Agency and the Act of an Uncommissioned Agent (Fodooli) - Scope & Shariah Ruling

Transcription

1. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) Statement of the Standard 1. Scope of the Standard This Standard covers agency and the acts of an uncommissioned agent in concluding contracts on financial transactions (such as sale, Ijarah and compensatory reconciliation), disposing of assets, providing services and conducting practical acts such as receipt, payment and delivery. The Standard also covers areas such as fund management, real estate and investment agency. However, it does not cover agency and the act of an uncommissioned agent in several other affairs of life such as worshipping (like Zakah, for which there is a separate standard), personal affairs, penalty affairs, legal prosecution/advocacy, and documentary credits (which have also been dealt with in a separate standard). 2. Agency 2/1 Definition, permissibility and characteristics of agency 2/1/1 Agency is the act of one party delegating the other to act on its behalf in what can be a subject matter of delegation and it is, thus, permissible. 2/1/2 Agency is, basically, a non-binding contract for both the parties thereto. However, it may sometimes become a binding contract. [see 3/4 below] 2/2 Basic elements of agency 2/2/1 The basic elements of agency include the form, the subject matter of agency, and the two parties to the contract (the principal and the agent). 2/2/2 The form of agency comprises any act that customary practices traditionally consider a delegation of the right to acting by someone on behalf the other. Such delegation comprises of 610
2. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) offer and acceptance which has no standard form of wording and may be expressed through utterance of words, writing, messaging or gesture. In accepting non-paid agency, silence is also considered as sufficient acceptance, while a negative response is indicative of rejection of agency. 2/2/3 Agency may take place in any of the following forms: 2/2/3/1 Immediate Agency, as usually the case, where the contract becomes effective as soon as it is entered into. 2/2/3/2 Conditional Agency: where the validity of the contract is made subject to fulfillment of a certain condition, for instance when a debtor agrees to put his own assets under the management of his creditor in case of default. 2/2/3/3 Future Agency: where the contract becomes valid only at a specific date in the future. 2/2/3/4 Agency, whether free or limited, shall be subject to specific conditions. In case of free agency, consideration should be given to customary practices, interest and the state of the principal. 2/2/4 While conditionality and limitation may be resorted to in concluding agency contracts, they may also be confined to the disposal of the subject matter of agency. In this case, though the agency contract is immediately effective, disposal is made subject to the fulfillment of a specific condition, such as resorting back to the principal before disposal. The conditions set by the principal should be observed such as offering him a guarantee or lien. 2/2/5 The subject matter of agency is for what the contract is entered into. [see item 3/3] 2/2/6 The two parties to the contract are the principal and the agent. [see items 3/1 and 3/2] 611
3. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) 3. Conditions on the Agency Parties 3/1 Conditions on the principal 3/1/1 The principal should possess legal capacity to enter into contract. 3/1/2 The principal should have the right to dispose of the asset in question. Agency, therefore, is not acceptable from a legally incapable person like a lunatic or an indiscriminating minor. A partially capable person, such as a discriminating minor, may appoint an agent for matters that result in absolute benefit to him, such as accepting donations from others, but he cannot appoint an gent in harmful matters like making donations. In acts that may be harmful or useful, such as buying and selling, a partially capable person may appoint an agent, but the acts of that agent remain pending the approval of the principal’s guardian or whosoever enjoys the similar right on behalf of the principal. 3/2 Conditions on the agent 3/2/1 The agent should have full legal capacity, because a lunatic or an indiscriminating minor cannot become an agent. A discriminating minor may become an agent, provided that all the contractual commitments are the sole responsibility of principal. 3/2/2 The agent should be aware of his status as an agent. When somebody acted on behalf of another and later on, the former comes to know that he is an agent of the latter, the preceding act does not fall under the agency contract. If, however, he does so with the intention of performing the act regardless of agency, the case should be subjected to the rules governing the act of an uncommissioned agent ((Fodooli Fodooli). ). [see item 8] 3/3 Conditions on the subject matter of agency 3/3/1 The subject matter of agency should be known to the agent. However, minor Jahalah (unknowability) that does not lead to 612
4. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) dispute, or temporary uncertainty, may be dispensed with. It can also be overlooked when, in absolute agency, the principal authorizes the agent to channel the funds in any form of investment. Nevertheless, the agent should observe the interest of the principal, as well as the norms and customary practices if necessary. 3/3/2 It should be owned by the principal, or he has the right of deposing thereof. 3/3/3 It should be something that can be disposed of through agency. This includes all types of financial contracts and dealings that a person can perform personally. Any contract that a person is permitted by Shari’ah to be involved in personally can be performed through agency. It should not involve a Shari’ah-banned practice, like trading in impermissible commodities or committing usurious lending. 4. Types of Agency 4/1 Agency may take the following forms: 4/1/1 Specific versus general agency. General agency includes all methods of disposing of assets provided that the interest of the principal and the customary practices are well observed. Disposal of assets here does not include making donations, unless the principal authorizes the agent to do so. 4/1/2 Limited versus absolute agency. Absolute agency is bound by customary practices and the interest of the principal. It is not permissible in absolute agency to sell at less or buy at more than the market price, nor is it permissible to perform barter and deferred payment sales, except with the prior consent of principal. 4/1/3 Paid versus non-paid agency. [see item 4/2] 4/1/4 Binding versus non-binding agency. [see item 4/3] 4/1/5 Temporary versus continuous agency. [see item 4/4] 613
5. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) 4/2 Paid agency 4/2/1 Paid agency is permissible in Shari’ah, whether remuneration is explicitly stipulated in the contract or ascertained in accordance with the customary practices, as when the agent doses provide such service except for remuneration. 4/2/2 When agency is paid, it falls under the Shari’ah rulings on Ijarah. [see item 4/3] 4/2/3 The amount payable as remuneration for agency should be known, whether in lump sum or as a share of a specific amount of income. It may also be defined in terms of an amount of income to be known in the future, as when remuneration is linked to an indicator that may be quoted at the beginnings of different intervals of time. However, it is not permissible to leave remuneration for agency undetermined and allow the agent to take an unspecified share from the entitlements of the principal. 4/2/4 When remuneration for agency is not specified, it may be measured in terms of the prevailing market rate for similar effort. 4/2/5 Remuneration for agency may be any gain in excess of a specific amount of output of the operation, or a share of the output. 4/2/6 A certain share of the output may be added to the specific remuneration of the agent, as a motivation. 4/2/7 When the agent, for no reasonable excuse, refrains from carrying on agency that he has been paid for, and the work he has done was beneficial, he becomes entitled to the remuneration commensurate with the part of work done, and within the limits of the contract value for that part of work. The agent in this case is bound to indemnify the principal for any actual loss resulting from his refusal to continue the work. When the principal, for no reasonable excuse, forces the agent to discontinue the work before the end of the agency period, 614
6. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) the agent becomes entitled to the full remuneration agreed upon. When the principal, for a valid reason, forces the agent to discontinue the work before the end of the contract, the agent becomes entitled to remuneration for that part of work he has already performed. 4/2/8 Damage of the subject matter of agency does not relieve the principal from paying remuneration to the agent for the part of the work the latter has already performed. When the damage occurs because of misconduct or negligence of the agent, he is bound to indemnify the principal for it. 4/3 Binding agency Agency is, basically, not binding, because each of the two parties has the right to revoke the contract without denying its effects that may continue after revocation. However, agency becomes binding in the following cases: 4/3/1 When it involves rights of others, as when the mortgagor appoints the mortgagee as an agent, or when the mortgagor is authorized to seize the mortgaged asset or sell it on maturity. Agency in the latter case is binding to the mortgagor (the debtor). A further example of binding agency is a case when the owner of an income-generating asset assigns the collection of his entitlements to an agent manager. 4/3/2 When agency is a paid agency. [see item 4/2] 4/3/3 When the agent commences tasks that cannot be discontinued or phased out without causing injury to him or to the principal. Agency in this case remains binding until it is possible to suspend the work, or phase it out without causing injury to any of the two parties. 4/3/4 When the principal or the agent undertakes not to revoke the contract within a certain period. 615
7. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) 4/4 Temporary agency 4/4/1 Basically, agency has no time limit beyond which the contract becomes no longer valid, because the agent can be terminated at any time. The two parties, however, may agree on a certain period after which the agency becomes invalid without a request from any of them to revoke the contract. 4/4/2 The effect of specification of a time limit for agency is confined to restrain the agent from commencing new operations subsequently. 4/4/3 Unless the contract stipulates otherwise, the agent may commence new operations during the contract period even if the effects of such operations will succeed the period of the contract. 5. Commitments of the Principal and the Agent 5/1 Commitments of the principal 5/1/1 In contract of procurement agency, the price and other expenses should be borne by the principal. Besides the price of purchased commodity, the principal should reimburse the agent expenses such as those of transportation, storage, taxation, maintenance and insurance. In paid agency, such expenses should not be stated in the contract as payable by the agent now or in the future. 5/1/2 In paid agency, the principal should pay the agent the amount of remuneration agreed upon in the contract. [see item 4/2] 5/2 Commitments of the agent The agent is considered as a trustee in holding the asset in question, and therefore, he is not bound to indemnify the principal for that asset in case of damage. He shall be held responsible for indemnity only when the damage results from his own misconduct, negligence or breach of terms or stipulations of the contract. Breach of contract for this purpose does not include acts that serve the interest of the 616
8. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) principal, like selling at a higher or buying at a lower price. In this regard, Shari’ah Standard No. (5) on Guarantees indicates under item 2/2/2 the following: “It is not permissible to combine agency and personal guarantees in one contract at the same time (i.e. the same party acting in the capacity of an agent on one hand and acting as a guarantor on the other hand), because such a combination conflicts with the nature of these contracts. In addition, a guarantee given by a party acting as an agent in respect of an investment turns the transaction into an interest-based loan, since the capital of the investment is guaranteed in addition to the proceeds of the investment, (i.e. as though the investment agent had taken a loan and repaid it with an additional sum which is tantamount to Riba). But if a guarantee is not stipulated in the agency contract and the agent voluntarily provides a guarantee to his principals independently of the agency contract, the agent becomes a guarantor in a different capacity from that of agent. In this case, such an agent will remain liable as guarantor even if he is discharged from acting as agent”. 6. Stipulations on the Agent 6/1 Performing deals with one’s self and relatives 6/1/1 When an agent conducts deals with his ascendant or descendant relatives, who are neither under his guardianship, nor are the agent’s spouse, the deal is permissible unless it encompasses injustice or favoritism. In case of deals that involve relatives who are under the guardianship of the agent, or deals that involve the agent’s spouse, the agent should obtain the consent of the principal. 6/1/2 An agent should not conduct deals with his own self or with his son/daughter who is still under his guardianship, or with his partner ((Sharik Sharik)) in the same contract. 6/1/3 The agent should not act for both parties to the contract. 6/1/4 An agent may purchase what he has bought for the principal, by way of offer and acceptance. The deal should be concluded 617
9. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) in such a way that the guarantees stemming from the agency contract and the sale contract are kept separate. After the completion of the conclusion of the sale contract, the commodity becomes under the guarantee of the purchaser/agent. [see Shari’ah Standard No. (8) on Murabahah – item 3/1/5] 6/2 Monitoring of the provisions and rights of the contract Monitoring the provisions of contract is the responsibility of principal, whereas monitoring the activities stipulated in the contract (except donations that should be assigned to the principal) is the responsibility of agent. Nevertheless, the principal, by virtue of ownership, may pursue the agent’s activities. 6/3 Breach of contract stipulations 6/3/1 When the agent breaches the contract in a way that does not serve the interest of the principal, the latter is free to maintain the contract or declare it invalid. Breach of the contract on the part of the agent may relate to the subject matter of agency or part thereof, the price, on spot or deferred payment, possession (purchase), or transfer of ownership (sale). [see items (8) and 5/2] 6/3/2 When the agent breaches the contract by purchasing at a price that exceeds both the market price and the price set forth by the principal, he should compensate the principal for the difference between the purchase price and the market price. Similarly, if the breach is by selling at less than the price specified by the principal, compensation should be for the difference between the selling price and the market price. Hence, the case here is similar to what happens in Mudarabah or investment agency whereby selling is stipulated to take place for a profit not less than a specified proportion. And hence, the agent (or the Mudarib) doesn’t guarantee that proportion, but his guarantee is limited to any amount less than the price of a similar fungible good. 618
10. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) 6/4 Appointing a sub-agent The agent has no right to appoint a sub-agent except with the permission of the principal. Once a sub-agent is appointed, his termination does not spontaneously follow the termination of the first agent, but the principal can terminate him. 6/5 Appointing more than one agent When more than one agent are appointed in the same contract, none of them should become the sole decision-maker unless with the authorization of principal. If they have been appointed by separate contracts, each of them has the right to discharge their responsibilities independently, unless the principal requires joint action from them. 7. Expiry of Agency 7/1 The agency contract expires in the following cases: 7/1/1 The contract expires when the principal or the agent dies or loses legal capacity or when the Institution undergoes bankruptcy or liquidation. 7/1/2 When the principal terminates the agent or the latter resigns. In case of termination, the principal has to inform the agent [see item 4/2/7], for compensation of loss resulting from refusal by the agent to continue the work, or forced discontinuation of work imposed by the principal before the expiration of contract or agency term, in regard to the consequent remuneration or damage compensation. 7/1/3 When the agent completes the work assigned to him in fixedtask agency or the principal performs the task in question. 7/1/4 When the principal no longer owns the asset in question or the principal has lost the right of disposing thereof. Agency also expires if the principal has performed the work, or the subject matter of agency no longer exists. 7/1/5 At the occurrence of the incidence that has been stipulated for ipso facto expiry of the agency. 619
11. Shari ’ah Standard No. (23): Agency and the Act of an Uncommissioned Agent (Fodooli) 7/1/6 At the expiry of the contract term in temporary agency. In this case, the contract may be extended to the required term when necessary. [see item 4/3] 7/2 Interminable agency remains effective even after the death of the principal or liquidation of the Institution. It continues up to the end of the subject matter of agency. 8. Act of an Uncommissioned Agent (Fodooli) 8/1 An uncommissioned agent (Fodooli) is a person who discharges (in the absence of any need or urgency) the affairs of others without being an agent or having a right to do so by virtue of Shari’ah. The deal becomes subject to the rulings on the Fodooli, even when the acts of a real owner makes him appear an agent. 8/2 The approval or denial of a contract concluded by an uncommissioned agent is subject to the discretion of the owner. Approval of such contract by the owner should also precede revocation of the contract by either of the two parties; otherwise, a new contract has to be initiated. If the owner of the property does not approve the act of the uncommissioned agent, the act becomes binding to the latter, if he did not declare at the time of signing the contract that he had no authority. 8/3 The rulings on the uncommissioned agent are applicable to all financial contracts, including compensatory contracts like sale, purchase, rent and hiring contracts, donations by way of gift, and investment agency contracts. 8/4 When the owner of the asset approves the act of the uncommissioned agent, the contract becomes effective, and subject to all rulings on agency. The approval shall be retroactively effective, based on the date of such an act. 9. Date of Issuance of the Standard This Standard was issued on 23 Rabi’ I, 1426 A.H., corresponding to 30 April 2005 A.D. 620