’Arboun (Earnest Money) - Scope of Standard

Transcription

1. Shari ’ah Standard No. (53): ’Arboun (Earnest Money) Statement of the Standard 1. Scope of the Standard This Standard covers the definition of ’Arboun (Earnest Money), the rules applicable to it and its applications in the activities of institutions in commutative financial transactions that do not require spot delivery of countervalues. It does not cover payments made prior to contract such as refundable security deposits, commissions or advance payments made subsequent to contracts that are not subject to options. 2. Definition of ’Arboun (Earnest Money) 2/1 Earnest money is paid by the buyer to the seller(2) at the time of contract on the basis that the buyer has the option to revoke the contract during an agreed period of time. If he confirms the contract, the earnest money is credited towards the price. If he does not confirm the contract or fails to pay the remaining price during the stipulated time, the seller is entitled to forfeit ’Arboun (Earnest Money). 2/2 An agreement to execute a contract in the future (an agreement to sell) is a promise and not a contract. If money is paid with the promise, it is not considered to be earnest money (’Arboun). 2/3 ’Arboun (Earnest Money) can be paid in cash, in kind and with a usufruct. 3. Permissibility of Earnest Money 3/1 It is permissible to pay ’Arboun (Earnest Money) in commutative contracts that do not require spot payment of one or both countervalues whether the sale item is identified or is sold by description (2) What applies to the buyer also applies to the lessee and the purchaser in an Istisna’a contract, and what applies to the seller also applies to the lessor and the seller in an istisna’a contract, etc. 1236
2. Shari ’ah Standard No. (53): ’Arboun (Earnest Money) for future delivery ((Ijarah Ijarah Mawsufah Fi al-Dhimmah), al-Dhimmah), such as sales, Istisna’a contracts, leases of identified assets and of assets leased by description for a future date. 3/2 Payment of ’Arboun (Earnest Money) is not permissible in Salam and currency exchange contracts. 4. Option Period Arising from ’Arboun (Earnest Money) Payment The option period arising from the payment of ’Arboun (Earnest Money) must be specified either by express stipulation of the parties, or by custom if there is an existing custom that specifies the option period. 5. Lapsing of the Option Arising from ’Arboun (Earnest Money) Payment 5/1 The buyer loses his right to revoke the contract if he informs the seller that he has confirmed the contract or disposes the sold item in a manner that indicates confirmation. The contract may stipulate conduct that indicates lapsing of the option and confirmation of the contract in order to avoid dispute. [see Shari’ah Standard No. (52) on Options to Reconsider] 5/2 If the option period expires without the buyer paying the remaining price to the seller and without the seller having agreed an extension, the contract is considered revoked and the buyer is not entitled to recover the ’Arboun (Earnest Money). 6. Ownership and Liability for the Sold Item During the Option Period Prior to delivery, the seller is liable for any loss to the sale item. If it is destroyed or damaged before delivery to the buyer or delivery is not possible, the contract is void and the earnest money must be returned to the buyer. After delivery, the buyer is liable for the sale item. If it is destroyed or damaged after delivery to the buyer, the buyer’s option is canceled and he is required to pay the balance (unpaid part of the price) to the seller. 7. Delivery of the Sale Item During the Option Period The buyer may take delivery of the sale item during the option period, which does not on its own indicate confirmation of the contract unless the buyer’s conduct indicates that he has accepted the sale item. 1237
3. Shari ’ah Standard No. (53): ’Arboun (Earnest Money) 8. Increase in the Sold Item During the Option Period 8/1 Increase that is physically connected to the original is considered part of the original. 8/2 In principle, any growth in (increase to, and/or yield of) the sale item that is physically separate from it, which occurs during the option period whether prior to delivery or after delivery is considered part of the sale item. It is permissible for the party who is liable for the sale item to stipulate that any increase that is physically separate should belong to him, even if ultimate ownership of the sale item is not vested in him. 9. Disposal of the Sale Item Under ’Arboun (Earnest Money) Arrangement 9/1 If the sold item is identified, the seller is not entitled to dispose of it. If the seller does dispose of it by sale or lease or otherwise, his actions are subject to the rules relating to uncommissioned (Fodooli) disposals. If the buyer ratifies the seller’s actions, he loses his option and is liable for the remainder of the price to the first seller. The first seller’s disposal becomes binding and the first buyer is entitled to receive the sale price. If the first buyer does not ratify the seller’s actions, the second disposal is void. [see Shari’ah Standard No. (23) on Agency and Acts of Uncommissioned Agent (Fodooli)] 9/2 If the sale is related to an identified item, the seller cannot deliver a different item even with same specifications, except with the consent of the buyer, in which case what the buyer has paid remains ’Arboun (Earnest Money). 9/3 If the buyer stipulates that he will offer the sale item to his clients during the option period and the seller accepts this, the buyer’s right to revoke the contract remains valid during the option period, even after offering the item to his clients. The conclusion of a sale to one of his clients is deemed to be confirmation of the contract. 9/4 It is not permissible to negotiate/trade options arising from payments of ’Arboun (Earnest Money). [see Shari’ah Standard No. (20) on Sale of Commodities in Organized Markets] 1238
4. Shari ’ah Standard No. (53): ’Arboun (Earnest Money) 10. Stipulating Refund of Earnest Money in the Contract It is permissible for the buyer to stipulate a condition in the contract providing for a refund of earnest money in specific situations, such as the buyer’s failure to obtain licenses from the relevant authorities. 11. Date of Issuance of the Standard The Shari’ah Board issued this standard on 15 Muharram1435 A.H., corresponding to 8 November 2014 A.D. 1239