Contentious Sales

Earnest money (bay’ al-‘urbun)

According to this contract a man would buy certain goods or rent an animal by first giving a certain amount to the seller, on the condition that if he (the buyer) actually bought the goods or rented the animal, then the advance money would go towards payment of the goods or rent of the animal. However, if the goods were not purchased or the animal was not rented, then the seller would forfeit the advanced money. Thus urbun is a contract where the purchaser is given an option. If he buys the earnest money would become part of the price, if he doesn’t he will lose his money. The option is not provided to the seller. The majority considers urbun as prohibited invalid contract. To the Hanifiis, it is voidable. To the others, it is void. To the Hanbalis, however, there is no problem with the contract.

Bay’ al-Dayn

Dayn means debt and bay’ al-Dain means the sale of debt. It happens when a person who has a receivable debt sells it at a discount. The traditional Muslim jurists are unanimous that bay’ al-dayn with discount to a third person is not allowed. However, it may be sold to the debtor himself for a lower price.If a debt is sold at its par value to a third person, the transaction may fall under hawalah.

Some scholars argue that debt can be sold in a case where it is created through the sale of a commodity. They distinguish between the two types of debt one created through a loan while the other created through the sale of a commodity. They contend that bai’al-dayn is permissible where the debt is created through the sale of a commodity. In this case, they contend, the debt represents the sold commodity and its sale may be taken as the sale of a commodity. The opponents make a counter argument. They say that once the commodity is sold, its ownership is passed on to the purchaser and it is no longer owned by the seller. What the seller owns is nothing other than the debt. Therefore, if he sells the debt, it is no more than the sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity.

Those who oppose the sale of debt also argue that the prohibition of bai’-al-dayn is a logical consequence of the prohibition of riba or interest. A debt receivable in monetary terms corresponds to money, and every transaction where money is exchanged for the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to riba and can never be allowed in Shari’ah.The Syariah Advisory Council of the Security Commission, however, contends that securitized debtsare different from currencies and therefore cannot be classified under ribawi goods. They therefore, argue that the transaction is not bound by the conditions for exchanging ribawi goods.

Those who oppose the sale of debt also argue that the seller may not be able to deliver the debt to the buyer. They, therefore, argue that there is an element of gharar that results from the absence of qabad. i.e. the possible inability of the seller to deliver it. Furthermore, the Hanafis also do not include dayn which is a type of claim or a right in the definition of properties (mal).

The Shari’ah Advisory Council of the Security Commission after analyzing the opinions of the various fiqh schools argue that the main reason why past Muslim jurists disallowed bay’ al-dayn “Centred on the ability of the seller to deliver the items sold” (p.19). The Council argue that this may arise in the absence of supervision and control. It was of the opinion that “in the Malaysian context, the debt securities instruments developed according to the principle of bai’ dayn are regulated by Bank Negara Malaysia and the commission to safeguard the rights of the parties involved in the contract”.

The Council contended that “the conditions set by the Maliki mazhab and the fears of risks by the Hanafi mazhab can be overcome by regulation and surveillance”. (19)The council concluded that bai’ dayn can be used if there is a regulatory system that protects the buyer’s maslahah in an economic system.

Bay’ al-Ina

If the parties have the intention to enter into an agreement and all the conditions regarding offer and acceptance, competence of the parties and the subject matter are met, the contract is valid. Otherwise it is not valid. The question that could be raised here is whether the fulfillment of these conditions and the existence of consent are sufficient ground for the validity of a contract or we have to look behind intention to the motive and investigate whether the motive was lawful or not. Does the existence of unlawful motive behind a lawful contract make a contract invalid? Is the intention to transfer the ownership sufficient to form a contract or we have to look behind and ask what was the motive behind the intention? Can motive determine the validity of a contract?

To the Shafiis and Hanafis, motive is something hidden and is left to God. They say that the Shari’ah requires that the parties entre into a contract by mutual consent and that all the pillars and conditions of the contract should be fulfilled. They argue that motive depends on the will of the parties. While the consent is of a general nature applicable to all persons, the motive is personal and changes from person to person. They, therefore, look at the intention of the parties in concluding a contract and not at their motives. To them the motives of the parties do not affect the validity of a contract, as long as all other conditions are fulfilled. Hanafii and Shafii schools have classified Bay’ al-‘Inah as contractually correct agreements which could be considered abominable and in some cases may amount to Haram. The Malikis and Hanbaliis, on the other hand, have prohibited them emphatically.

The following are examples of Bay’ al’Inah:

  1. B is a borrower while L is a lender and the rate of interest is fixed at 20 %. B sells a certain item to L for RM 100.B gets the money and L the article. L then sells the same item to B for RM 120.Thus B gets RM 100 and the item while L gets a claim against B for RM 120.
2.B is a borrower L is a lender and T is a 3rd party. L sells to the borrower B an article for a price on credit for RM 120. B takes the item and sells it to the 3rd person T for a lesser sum RM 100 in cash. T sells it to the lender L for the same RM 100 price for which he has purchased it from B. T takes the price from L and gives it to B. L gets his article and B gets RM 100 in cash. He however has to pay RM 100 to L as the price for the item.
3.B asks L to lend him RM 100. L does not want to lend him money. Instead, L would sell to B an item for RM 120. The item however can be sold in the market for RM 100. B buys the article from L for RM 120 and sells that in the market form RM 100. Thus B gets the cash but he has to pay L RM 120 as the price for the item.

According to Ibn Qayim Al-Jauziyah example No 3 is the least bad. Imam Ahmad ibn Hanbal according to one view is said, to have allowed it if the borrower is under dire necessity. About the two other types Ibn Qayim remarks that the sale is fictitious and unreal.

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