This document covers the duties of an agent in a contract of agency under both Contract Act 1872 and Islamic law of contract. Limitations on authority and responsibilities of an agent in agency contract are also mentioned that are somehow similar with minor changes in terms used. Moreover, comparative analysis of principles related to agency contracts is done. Relevant case laws are mentioned in brief form to support the main points. Lastly, recommendations are given in light of Islamic law to improve current legislation regarding agency contracts.
Introduction
A person who is employed to do acts on behalf of another and represents the person by whom he is employed, to a third person in dealings is the Agent of that person and that person is principal. In Pakistan, under contract act 1872 agent is defined in section 182. There are no distinctions between different classes of agents in the Contract Act. An agent has some rights and duties against principal. But there are some limitations on the authority of an agent under both the laws and if he goes beyond the limitations he would be accountable to principal and the third party in contract act but not under Islamic law as Islamic law provides more protection to rights of individuals (buyers and sellers in agency contract).
Responsibilities of an agent
Duties to execute mandate and follow instructions
In section 211 of contract act it is mentioned that first and most important duty of an agent is to execute the transaction in accordance to his principle and if he fails to follow exact instructions then he has to recover the loss. Section 214 is that agent must in case of any difficulty inform his principal and receive his instructions. In Pannalal Jankidas v. Mohanlal case, an agent purchased goods for his principal and received amount for insurance from him without insuring the goods, even after principal’s demand. A sudden explosion caused loss of goods. Agent was held liable for compensation of loss to the principal. [footnoteRef:1] In Islamic law of contract too, the agent has to follow all the instructions of principal including all the restrictions.[footnoteRef:2] [1: Dipti Khatri, Duties of agent, LAWCTOPUS, ( Jan 12, 2015), https://www.lawctopus.com/academike/duties-agent/] [2: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
Duties to exercise due care
An agent must use his skill and take reasonable steps on his principal’s behalf. If loss occurs due to agent’s negligence then he would be responsible for whole of it as mentioned in section 212 of contract act.[footnoteRef:3] Under Contract Act a paid agent would be responsible for both nonfeasance and misfeasance while a gratuitous agent would be responsible only for misfeasance. Furthermore, both paid and gratuitous agents have to exercise reasonable care. According to Islamic law of contract, reasonable care is required from paid agent while the gratuitous agent has to exercise care that he does in his personal transaction. [3: Dipti Khatri, Duties of agent, LAWCTOPUS, ( Jan 12, 2015), https://www.lawctopus.com/academike/duties-agent/
Duty to Avoid Conflict of Interest
Under both the laws it is clearly mentioned that there must not be a conflict of interest between agent and his principal. If it happens then agent will not be able to represent his principle effectively. If an agent is authorized by his principal to purchase a product such as a car for him, the agent cannot sell his own car to his principal as in doing so the agent would put his personal interest in his priority so in this way there would be conflict with interest of principal. This is point of view of majority of Islamic jurists.[footnoteRef:4] [4: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
Duty to disclose the identity of the principal
Under Islamic law there two terms are used ‘agent’ and a ‘messenger’. When an agent discloses the identity of his principal he would become a messenger but if he does not discloses principal’s identity then he would be an agent. While in contract act there is no such distinction made. Nevertheless, this duty is mandatory for an agent in both the laws.
Duty not to make secret profit
Under both the laws, an agent is not allowed to make any profit without the consent and knowledge of his principal. Secret profit is not just limited to money but may include anything like an interest-free loan.[footnoteRef:5] [5: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
Duty to maintain Accounts
According to section 213 of contract act an agent is bound to give to principal on his demand proper account of his sales.[footnoteRef:6] Under both conventional law and Islamic law this duty is mentioned. Agent must give the principal all the necessary information about all the profits made and expenses incurred. He is bound to return all documents given by the principal. He must have proper record of all the transactions.[footnoteRef:7] [6: Dipti Khatri, Duties of agent, LAWCTOPUS, ( Jan 12, 2015), https://www.lawctopus.com/academike/duties-agent/] [7: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
Duty not to delegate
This is a common doctrine in contract law that ‘delegated authority cannot be delegated.’ So, normally an agent is not permitted to employ sub-agents and if he does so without consent of principal, then only he will be accountable to third party for any breach, not the principal. In John McCain and Co. v. Pow case the court cancelled agent’s claim on the basis that he trespassed his authority and employed sub agent without principal’s assent. Similar rule is there in Islamic law. The reason for prohibition may be that principal especially wanted to hire that agent for his or her, personal honesty, special skills, or other individual qualities and the second agent may lack those qualities. But if the principal allows the agent that he may appoint a sub-agent then such sub-agent is direct agent of principal.
Duty to protect the principal’s property
Under both the conventional contract law and Islamic law of contract it is duty of agent to protect the property of his principal that is under his control. Under Islamic law, legal status of principal’s property is just like that of a deposit that is in his agent’s control. The agent would only be liable for the loss that was caused by negligence of agent. According to Hanafi school of thought when agent keeps products under his control for payment of price of the product then its status changes from ‘deposit’ to ‘pledge’. During this if property is damaged the principal will be discharged to the extent of loss. [footnoteRef:8] [8: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
Limitations
Limitations under Contract act
Under section 188, the agent can only perform lawful acts necessary for execution of transaction as directed by principal. Under Section 190, the agent cannot employ another person to do acts (either expressly or impliedly). Under Section 211, he cannot do any act against the instructions of principal. As per Section 215, the agent is restrained to do any act without consent of principal. An agent cannot sell the goods or execute any transaction to himself as it would lead to conflict of interest. An auctioneer is an agent who deals with property at a public auction. His authority is limited as he cannot sell the property by private contract and cannot give warranties for the property that is sold. A broker too can only communicate between two parties he does not have any authority to possess the property.[footnoteRef:9] Contract act limits a person who has not gained age of majority or not of sound mind to be an agent. [9: Agent’s Authority- Judicial Interpretation, http://docs.manupatra.in/newsline/articles/Upload/FA398636-A18A-4B4A-AD0B-67DF42E894B4.pdf]
Limitations under Islamic Law
Under Islamic law every action is not delegated it must be suitable for the purpose of delegation. Acts of worship like prayer is not suitable for delegation because they demand personal efforts. [footnoteRef:10] Islamic law restricts an agent from making any secret profit. Under Islamic law an agent is refrained from exceeding in authority. [10: Rights and Duties of Agents, TOPPR, https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/rights-and-duties-of-agents/]
Comparative Analysis
Difference lies in following few distinctions:
An agent is bound to conduct the transactions with skill and due care. However, Islamic law divided agent into types regarding level of care, one who is paid must exercise reasonable care and second is gratuitous agent who should exercise subjective level of care. In contract act, both types of agents must exercise reasonable care.
Another distinction regarding these two types in conventional law is that paid agent would be responsible for misfeasance as well as nonfeasance but gratuitous agent would be responsible for misfeasance on the basis that it does not involve any consideration so non-performance would not cause any liability while no such distinction is made under Islamic law.
As far as disclosure of identity is concerned, the Islamic law enshrines, if agent discloses identity of his principal then he would be having the status of a messenger but not of agent. Such distinction is absent in contract act.
Under Islamic law principal’s property, which is under agent’s control, has legal status of a “deposit” but in case agent retains that property in order to recover its price from principal then it will acquire the status of a pledge. No such status is mentioned under contract act.
In contract act if an agent attempts an unauthorized act, his principle would be held liable to third party. However, under Islamic law principal would not be responsible for any act of agent that is beyond his authority.[footnoteRef:11] [11: AGENT’S Authority- Judicial Interpretation, MANUPATRA, http://docs.manupatra.in/newsline/articles/Upload/FA398636-A18A-4B4A-AD0B-67DF42E894B4.pdf]
Under Islamic law the minor who reached close to the age of majority (sinn al tameez) but not of age of majority (sinn al rushd), may be an agent if the transaction is beneficial for him, so there is no restriction on such a minor to be an agent. This is similar to the Hanafi view which also allows such a person to be an agent even if he cannot do a similar task for himself by simply following the order of his principal. Contract Act does not adopt this approach on agency as it does not allow a minor to act as an agent.
Unlike contract act, in Islamic law every action is not delegated it must be suitable for the purpose of delegation. Acts of worship like prayer is not suitable for delegation because they demand personal efforts.
Another distinction between the two laws is that if time, location, price or any other important information is missing then under Islamic law contract must not be executed unless proper information is received from principal. But under conventional law /contract act agent should try to get the timely information from principal and deduce the reasonable meaning from principal’s instructions and then work accordingly.[footnoteRef:12] [12: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
In Islamic law, a woman cannot marry without the assent of her guardian according to non-Hanafi schools view. Moreover, she cannot appoint an agent to accept her marriage proposal on her behalf while in conventional law she can do court marriage.[footnoteRef:13] [13: Sayyed Hossain Vaezi (Ph.D.), Mohammad Ali Hossaini (M.A.), Studying the Responsibility and Authority Limitations of Agent in Islamic Jurisprudence file:///C:/Users/sara/Downloads/2676-10522-1-PB.pdf]
Case Law
Investment Dar Company KSCC v. Blom Developments Bank SAL
In Islamic law finance transaction and banking in which agency is involved, religious validity is important. Two financial institutions based on Islamic system entered in a wakalah (agency) contract. Investment Company (The Investment Dar) was appointed by Bank (Blom) as its agent for the purpose of investing a certain fund in shariah-compliant transactions with an agreed expected profit to be paid. In 2008, Investment Company failed to pay expected profit and as a consequence of it, the bank sued company in English court to get its money back with the profit. At first instance judgment of court was against the investment company and it was ordered to pay back the money and which company appealed against the judgment and gave arguments that this contract of agency was void because it violated Islamic law by making an agreement of fixed profit. The High Court allowed the appeal against the judgment in favor of company.[footnoteRef:14] [14: Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW,https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf]
Recommendations in light of islamic law to improve current legislation
The conventional agency law/ contract act promotes self interest as a result of which an individual maximizes his own utilities and hence agency problems are created that become impossible to be resolved. Islamic law emphasizes more on bonafide intentions not on malafide intentions that is not discussed in contract act and there is need of transparency.
Concept of mudarabah in Islamic law which is that one partner invests its money and other utilizes his intellectual abilities and they both share common profit and loss without any prior fixation could be applied to current agency contracts to avoid asymmetry of information, conflicts of interest and irresponsible decisions of an agent, so it is recommended to offer capital and obtain some financial risks without prior fixing in agency contracts.
For improvement in current legislation, principals of Islam must be incorporated in it. These are as follows:
In contract act there is no involvement of behavior of contracting parties with God like there is no involvement of religious beliefs and practices whereas in Islamic Law relation to God is the basic principle and in all the contracts that are based on Islamic law, witness is Allah.
Another important principle besides these two is unity that is not mentioned there in contract act/ conventional law. Unity is cooperation and mutual participation, and through this principle human relationship can be strengthened with the view that all human beings are created by one creator, Allah.
Another principle is that a man is vicegerent (khalifah) to Allah. An agent (wakil) acquires his role as a trustee not only to principal (muwakkel) but also to Allah.
Other important principles are Ihsan, Commitment to fulfill promise and honesty. Social lives and business transactions could not be successful without incorporation of all these principles.[footnoteRef:15] [15: Zelhuda Shamsuddin and Abdul Ghafar Ismail, Agency Theory in Explaining Islamic Financial Contracts, https://www.idosi.org/mejsr/mejsr15(4)13/10.pdf]
Conclusion
Principles regarding agency contracts in contract act which is a conventional law in current legislation are similar to that of Islamic law of contract but these principles are not very certain as a consequence of which misunderstandings are created between principal and agent. To avoid such uncertainities and to improve current legislation, it is essential to incorporate fundamental Islamic principles in it. In order to execute effective transactions, to avoid any conflict of interest and other problems it is also required that moral values of individuals must be high and this is possible only through inclusion of religion in legislation.
References
Sayyed Hossain Vaezi (Ph.D.), Mohammad Ali Hossaini (M.A.), Studying the Responsibility and Authority Limitations of Agent in Islamic Jurisprudence file:///C:/Users/sara/Downloads/2676-10522-1-PB.pdf
Agent’s Authority- Judicial Interpretation, http://docs.manupatra.in/newsline/articles/Upload/FA398636-A18A-4B4A-AD0B-67DF42E894B4.pdf
AGENT’S Authority- Judicial Interpretation, MANUPATRA, http://docs.manupatra.in/newsline/articles/Upload/FA398636-A18A-4B4A-AD0B-67DF42E894B4.pdf
Dipti Khatri, Duties of agent, LAWCTOPUS, ( Jan 12, 2015), https://www.lawctopus.com/academike/duties-agent/
https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/rights-and-duties-of-agents/
Muhammad Masum Billah, Agency Contract under Conventional Law and Islamic Law as Manifested in the Civil Code of Oman, A Comparative Analysis, ELECTRONIC JOURNAL OF ISLAMIC AND MIDDLE EASTERN LAW, https://www.zora.uzh.ch/id/eprint/135535/1/M_Masum_Billah_Agency_Contract.pdf
Rights and Duties of Agents, TOPPR,
Zelhuda Shamsuddin and Abdul Ghafar Ismail, Agency Theory in Explaining Islamic Financial Contracts, https://www.idosi.org/mejsr/mejsr15(4)13/10.pdf