ISLAMIC LAW OF TRANSACTIONS

CONTRACT OF HAWALAH(ASSIGNMENT OF DEBT)

LSS 3023

EN. MOHD LOTPI B. MOHD YUSOB

LOW HENN KAI‘ATEERAH BT AZIZAN

FATEEN AIDA BT AZAHARREX ROLAND AK CHUNDIIRWAN BIN JOHN IMBAYAN

AFIQ MUZAKKIR B. MOHD RUZANI

CONTRACT OF

HAWALAH

DEFINITION

EFFECT

TYPES

RIGHTS &

DUTIES

HOW CONCLUDED

TERMINATION OF

HAWALAH

DEFINITION

DEFINITION

Shifting one thing from a place to another

Shifting debt from one person to another

Substitution of one obligor for another with agreement of creditor

Examples

• A is indebted with B and has a claim against C. A may settle his debt by transferring his claim against C to the benefit of B

• A shall be discharge as B may claim A’s debt from C under Hawalah.

• A shall be called as Debtor-assignor, B as creditor and C as Transferee

Validity of Hawalah

1) Lawful to transfer one’s debt to another2) In case of transfer loan of debtor to

transferee, the latter should be asked to pay as he substitutes the debtor

3) After transfer, the original debtor may be discharge

4) The transfer requires consent of all parties5) The creditor shall accept the assignment

of debt and pursue collection from the new person

Viewpoint of Hawalah

• Imam Abu Hanifah : Hawalah is a transfer o debt which terminate the liability of original debtor to a third person.

• Imam Muhammad : Hawalah is a transfer of demand only which the burden of payment still rest with the original debtor

• Imam Ahmad ibn Hanbal and Imam Shafie: When the new debtor is solvent, the creditor/assignee has no recourse against the creditor/assignor in the event that the debit is not settled by the new debtor

• The discharge of debtor is total and irrevocable , unless he guarantee in the non-payment of new debtor.

• Maliki : The creditor/assignee has the right of recourse against the debtor/assignor in the case of misinterpretation in assignment to the new debtor who was already bankrupt before the Hawalah transfer

• Hanafis : Hawalah is discharging the debtor with exception that the creditor/assignee has a right of recourse against him in the event that this claim is in danger of failing either for reason of new debtor insolvent or renouncing the Hawalah and no proof thereof.

EFFECT

EFFECT OF HAWALAH

• To discharge the debtor from the debts he owes to the creditor

• Hawalah can occur with the condition, the debtor/assignor remain liable for the debt (similar to a guarantee)

• The creditor /assignee has the right to claim settlement from either debtor/assignor OR substituted debtor.

Imam Ahmad bin Hanbal & Imam Shafie

• When new debtor is solvent, creditor/assignee has no recourse v. creditor/assignor if the debt is not settled by the substituted debtor

Imam Malik

• The creditor/assignee has the right to recourse v debtor/assignor in the case of misrepresentation in assignment to the new debtor (who already bankrupt b4 Hawalah concluded)

Hanafis

• In principle discharges the debtor-assignor with the exception the creditor/assignee has a right of recourse v .him which his claim in danger of failing on the reason either:-

• i)New debtor is insolvent OR because he refuse the existence of hawalah

• ii) Creditor has no proof

TYPES

TYPES

Hawalah Mutlaqah(Unrestricted)

Hawalah Muqayyad (Restricted)

Hawalah Mutlaqah(Unrestricted)

• It is the transfer of a debt to the transferee who owes no debt to the transferor (only Hanafi).

• Majority view this as a contract of agency.

• If the transfer of a debt is unrestricted; the transferee is liable to pay the amount of transferred debt only

Hawalah Muqayyad(Restricted)

• It is the transfer of debt from the transferor to the transferee who is also indebted to him.                  

• Endorsed by Majority and view that the transfer can only be made between the creditors and debtors.

• it is restricted transfer but the transfer of debt was not tied to that debt, and the transferee accepted that arrangement, then the transferee is subjected to two liabilities

• the transfer is restricted and the transfer is tied to the debt owed by the transferee, then the transferee is subjected to one liability

Types of Restricted

• Hawalah al-dayn– is the transfer of a debt from an obligation

of a person to another person’s obligation (replacement of a debtor with another debtor);

•  Hawalah al-Haq– is the transfer of right or right to claim

from one person to the other (replacement  of a creditor with another creditor);

RIGHTS & DUTIES

1. Absolute Hawalah – the transferee, after making the payment to the creditor, steps in the shoes of the creditor as against the original debtor.

2. Restricted Hawalah – the right of the debtor to property in possession of transferee, ceases.

transferee accept the liability – returns the property to debtor – still liable to pay to creditor- claim from the debtor

3. Views of scholar regarding the restricted hawalah

• If the debtor die before pay the debt, who has the superior right?

Majority of Hanafi – all creditor are equal. If the property is distributed – get some portion – cannot demand remaining property from the transferee

Imam Zufar – creditor of the hawalah is superior as the right of creditor was attached to property – no more his property- situation continue to exist after his death.

4. hawalah with condition – the transferee would make payment from the amount realised from the purchaser in the credit sale. Then the subject matter is distroyed before the delivery is made / returned by him exercising his option of inspection/ defect – the hawalah still valid – transferee still need to pay.

HOW CONCLUDED

How is Hawalah concluded?

The different modes of concluding Hawalah are as follows:

a) Hawalah with consent of all the partiesb) Hawalah by agreement of the creditor and the

new debtorc) Hawalah by agreement of debtor/assignor

(muhil) and the creditor/assignee (muhal lahu)d) Hawalah by agreement of the debtor/assignee

(muhil) and the new debtor (muhal alayh)

a) Hawalah with consent of all the parties

• By concerned parties is meant the debtor/assignor (muhil), the creditor/assignee (muhal Lahu) and the substituted debtor.

• This is in principle an ideal situation where all concerned parties consent to the substitution of a new debtor for the original debtor.

b) Hawalah by agreement of the creditor and the new debtor

• The original debtor does not participate in this sort of Hawalah, which is not of common occurrence but can still be encountered.

• This is lawful according to Hanafi jurists.

c) Hawalah by agreement of debtor/assignor (muhil) and the creditor/assignee (muhal lahu)

• For the Hanafi this is contingent upon the new debtor’s agreement.

• To others his consent is not necessary, especially when he is solvent

d) Hawalah by agreement of the debtor/assignor (muhil) and the new debtor (muhal alayh)

• This Hawalah is contingent the creditor’s agreement according to Hanafi, Shafi’i and Maliki jurists.

• Hanbali jurists hold that when the new debtor is solvent his consent is not necessary

Legal Capacity of Parties to Hawalah

The Hanafi jurists differentiate, in terms of legal capacity between the transferee on the one hand and the creditor/debtor on the other.

1. As for the transferee, they postulate that he should be sane of age.

2. As regards the capacity of the creditor and the debtor (transferor), their ability of discretion and understanding is sufficient for the conclusion of Hawalah.

1. As for the transferee, they postulate that he should be sane of age

• A discerning minor (sabi mumayaiz) is not legally competent to accept the hawalah because such hawalah may entail risk or financial loss for the minor assuming the position of transferee.

• If he accepted the hawalah on the demand of the transferor then it is a gratuitous act in its beginning though he may get it back at the end.

• But if he undertook this liability without the acquiescence or orders of the transferor then it is by every respect (by its beginning and end) a gratuitous act quite identical to giving the gift, which is not permissible for a minor.

• A guardian of a minor cannot also accept hawalah on behalf of his ward, as It is a harmful act, for which he has no authority.

• In a restricted hawalah where the transferee has a debt due from the transferor, the condition of puberty and sanity is not necessary to some jurists as in such hawalah the transferee is already under obligation to pay the debt or to deduct what he paid from the property of the transferor.

• 2. As regards the capacity of the creditor and debtor (transferor), their ability of discretion and understanding is sufficient for the conclusion of hawalah. However, it will remain suspended upon the approval of the guardian.

• This is quite logical and reasonable viewpoint because hawalah does not create any liability for them rather is benefits them.

• The transferor is a beneficiary because he is exempted from his liabilty while the creditor, as a result of such contract, ensures the the recovery of his debt.

• However, if the creditor fails to recover this debt due to the transferee being less prosperous than the transferor, then the law gives him right to have recourse to the original debtor.

• Therefore, a minor with discretion after he has obtained the approval of his guardian can transfer his debt in the same manner as he can accept the transfer upon some third party if he is a creditor.

• In the later case, the person to whom the minor has transferred must be more prosperous than the debtor.

• In Islamic law, the guardian of the property of the minors is allowed to undertake only those transactions, which are unequivocally in the minor’s best interest.

• In disposing of their property the guardian or father is not permitted to take the risk of accepting the hawalah to a person who is less prosperous than the purchaser.

TERMINATION OF HAWALAH

According to Imam Abu Hanifah

Where the transferee denies the existence of the

contract upon oath, and the creditor cannot produce

witnesses to prove it.

Where the transferee dies poor and insolvent. In either case the debt is

destroyed, since in neither case is it practicable for the creditor to receive payment

from the transferee.

Imam Muhamm

ad

Imam Abu Yusuf

A declaration by the court of the

poverty and insolvency of the transferee

during his lifetime.

• This circumstance is not admitted by Abu Hanifah: – Poverty and insolvency cannot be

established by the decree of court– Before this declaration the creditor is

not entitled to make any claim against the transferor.

Imam Shafie

Creditor has no right to make

any claim for his due upon transferor

Transfer of transferor

exempted from the debt

The exemption is absolute

and not restricted to the condition of payment of

transferee

Debt cannot be reverted to the

transferor

Argument of the Hanafi Jurists

• Exemption be absolute in the terms of the contract yet restricted.

• To the condition of right being rendered to creditor.

• Contract cancelled because the right being destroyed – Capable of

cancellation– Cancelled by the

agreement of parties– Condition of safe

delivery of debt to creditor is equal to that warranting subject of sale free from blemish.

Termination of restricted Hawalah

• Hawalah was with condition that payment is to be made from property of the debtor-assignor in possession of transferee and a person who was the rightful owner of that property took its possession.

• The debt is returned to the debtor.• Terminated when property in the hand of

transferee does no belong to the assignor and is taken possession by its owner.

Property held by the transferee in fiduciary capacity is destroyed without any negligence on part of transferee.

TERMINATION

The property

was held in trust and destroyed

by negligence

It was a property of

assignor usurped by transferee

NOT TERMINATED

THANK YOU!