Wakalah
Literally Wakalah means protection or remedying on behalf of others. Legally Wakalah
refers to a contract where a person authorizes another to do a certain well-defined legal
action on his behalf. It is a contract of agency which means doing any work or providing
any service on behalf of any other. An agent is someone who establishes contractual and
commercial relations between a principal and a third party, usually against a fixed fee.
An action performed by an agent on behalf of the principal will be deemed as action by
the principal. Agency is necessitated by the fact that an agent has to perform certain
tasks which the principal has neither the time, knowledge nor the expertise to perform
himself. The need for agency arises where a person has no ability or expertise to perform
a certain action due, for example, to distance or size. The main features of agency are
service, representation and the authority to act for the principal. An agent may obtain a
certain wage for services rendered within the incentive structure of the principal.
The contract of Wakalah is about the provision of service. Some of these services include
sale and purchase, letting and hiring, borrowing and lending, assignment of debt,
guarantee, pledge, gifts, bailment, taking and making payments, litigation and
relinquishment, admission and acknowledgment of rights. Islamic banks use the concept
of Wakalah in various Islamic products such as Musharakah, Mudarabah, Murabaha,
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Salam, Istisna´a and Ijarah. It is also used in payment and collection of trade bills, fund
management and securitisation. Banks normally charge fee for agency services
rendered by them on behalf of their clients. An agency contract could be specific or
general; it could be both commutative and non-commutative; the nature of activity to be
undertaken should be clearly defined to avoid any disputes. For example, if Wakalah is
for the sale or purchase of specific goods, the kind, quality and other necessary
attributes of the commodity should be clearly mentioned.
The principal should have the power and competence to deal and own the property. For
example, an insane or a minor cannot appoint agents to act on their behalf. However, it
is not necessary for the person appointing an agent to have attained a minimum age.
Also, a principal may appoint an agent to conduct any business transaction activity that
the person would be able to undertake. However, Agency is not permissible in activities
prohibited in the Shari´ah or acts of dishonesty such as theft and usurpation of
property or conducting Riba-based business. It is also prohibited to appoint an agent for
acts such as prayer, fasting, giving evidence, or for taking an oath. The agent must act in
accordance with the instructions of the principal and exercise due care and skill. If he is
appointed to sell goods on behalf of the principal, he cannot purchase these goods as a
buyer. Similarly, if the principal restricts the agent to certain limits, the agent is bound
to observe them.
An agent appointed to engage in buying and selling activities or to pay and receive a
debt is considered to be a custodian of the principal’s property and in the fiduciary
position of a trustee. And in the absence of any instructions to the contrary, an agent
appointed to sell goods can sell them for cash or on credit; the agent can take a pledge of
a security for payment in the case of goods sold on credit. Besides, an agent is not
allowed to appoint another agent unless he himself is not capable to do it; in that case, he
may appoint another agent with the consent of the principal. He must also avoid any
conflict of interest such as selling goods to the principal without disclosing that such
goods are owned by the agent.
In the case of Wakalah of sales, the principal appoints an agent to sell a certain property
for him; the agent is responsible for making payment and receiving goods on behalf of
the principal. He has the authority for claiming the price, exercising the right of option
of voiding a sale on account of defective goods or inspection and returning goods as well
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as similar rights and liabilities associated with sale transactions.
Finally, Wakalah is a non-binding contract; the principal or the agent may withdraw at
any time by mutual agreement, unilateral termination, discharging the obligation,
destruction of the subject matter and the death or loss of legal capacity of the
contracting parties. If the agent concludes a contract that contravenes the terms and
conditions of the agency, the contract is not binding on the principal and its validity
depends on his approval. In case where an agent concludes a contract that apparently
contravenes the conditions, but the contract is beneficial to the principal, it is binding on
him.
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