Law of Agency

The purpose of the law of agency and of agents is the same as in English law: to permit the principal to act through the agent in matters for which the agent is in a better position to act whether due to location, knowledge, time or other expertise. The agent stands in a fiduciary relationship with the principal and is subject to all duties including those of disclosure flowing therefrom. Unlike in employment governed by the law of lease, an agent may enter into legal relations on behalf of the principal and has a greater margin of discretion on the performance of duties; there is no fixed time for the agent to perform, and an agent may assign agency duties to another. An agent is entitled to a commission to be negotiated or in accordance with market rates.

A valid agency contract requires each of the following three elements: 1) parties (principal and agent), 2) offer & acceptance, and 3) terms.

1) parties

  • both principal and agent must be of majority age and have leal capacity
  • guardians may act on behalf of principals lacking these
  • principal and agent should have personal knowledge of each other
  • parties should know acts for which agent authorised to act

2) offer & acceptance

  • the usual contractual caveats apply

3) terms of the agency agreement

  • the actions an agent is authorised to take must be lawful
  • according to some scholars an agent may not have the duty to gain ownership over public of common properties (as they would thereby acquire ownership themselves

A principal may authorise an agent to undertake one known transaction (‘particular agency’) or a series of transactions the details of which may not all be known to the principal (‘general agency’).

Under a ‘restricted agency,’ the principal specifies conditions with which the agent must comply, failing which the agent’s actions are not binding on the principal. In ‘unrestricted agency’ there are no express conditions but the agent is still limited by custom and common practice; if these limits are not observed the actions of the agent and their legal results only bind the principal if ratified by the principal.

Islamic law takes account of potential conflicts of interest where the incentives of principal and agent are not aligned. It also considers the potential moral hazard attendant upon the greater expertise and access to information possessed by the agent. Countermeasures include a rule that an agent may not buy the property of the principal and may not sell it to his or her own relatives or family. In sum a recognisable concept of fiduciary duty emerges as at English law.

Unauthorised agency

The legal schools split evenly on whether a person not authorised by another to act and to enter legal relations. One view is that they may not do so and that subsequent ratification of their actions does not change this position, and does not validate the invalid contracts that may arise from such an action. The alternative view is that such a person may so act provided subsequent validation by the (effective) principal.

Termination

The legal schools split evenly on whether agency is a binding or non-binding contract, that is whether it is one that the principal may terminate at will. Those schools which consider this contract type terminable unilaterally do so subject to the following conditions:

  • notice is given the agent and the termination does not prejudice third parties
  • when the reason for the agency contract expires
  • the principal him or herself performs the duties they have previously authorized the agent to perform
  • when the agent loses legal capacity to act and cannot perform their duties under the agreement

The agent may also unilaterally withdraw provided notice is given, or if the principal loses competence or legal capacity (for example due to insolvency).

Law of Guaranty

Mejelle, 11th Book, Preface-Definitions and Chapters I-III