As humans or natural persons we are mortal. There is always a possibility (or rather certainty) that the principal or the agent, or both, may die in the middle of the validity of an agency contract. Another possibility is that either may lose the perfect capacity.
By perfect capacity, Shariah means that both contracting natural persons are above 15 years of age and possess sound mind. You may refer to article 31 should you need to comprehend the definition in detail.
As per English law, perfect capacity is attained at the age of 18 (revised down from 21 in 1969) provided the person possesses normal mental health. I hope you will not expect me to also explain sound mind or normal mental health.
Also, if both are artificial persons (legally formed entities) and one of them or both face winding-up or insolvency, it will affect their ability to continue discharging their respective responsibilities in terms of an agency contract. The contract shall then cease to exist.
In the case of natural persons, the agency agreement gets terminated forthwith upon the death of the agent and the subject matter of the agency contract returns to the principal. For example, if the agent was engaged to sell wheat on behalf of the principal and had the wheat stock in his custody, the physical possession of such inventory shall be taken over by the principal.
If you recall, I had explained that agency is the extension or substitution of oneself by or with the agent. In other words, the principal can appoint an agent if he is legally in a position to carry out the assigned task himself. As such, in the case of an agent’s death, such extension or substitution also immediately comes to an end, putting the principal in the same position which he had held prior to signing the agency agreement.
What if the principal passes away? Shall the agency be terminated or continue? Well, the right to make a decision in this regard lies with the heirs of the principal which means the agency may or may not continue.
The legally recognized heirs of the deceased principal may be happy with the agent’s performance and may want him to continue with his good work. If that is the case, either an addendum to the original agency contract may be signed between the representative of the heirs and the agent, consenting to the continuation of the agency on the same terms and conditions, or a new agency contract is executed between them.
As for misplacing perfect capacity by either party, in addition to losing gray matter, it also includes serious accidents, paralysis or comas since such mishaps deny the ability by the afflicted party to discharge the routine tasks in a normal business environment. However, some jurists provide a certain recovery period ranging from one month to a year, depending on the nature of the disability, before considering the agency contract as void.
The same principle applies on the subagency contract which is defined as the agent acting as the subprincipal for appointing the subagent with the consent of the principal. Furthermore, if the agent (who is acting as the subprincipal) is removed by the main principal, the subagency also gets dismissed instantly.
It is rather straightforward to discuss the termination of an agency between artificial persons. If the agent entity goes bankrupt, the agency agreement gets terminated immediately in order to safeguard the interests of the principal, and the principal is permitted by Shariah to repossess the subject matter of the agency agreement.
If the agent entity owed a certain amount of money in terms of the agency agreement to the principal, from the Shariah perspective it will be counted as senior debt on the agent, separate from the agent’s other liabilities. Nevertheless, from a practical standpoint, it is more likely that it will be lumped with all the other liabilities of the agent on the basis of the pari passu principle.
There is another interesting element in Wakalah which is the unauthorized agent or Fuduli. Assume a person has collected the debt of a purported principal without the knowledge of that ‘principal’. If that person then delivers the funds to the owner of the debt in full, although there has been no formal agency agreement between them, the transaction shall be considered as a valid agency act.
But then if the self-proclaimed agent does not pay the amount collected from the debtor to the creditor (ie owner of the debt/assumed principal) or pays it partially, leading to the denial by the ‘principal’ that any such agency existed, the debtor shall be required to pay the amount to the creditor in full all over again. Nonetheless, the creditor will have to take an oath before the Shariah court judge denying that he ever appointed the person who collected his receivables as the agent. Also, the debtor shall have established a valid claim against the Fuduli for the return of the amount paid by it.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the Dubai Islamic Economy Development Centre, nor the official policy or position of the government of the UAE or any of its entities. The purpose of this article is not to hurt any religious sentiments either consciously or even unwittingly.
Sohail Zubairi is the senior advisor with the Dubai Islamic Economy Development Centre. He can be contacted at [email protected].
Next week: Discussion on the subject of Wakalah shall continue.