Combination of Contracts - Scope of Standard

Transcription

1. Shari ’ah Standard No. (25): Combination of Contracts Statement of the Standard 1. Scope of the Standard This standard covers transactions that comprise more than one contract combined together in one set. The scope of the discussion in this respect covers the definition, forms, controls, characteristics, and concessions relating to the process of Combination of Contracts and explores the characteristics of Muwata`ah and the Shari’ah rulings pertaining thereto. The discussion also embarks on contemporary applications of combined contracts. 2. Concept of Combination of Contracts 2/1 Combination of contracts is a process that takes place between two parties or more, and entails the simultaneous conclusion of more than one contract. Hence, combination of contracts may take any of the following forms: 2/1/1 Combining more than one contract without imposing any of them as a condition in the other, and without prior agreement (Muwata`ah) to do so. 2/1/2 Combining more than one contract while imposing some of them as conditions in the others, without prior agreement to do so. 2/1/3 Combining more than one contract subject to prior agreement (Muwata`ah), but without imposing any of them as a condition in the others. 2/1/4 Agreement to conclude the deal through any of different contractual forms as will be finally decided in the future. 2/2 Forms of combined contracts 2/2/1 Combined contracts may have a single lump sum counter value. For instance, a party may sell his piece of land to the other and 652
2. Shari ’ah Standard No. (25): Combination of Contracts simultaneously rents his car to the same party for one month, both against one thousand dinars. 2/2/2 Combined contracts may be concluded for separate values. For instance, one party may sell his house to the other for one thousand dinars, and rent his car to the same party for one hundred dinars per month. 2/2/3 Some of the combined contracts may be stipulated as conditions in the other contracts. One party, for instance, may say to the other party that I will sell you my house for ten thousand dinars, on condition that you undertake to rent the house to me for two years for one thousand dinars per year. The sale of the house in this manner could also be concluded on condition that the buyer of the house undertakes in return to sell his car to the seller for two thousand dinars. 2/2/4 Combined contracts may take the form of an exhaustive contractual statement comprising a number of successive parts and stages, which finally lead to realization of the desire of the two parties to conclude the deal in question. A good example in this regard may be seen in a number of present day financial transactions like Ijarah Muntahia Bittamleek, Murabahah, and Diminishing Musharakah. 3. Shari’ah Status of Combination of Contracts It is permissible in Shari’ah to combine more than one contract in one set, without imposing one contract as a condition in the other, and provided that each contract is permissible on its own. Combining contracts in this manner is acceptable unless it encounters a Shari’ah restriction that entails its prohibition on exceptional basis. 4. Shari’ah Controls on Combination of Contracts 4/1 Contracts’ combining should not include the cases that are explicitly banned by Shari’ah like combing sale and lending in one contract. 4/2 It should not be used as a trick for committing Riba such as agreement between two parties to practice Bay’ al-’Inah or Riba al-Fadl. al-Fadl 653
3. Shari ’ah Standard No. (25): Combination of Contracts 4/3 It should not be used as an excuse for practicing Riba. The two parties could misuse, for instance, Contracts’ Combining when they conclude a lending contract that, at the same time, facilitates some other compensatory gains to them. For example, they could stipulate in the contract that the borrower should offer accommodation in his house to the lender, or should grant him a present. Contracts’ Combining could also be misused by imposing excess repayment in terms of quantity or quality on the borrower. [see Shari’ah Standard No. (14) on Loan (Qard) – item 1/4] 4/4 Combined contracts should not reveal disparity or contradiction with regard to their underlying rulings and ultimate goals. Examples of contradictory contracts include granting an asset to somebody as a gift and selling/leasing it to him simultaneously, or combining Mudarabah with lending the Mudarabah capital to the Mudarib, or currency exchange with Ju’alah, or Salam with Ju’alah for the same contract value, or leasing with selling (i.e. hire-purchase in its traditional form). 5. Shari’ah Concessions for Combination of Contracts 5/1 In principle, the Shari’ah concessions that can be granted to implicit and subsidiary contracts at the time of combining contracts cannot be granted to the same contracts when concluded independently. Here, implicit and subsidiary contracts refer to contractual commitments that are not explicitly embodied in the deal agreement or those which succeed the original commitments of the transaction. The concessions to be granted in this case should be judged in the light of traditions, practice and professional experience, and subjected to clearance by the Shari’ah Supervisory Board of the Institution. 5/2 Concessions granted to implicit and subsidiary contracts comprise relief from the following impermissible acts: 5/2/1 Gharar, which affects financial contracts, may be overlooked in implicit and subsidiary contracts. 5/2/2 Jahalah, which also affects financial contracts, may be ignored with regard to the object of a subsidiary contract. 654
4. Shari ’ah Standard No. (25): Combination of Contracts 5/2/3 Sale-based Riba and violation of currency exchange rules (as when spot delivery is ignored in a contract that combines currency exchange with money transfer) are also forgivable in subsidiary and implicit contracts. 5/2/4 Selling of a debt for another debt may be ignored when it comes in the context of a subsidiary contract. A fitting example here is purchasing (on debt) the shares of an indebted company. 5/2/5 Subsidiary and implicit contracts may also relieved from some prerequisites that underline the validity of contracts (such as offer and acceptance) when such relief is dictated by need or desire to achieve a permissible interest. 6. Prior Agreement (Muwata`ah) for Combination of Contracts 6/1 Muwata`ah or Tawatu’ in Fiqh terminology has several meanings; most important among which are stated below: 6/1/1 Explicit or implicit intention of the parties to the contract to use a certain trick for practicing Riba through a Shari’ah accepted contractual form. 6/1/2 An unrevealed prior agreement between the two parties to perform a Shari’ah-permissible act or deal for the sake of finding a Shari’ah-accepted exit (acceptable trick). 6/1/3 Coincidence of the intentions of parties to the contract at the stage of preparatory negotiations that precede the signing of the contract as indicated in item (2/2/4) above. 6/2 In Fiqh perception, Muwata`ah for combining contracts has three distinct characteristics: 6/2/1 It is an agreement between two parties to conclude contracts and fulfill pledges in the future. 6/2/2 When Muwata`ah is stipulated as part of the contract it becomes a condition precedent to the conclusion of the contract, and the contract becomes subject to the relevant Shari’ah rulings with regard to permissibility, enforceability, and validity. 655
5. Shari ’ah Standard No. (25): Combination of Contracts 6/2/3 Enforceability of Muwata`ah in Shari’ah is similar to enforceability of conditions precedent to the signing of contracts. A condition that precedes the signing of the contract has the same validity and binding nature of the normal conditions of the contract, since the former constitutes the bases of the contract that have been mutually agreed upon between the two parties. 6/3 Muwata`ah to combine contracts takes several forms, which may be grouped into the following four types: 6/3/1 Muwata`ah to form up Riba tricks, in which the two parties agree to practice, for instance, Bay’ al-’Inah or its reverse, or Bay’ al-Wafa` ((Bay’ Bay’ al-Raja`), al-Raja`), or Riba al-Fadl al-Fadl.. In this case, Shari’ah prohibits Muwata`ah and the contract so designed is invalid. 6/3/2 Muwata`ah for Riba excuses is prohibited by Shari’ah whereby the two parties agree to combine a loan with another transaction, or stipulate that the borrower has to present a gift to the lender, or make excess repayment in terms of quantity or quality. 6/3/2/1 Prohibition of Muwata`ah to use such tricks, which are permissible in principle, should be judged in the light of two conditions: First, the intention to use the permissible act as a means of concluding a prohibited deal should be obvious and beyond all doubts. Second, there should be no obvious need or lawful interest that justifies resorting to such a trick. 6/3/3 Muwata`ah for obtaining Shari’ah Exits, which refers to tricks that do not violate Shari’ah rules, or contradict with Shari’ah objectives, or result in any harm to others, is permissible. 6/3/4 Muwata`ah for combining contracts that contradict to or oppose each other is prohibited because it leads to performing of an act that has been strictly banned by Shari’ah. [see item 4/4] 656
6. Shari ’ah Standard No. (25): Combination of Contracts 7. Contemporary Applications and General Rules for Combination of Contracts 7/1 One of the most distinguishable forms of contemporary financial transactions is the contractual arrangements which comprise a number of contracts and pledges that the parties agree beforehand to execute in a specific manner and according to agreed number of successive stages. Such arrangements aim to achieve a given purpose or interest of the parties to the contract such as performing Murabahah on Order of Purchase, Ijarah Muntahia Bittamleek, or Diminishing Musharakah. 7/2 Muwata`ah, when provided for in the contract and used for combination of contracts, should be observed by, and remain binding to the parties to the contract, subject to permissible commercial and banking conventions. [see item 6/2/2] 7/3 The pledges contained in such combined contract sets are binding to their respective parties. 7/4 These newly devised sets of combined contracts should observe the general rules of Shari’ah with regard to structure, rulings, requirements and conditions in order to be Shari’ah compliant. [see item 5/2] 7/5 These contract sets should also observe the Shari’ah rulings pertaining to combination of contracts, and may make use of the Shari’ah concessions in this respect. 7/6 Failure of any of the parties to combined contracts to honor its contractual commitments gives the other party right of claiming indemnity for the actual injury encountered. 8. Date of Issuance of the Standard This Standard was issued on 23 Rabi’ I, 1426 A.H., corresponding to 2 May 2005 A.D. 657