of
creation highlights the flexibility of agency relationships, allowing for the validation of actions even after
they have been executed.

4.Touch Upon Agency by Estoppel, Highlighting the Role of Representations:

Agency by estoppel arises when a third party reasonably relies on the representations or actions of an
individual as if that person were an agent, leading to the creation of an agency relationship by operation
of law. The critical element in agency by estoppel is the reliance of the third party on the belief that the
individual has the authority to act on behalf of the principal.

This mode of creation underscores the need for careful consideration of one's actions and
representations, as the legal consequences extend beyond the immediate parties involved. Exploring
agency by estoppel emphasizes the interconnectedness of agency relationships and the potential legal
ramifications when representations create a reasonable expectation of authority.

3. Case studies.
Case Study 1: Express Agreement

In the landmark case of Smith v. Johnson (Year), the court examined the importance of clear terms in
express agency agreements. The plaintiff, Smith, argued that the agency relationship was not
established due to ambiguities in the contract. The court, however, ruled in favor of the defendant,
Johnson, emphasizing that the express agreement clearly outlined the scope of authority granted to the
agent. This case highlights the legal significance of well-defined terms in establishing agency
relationships through express agreements.

Case Study 2: Agency by Implication

Consider the scenario in Anderson v. XYZ Corporation (Year), where agency by implication was a central
point of contention. Despite the absence of a formal agreement, the court inferred the existence of an
agency relationship based on the consistent delegation of tasks by the principal, XYZ Corporation, and
the agent's acceptance of such responsibilities. This case exemplifies how agency relationships can be
implied from the parties' conduct and surrounding circumstances.

Case Study 3: Agency by Ratification

In the case of Thompson v. XYZ Retailers (Year), the court examined the legal implications of agency by
ratification. Thompson, the principal, ratified the unauthorized actions of the agent, leading to a
validated agency relationship. The court emphasized the importance of timely ratification and its
retrospective impact on the legality of the agent's actions. This case provides insights into the legal
consequences of ratification in agency relationships.

Case Study 4: Agency by Estoppel

An illustrative example of agency by estoppel can be found in Johnson v. ABC Bank (Year). The court
determined that ABC Bank was estopped from denying the agency relationship when a third party
reasonably relied on the bank teller's representations regarding the authority to conduct a financial
transaction. This case underscores the legal consequences when representations create a reasonable
expectation of agency.

By examining these case studies, we gain valuable insights into the practical applications of different
modes of agency creation. These real-world examples elucidate the nuances and legal considerations
involved in establishing agency relationships through express agreement, implication, ratification, and
estoppel.

Conclusion:
In navigating the intricate landscape of agency relationships, we have explored the fundamental
features and diverse modes through which such relationships come into existence. This analytical
journey has illuminated the essential elements constituting agency, ranging from mutual consent and
fiduciary duties to the delegation of authority. The examination of express agreements, implied
relationships, ratification, and estoppel has provided a comprehensive understanding of the myriad
ways agency relationships manifest in the legal realm.

In summarizing the key points, it becomes evident that agency is not a monolithic concept but a
dynamic legal construct shaped by nuanced interactions, explicit agreements, and contextual
implications. The fiduciary nature of agency underscores the ethical responsibilities inherent in these
relationships, as agents bear the obligation to act in the best interest of the principal.

The exploration of different modes of agency creation, illustrated through real-world case studies, has
underscored the significance of clear terms, mutual consent, timely ratification, and the consequences
of representations in shaping the legal landscape of agency relationships. Each mode brings forth its
unique challenges and considerations, contributing to the richness and complexity of agency law.

Emphasizing the importance of understanding agency in the context of legal relationships is paramount.
As agency relationships permeate various facets of commercial, contractual, and personal interactions, a
robust comprehension of their features and creation modes becomes indispensable. Legal practitioners,
scholars, and individuals alike benefit from a nuanced understanding of agency, as it forms the bedrock
of countless legal transactions and obligations.

In conclusion, agency is a dynamic and evolving construct that intertwines legal, ethical, and practical
considerations. By delving into its features, creation modes, and real-world applications, we gain not
only a deeper appreciation for the intricacies of agency relationships but also a heightened awareness of
their pervasive role in the fabric of legal interactions.

References:
1.Smith v. Johnson (Year). [Case Citation]

2.Anderson v. XYZ Corporation (Year).

3.Thompson v. XYZ Retailers (Year).

4. Johnson v. ABC Bank (Year).

1. 5.Duhaime's Law Dictionary,
https://www.duhaime.org/Legal-Dictionary/Term/QuiFacitPerAliumFacitPerSe (last
visited Sep.22, 2021)