Understanding Islamic Finance - Doha Academy of Tertiary Studies

110 Understanding Islamic Finance(Gbpwth) held the same view as that of ’Umar. Their interpretation implies that the vendormust be the real owner of the goods and, as such, the owner of their risk and reward. Asregards the liability in case of damage, successors like Ta’aus and Qatadadh opined that ifthe goods were damaged before being paid for (in a cash sale), they belonged to the vendor.But if they were damaged after the purchaser had promised to take them, they belonged tothe latter and the former had to replace them. Further, according to Muhammad ibn Sirin, ifany party in the contract makes a precondition for the replacement of damaged goods, theliability for such replacement is on the one who made it. 17Therefore, the subject matter of the sale must be in the possession (Qabza) of the sellerat the time the sale is executed. In the case of Salam, certain conditions have been put inplace to rule out the possibility of nondelivery of the goods in a normal business scenario.For example, only those commodities that are normally available in the market at the timewhen delivery has to be made can become the subject of Salam, so that the Salam sellercan get them from the market for delivery to the Salam buyer if he himself is unable toproduce them as per the agreed specifications. In Istisna‘a, it becomes the responsibility ofthe manufacturer/seller to supply the specified asset at the agreed time.Possession of the subject matter by the seller means that it must be in the physical orconstructive possession of the seller when he sells it to another person. Constructive (Hukmi)possession means a situation where the possessor has not taken the physical delivery of thecommodity, yet the commodity has come into his risk and control and all the rights andliabilities of the commodity are passed on to him, including the risk of its destruction. Inthe case of immovable assets, any legal notice of transfer or mutation is sufficient.5.5 BROAD RULES FOR THE VALIDITY OF MU‘ĀMALĀT5.5.1 Free Mutual ConsentAll transactions, in order to be valid and enforceable, must be based on free mutual consentof the parties. The consent that is required for the formation of a valid contract is freeconsent. Consent obtained through oppression, fraud and misperception renders a contractinvalid as per Islamic law. It also requires that consenting parties have certain and definiteknowledge of the subject matter of the contract and the rights and the obligations arisingfrom it. Accordingly, inspection of the subject matter and proper documentation of thetransaction, particularly if it involves credit, have been encouraged and emphasized.Practices like Najash (false bidding to prices), Ghaban-e-Fahish (charging exorbitant priceswhile giving the impression that the normal market price has been charged), Talaqqi-al-Rukban (a city dweller taking advantage of the ignorance of a Bedouin by purchasing hisgoods at a far lower price before the latter comes to the market) and concealing any materialdefect in the goods or any value-related information in trust sales like Murabaha have beenstrictly prohibited so that the parties can decide with free will and confidence.5.5.2 Prohibition of GhararAll valid contracts must be free from excessive uncertainty (Gharar) about the subject matteror the consideration (price) given in exchange. This is particularly a requirement of all17 Al-Sanani, 1972, 8, p. 28, cf. Hassan, 1993, p. 34.