Options to Revoke Contracts Due to Incomplete Performance - Scope of the Standard

Transcription

1. Shari ’ah Standard No. (51): Options to Revoke Contracts Due to Incomplete Performance Statement of the Standard 1. Scope of the Standard This Standard covers options to revoke contracts due to reasons of defect, deal fragmentation and breach of description. It does not cover options to revoke arising from breach of trust (dishonest inducement, deception and overcharging) or options of due diligence (cooling-off options, and options to revoke due to non-payment) as they have separate Shari’ah standards dedicated to them. 2. Option to Revoke Due to Defect 2/1 Definition It is the option of a buyer to revoke or continue with the contract arising from a hidden defect that the buyer did not notice at the time of contract. 2/2 Conditions applicable to options to revoke due to defect An option to revoke due to defect is subject to the following conditions: 2/2/1 Appearance of a material defect in the subject matter of the contract. A material defect is a defect that renders the item defective according to custom, makes it unfit for purpose or diminishes its value. 2/2/2 The defective item being incapable of repair except by incurring cost. 2/2/3 The buyer being unaware of the hidden defect at the time of contract, irrespective of the seller’s awareness of the defect at the time of the contract. 2/2/4 The contract not containing a clause excluding the seller’s liability for defect ((Bay’ Bay’ al-Bara`ahal-Bara`ah- sale on the basis of as is 1202
2. Shari ’ah Standard No. (51): Options to Revoke Contracts Due to Incomplete Performance where is). It is prohibited for the seller to exclude liability due to defect in Ijarah and Istisna’a contracts. 2/2/5 The hidden defect not being caused by the buyer. 2/3 Scope of the option to revoke due to defect Options to revoke due to defect exist in commutative financial contracts such as sales, money exchange, division of wealth, settlement of debt by payment in kind and gift conditional upon receipt of consideration (Hibat (Hibat al-Thawab al-Thawab). ). 2/4 Time limit Defective items should be returned, after taking delivery of the object of sale and discovering the defect therein, within the period of time customarily allowed for revocation on such grounds. 2/5 Consequences of options to revoke due to defect The buyer has the option either to revoke the contract and return the item or continue with the contract. If the buyer chooses to return the item after taking delivery, revocation is effected by mutual consent or court order. If the buyer has not taken delivery, and he has been aware of the defect before taking delivery, he can unilaterally revoke the contract by giving notice to the seller and is entitled upon revocation to a refund of the whole price by mutual consent or court order. 2/6 Conditions applicable to the return of sold items Return of the item is subject to the following conditions: 2/6/1 Return of the item not resulting in the fragmentation of a package deal to which the seller does not consent. And the buyer shall be entitled to compensation against inferiority due to the defect (Arsh). 2/6/2 The item not being damaged or destroyed in the possession of the buyer, in which case the buyer is entitled only to compensation for the defect and is not entitled to return the item unless the seller accepts return of the damaged item. 1203
3. Shari ’ah Standard No. (51): Options to Revoke Contracts Due to Incomplete Performance 2/6/3 There being nothing added to the item attached to it but did not grow out of it, which necessities a price rebate, such as the erection of a building on land. Return of the item is not prevented, if the addition to the item is physically connected to it and grows out of it; or is physically separate from it whether it grows out of it, such as dividends on shares and rent from leased assets, or does not grow out of it. 2/6/4 In cases where return due to the defect is impossible (impractical), the buyer shall be entitled to compensation against inferiority caused by the defect. 2/7 Impediments preventing the return of sold items The option to return the sold item is impeded by the non-fulfilment of any of the conditions provided in item 2/2. 2/8 Abating (of the option) The option to revoke due to defect ceases (abates) in the following situations: 2/8/1 If the defect ceases before the buyer returns the item or payment of Arsh (compensation against inferiority due to the defect). 2/8/2 If the buyer expressly waives his option to revoke. 2/8/3 If the buyer expressly accepts the defective item. 2/8/4 If the buyer’s conduct implicitly indicates that he has accepted the defective item, such as continuing to use the item, delaying return of the defective item longer than is customarily acceptable and without an excuse, exploiting or benefitting from the defective item or transferring ownership of the item after discovering the defect. 2/8/5 If the defective item is destroyed by the buyer. 3. Option to Revoke Owing to Deal Fragmentation 3/1 Definition The option to revoke a contract owing to deal fragmentation is the option of the buyer to revoke a contract (a package deal) that no 1204
4. Shari ’ah Standard No. (51): Options to Revoke Contracts Due to Incomplete Performance longer includes everything that was contracted for, resulting in the package deal becoming fragmented. 3/2 Conditions applicable to the option to revoke owing to deal fragmentation The option to revoke a contract owing to deal fragmentation is subject to the buyer not knowing that the deal would become fragmented. 3/3 Types of deal fragmentation in which the option to revoke is granted 3/3/1 When a person sells his own property along with the property of another person in one package without the consent of the other person or when a partner sells the partnership property in one package without the consent of the other partner. 3/3/2 When it transpires that part of the sold item(s) is the property of a third party. 3/3/3 When part of the sold item(s) is destroyed before delivery (actual or constructive). 3/3/4 When part of the sold item(s) in a Salam contract is not available on the delivery date. [see Shari’ah Standard No. (10) on Salam, item 5/8] 3/4 Prerequisites Deal fragmentation entitles the buyer either to revoke the contract or accept what remains of the deal and pay the portion of the price corresponding to it. The buyer is not entitled to any compensation unless there is a defect in what remains of the sold item(s). 4. Option to Revoke Due to Breach of Description 4/1 Definition The option to revoke due to breach of description is the option of a buyer to revoke the contract if the sold item does not meet a condition stipulated in the contract, explicitly or implicitly, such as a car having a specific color. 1205
5. Shari ’ah Standard No. (51): Options to Revoke Contracts Due to Incomplete Performance 4/2 Requirements of valid descriptions 4/2/1 The description must be permissible by the Shari’ah. 4/2/2 The description must be specific and free from ambiguity (Gharar). 4/2/3 The description must relate to the purpose of the buyer or be the basis of an increase in price or of greater quality in the item, such as a requirement that a car be automatic. 4/2/4 The breach of description must occur at or before the time of delivery (actual or constructive) and must not be a subsequent occurrence. 4/3 Consequences of the option to revoke for breach of description 4/3/1 If the item fails to correspond to the minimum requirements of a description, the buyer is entitled to return the item or accept it for its full price without any entitlement to compensation. 4/3/2 If it is not possible to return the item, the buyer is entitled to a partial refund for the breach of description equal to the difference in price between an item that fulfills the description and one that does not. 4/4 Timing and cessation of options to revoke due to breach of description The option to revoke for breach of description, like the option to revoke for defect, is granted immediately subject to custom and ceases in the circumstances in which the option to revoke due to defect ceases. [see item 2/7] 4/5 Transfer The option to revoke for breach of description can transfer to all types of successors and assignees. 5. Date of Issuance of the Standard The Shari’ah Board issued this standard on 21 Safar1434 A.H., corresponding to 4 January 2013 A.D. 1206