Last week, the discussion centered around the right of a person to be dealing with the counterparty holding the ‘perfect capacity’ or, in simple words, has a sane head on his or her shoulders, is not or has not been intoxicated or is entering into the contract with free will and not by means of any coercion.
So what are the rights of a party upon coming to know, after signing the contract, that the counterparty is insane, or was intoxicated and after coming to his/her senses is denying the contract, or he or she was under certain duress due to some reason at the time of entering into the contract and has since resorted to legal means to exit the contract? Add to that the post facto revelation of the information that the counterparty is insolvent.
As Shariah principles are always based on full disclosure, fairness and equal justice, the aggrieved party will have the right to rescind the contract in order to protect his or her interest. However, there are different stages of a contract starting from the making of the offer and receiving the acceptance which is followed by the execution of the contract, ie the subject matter changing hands. Today, we shall examine the Shariah position related to these stages.
There are five circumstances for the cancelation of the offer as follows.
Withdrawal of the offer by the maker
The majority of the Muslim jurists are of the opinion that an offer can be withdrawn by its maker at any time before its acceptance by the other party. It is permissible since the rights of the other counterparty have not yet been connected with the subject matter of the offer. The maker can use the window between the offer and acceptance to pull back should it find out the existence of any of the said elements in the counterparty or for any other reason for that matter, including better price by another party.
Death of a party or loss of capacity
The death of either party before acceptance causes the offer to lapse. Similarly, if there occurs a loss of perfect capacity at either end, or either party becomes insolvent, the offer ceases to exist.
Refusal of the offer
The counterparty rejects the offer in writing, by words (verbal) or conduct. Rejection by conduct can be understood by an example we routinely go through in our daily life. A person visits a supermarket where he sees a pile of goods under the ‘special offer’ banner with the reduced price tag. He picks an item, examines it, puts it back and moves on. Here, the placement of goods by the supermarket management shall be considered the offer by conduct and the person showing no interest in buying the goods shall be termed as the rejection by conduct under Shariah principles.
Termination of the session or lapse of time limit
The offer will be deemed canceled due to the termination of the session before acceptance is made or the lapse of the time limit set by the maker of the offer. Here, the termination of the session will mean the place where both agreed to meet and an offer is made by a party but both dispersed without the counterparty accepting the offer.
Destruction of the subject matter
The destruction of the subject matter wholly or in part leads to the lapse of the offer. Thus, the existence of the subject matter is a condition for the validity of the offer. It is possible that the subject matter did exist at the time of making the offer but got destroyed before the acceptance was made by the counterparty. If the counterparty is willing to accept the partly destroyed subject matter at a reduced price, it will make the counteroffer to the maker of the first offer (ie seller) and upon its acceptance, the sale shall go ahead.
Another reason for the availability of the subject matter before making an offer – as also explained earlier in this space – is that the Shariah principles require that the seller must have the title and possession to the subject matter before putting it up for sale without which it shall be considered as a forward sale where both the considerations, ie the delivery of the subject matter and its price are deferred. A forward sale is forbidden in Shariah.
Thus, if an offer is made without any of the said elements being present, it will be a valid offer and a valid Shariah sale and the purchase contract shall emerge subject to the acceptance by the counterparty.
Another important point to note in respect of the acceptance is that it must not be a conditional acceptance or acceptance with strings attached to it
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the Dubai Islamic Economy Development Centre, nor the official policy or position of the government of the UAE or any of its entities. The purpose of this article is not to hurt any religious sentiments either consciously or even unwittingly.
Sohail Zubairi is the projects advisor with the Dubai Islamic Economy Development Centre. He can be contacted at [email protected].
Next Week: We shall continue to discuss the rights and obligations of the contracting parties.