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Dormant partnership in Islam III

April 24, 2011


It is clear that every contract, in order for it to be a contract for x (in our case, dormant partnership or mudârabah / qirâd; in other instances: a contract which is one of sale, letting and hiring of property, assignment of debt, donation, etc) must contain the essential requirements of that specific contractual form. It must fulfill the basic requirements by which a dormant partnership or a contract of pledge becomes what it uniquely is and should be.
We have said that the core aspects of a mudârabah are the fact that one party puts in capital, the other party puts in work by trading with such investment sum and managing the business, and both share in the profits of such trading venture (if any) in a predetermined ratio.
It is likewise clear that, in life, specific contracting parties, placed in specific situations, wish to agree on further contractual stipulations which, so long as they are consistent with that type of contract and with the general rules of the Law, are allowed in Islam to be added to the agreement. Such incidental terms and conditions are then turned into a private sharî`ah between such parties, which they have solemnly bound themselves to abide by.
Examples of that would be reasonable conditions inserted by the capital provider which are meant to legitimately protect his investment from destruction, loss or damage, such as the prohibition to trade in an area of Johannesburg where hijackings are particularly common.
Other illustrations would be, for those who admit their legality, certain guarantees concerning the capital to be given by the trader, or a demarcated date for terminating the agreement on a consensual basis, and liquidating any profit which has been realized till then.
The choice of madhhab will also affect the insertion of certain additional clauses (additional, that is, to the standard essential ones) as opposed to others.

It is thus obvious that we cannot set out here a contractual specimen which can cover all that any particular set of parties wants a given contract to contain.
We can only provide standard forms mentioned by the experts in notary and related documents in our literature.

1.    From Ibn Salmûn’s Al-‘Iqd al-Munazzam li’l-Hukkâm fîmâ Yajrî bayna Aydîhim mina’l-‘Uqûd wa’l-Ahkâm (“The Decision-Makers’ Well-Arranged Necklace concerning the Contracts and Judgments which they are Called upon to Deal with”)

“So-and-so physically handed over to so-and-so such-and-such an amount of gold and / or silver coins in the mode of a qirâd transaction and the ordinary practices (sunan) associated with such a transaction. The said sum of money has been handed over by so-and-so in order for so-and-so to trade with it in respect of those trading goods he deems fit to involve himself with, and in order for him to travel with those goods wherever he wishes, whether on the land or in the sea. So-and-so is required to thereby seek to make such capital sum grow. Whatever profit Allah the Exalted decrees for the venture shall be divided between the said two contracting parties in equal halves (50-50) [or: at a 40%-60%, or a 1/3 – 2/3, ratio]. The said profit shall be so divided after the physical restitution of the said investment capital to so-and-so, being its owner. So-and-so, the one trading with it, is hereby enjoined to exercise taqwâ of Allah in the said trading venture, discharge the trust such venture imposes on him, exert himself in it diligently to his maximum capacity, and offer his sincere advice regarding any aspect of it.
The said capital sum has been taken by so-and-so the trader into his physical possession, and it has become his responsibility in the aforesaid sense and fashion.



2.    From Ahmad b. Mughîth at-Tulaytilî’s Al-Muqni` fî ‘Ilm ash-Shurût (“The Adequate Manual on the Science of Contractual Terms and Conditions”)

“So-and-so handed to so-and-so such-and-such a sum in gold, which so-and-so (= the latter) took into his physical possession. The said sum was then possessed by so-and-so in order for him to manage it and trade with it by way of a qirâd in respect of trading goods x, and in market y. So-and-so is called upon to dispose of the said sum by trading in respect of the said goods in the way he deems fit according to his commercial discretion, in so doing exerting himself to his utmost ability. In carrying out the aforesaid, he is mandated to discharge the trust placed upon him by the said venture, whether in conducting it he acts secretly or publicly. Whatever surplus is driven to the said venture by Allah, Exalted is He, shall be apportioned by the said two contracting parties in equal halves [or: the investor shall receive such-and-such percentage share thereof, while the remaining share shall go to the trader]. The division of any profit as per the aforesaid ratio shall take place after the trader, so-and-so, has physically handed back the said capital sum to so-and-so, the investor. In the event of any capital loss or the destruction of the said investment capital, the same shall be borne by the investor, so-and-so, without so-and-so, the trader, being legally liable for any of that.

Signature of witnesses”.

Should parties desire our advice in shaping contracts in particular ways, or including demarcated terms and conditions, we can be contacted through this website, and we shall endeavour to assist in that regard, at no charge. In most instances, parties will in any event be able to draft the contract (and keep it simple as much as they can) on their own.
There is no harm in utilizing a more modern approach, such as dividing the provisions lumped together in the classical specimens set out here above into separate paragraphs and sub-paragraphs. 




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