The legal meaning of Kafalah
“A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default". According To This Definition The Claim And Demand Should Be Made By On Both, The Principle Debtor Or The Surety.
The Literal Meaning Of This Word Kafalah Is Joining Or Merging
Conjoining of guarantor’s dhimma (faculty by which a person bears liabilities) to that of the guaranteed in a way that the debt or other responsibility of the original bearer is established as a joint liability of the two of them.
ibn qudhamah- conjoining of the guarantor’s liability to the liability of the debtor resulting in both of them being liable to the liability.
three words used interchangeably – himalah, za’amah, kafalah.
al-mawradi gave more accurate definition- kafalah for individuals, himalah for blood-money, za’amah for substantial financial sums.
it should be stressed that unlike hiwalah (transfer of debt), kafalah would not release the principal debtor from the debt as kafalah is only an additional obligation of the guarantor to the existing obligation of the
In quran ALLAH says:
“They said: we miss the king's drinking cup, and he who shall bring it shall have a camel-load and i am responsible for it.’ [yusuf(12):72]
ibn abbas (ra) and imam razi interpreted the word za’im to mean kafi.
salamah bin al akwa’ ra reports, ‘we were seated with the prophet saws when a funeral was brought and the people requested him to pray over it. he asked, "does the deceased have any outstanding debts?" they replied, "no." he asked, "has he left any wealth?" they replied, "no." the prophet saws offered the funeral prayer over the deceased. then another funeral was brought. they requested, "oh prophet of allah pray over it." he asked, "does he have any outstanding debts?" they replied, "yes." he asked, "has he left any wealth?" they replied, "three dinars." the prophet saws then offered the funeral prayer over the deceased.
Then a third funeral was brought and they said, "pray over it." he asked, "does the deceased have any outstanding debts?" they replied, "three dinars." he said, "pray over your companion." abu qatadah ra said, "pray over him oh prophet of allah and i shall bear the burden of his debt." the prophet saws then offered the funeral prayer over him.’ (bukhari)
Kalafah means to add an obligation to an existing obligation in respect of a demand for something. This may relate to a person, finance or act (performance). Kafalah relating to a person involves the production of the person for whom the kafalah (bail) has been given. Kafalah relating to finance implies an obligation. Kafalah relating to an act or performance as to ensure the performance of a certain act, the failure of which may render th surety liable and responsible. One important point to be stressed is that kafalah, unlike hiwalah, would not release the principal debtor in whose favour the contract is concluded because kafalah is only an obligation in addition to the existing obligation. Among other rules governing kafalah are as follows:
It is lawful to become surety for surety.
There may be more than one surety for a single obligation.
If persons who are jointly indebted become surety for each other, each of them is liable for the whole debt.
The discharge of the surety does not necessarily discharge the liability of the principal debtor concerned. The opposite scenario will be acceptable as far as the discharge is.
If a delay is granted to the principal debtor for the payment of his debts, a delay is also granted to the surety principal debtor. But a delay given to the surety is not a delay given to the debtor.
Taken from net google.search
ELEMENTS OF KAFALAH:
As laid down by the most of the muslim schloars there are around five elements found in kafalah , they are as follow:
Kafeel or damin(surety)
Makful bihi or madmun(subject matter)
Makful anhu or madmun anhu(obligor)
CONDITIONS OF KAFALAH:
1. Conditions Of The Guaranteed
Jurists differed as to conditions of the guaranteed:
The debtor must be able to deliver the debts that has been guaranteed either by himself or through his or her agent.
Another school of thought says that that kafalah for a deceased is valid, because death doesn’t discharge the liability of the insolvent debtor.
hanafi jurists also rule that the guarantor knows the debtor whose debt he guarantees.
shafi’is and hanbalis rule to the contrary, since the contract of guarantee is valid even without a proper acceptance from the guaranteed, it is also lgical to allow the guarantee to be created even if the person is unknown, because in both circumstances, no acceptance will be made.
2. Conditions Of The Guarantor
Unanimous agreement on the requirement that the guarantor must have the legal capacity to enter into a gratuitous relating to his property and free from restrictions to enter into the contract.
Malikis extend the conditions by further excluding woman from guaranteeing a liability that covers more than 1/3rd of her property without the consent of her husband.
3. Conditions On The Object Of Guarantee
Guarantee for the property held in a fiduciary relationship is not allowed. Thus non-fungibles held as a possession of trust cannot be an object of guarantee. It is not permissible to stipulate in trust (financing) contracts like agency contracts or contract of deposit that a personal guarantee or a pledge be produced as such a stipulation is against the nature of the contract.
This is more stringent in musharakah and mudharabah contracts since the partner or the manager in these contracts cannot be asked to guarantee the capital or to promise a guaranteed investments.
The debt to be guaranteed must be valid and binding debt on the debtor where the liability will be dropped only through the repayment or exoneration. E.g. Debt of a slave to his master.
The majority of muslim jurists comprising of hanafi, maliki and hanbali jurists also opinions that the object of financial guarantee must be such that it can be retrieved from the guarantor.
4. Conditions Of The Creditor
the creditor should be known to the guarantor.
abu hanifa and muhammad al-shaybani stipulate that the creditor should be present in the session or be represented by someone.
abu yousuf holds that kafalah does not require acceptance by the creditor for kafalah only conveys the meaning of junction, which is realisable by the unilateral declaration of the guarantor.
5. Condition Of Sigah For Constituting The Contract
Expression must be clear and inferring, explicitly or implicitly, the meaning of the guarantee. Language used must be explicit enough or implicit to mean only the guarantee.
Must be concluded without stipulating any uncommon conditions (shart ghayr muta’arif). It is valid to stipulate priority in demanding the payment – malikis, hanafis and has been incorporated by aaoifi in its standard on guarantee.
KINDS OF KAFALAH:
1. Kafalah Bi Al-Nafs (Physical Guarantee)
Majority jurists accept physical guarantee if the liability is related to financial matters.
Shafi’is extend the ruling cover for rights of humans such as qisas or punishment for libel. But not valid for hadd punishments.
Hanafis and hanbalis prohibit both.
Generally, it is permissible for a guarantee for a specified period of time, E.g: Guarantor can be forced only att he end of the time and is not responsible for immediate delivery.
Abu yousuf opined otherwise, E.g: From the start till the end. This view has been said to agree with customary common practice.
2. Kafalah Bi Al-Mal (Financial Guarantee)
the gurantee that the debtor will pay his debt, fine or any other personal liability, thereby joining the debtor’s liability to his recourse and non-recourse.
Three types of financial guarantee:
kafalah bi al-dayn (guarantee for debt): This Means To Guarantee The Payment Of Debt To The Creditor Owed By The Principal Debtor
kafalah bi al-taslim (guarantee for delivery): It Is To Be Surety To Deliver Property To Its Owner Such As To Be Surety On Behalf Of A Lessee To Transfer Possession Of Leased Property To The Lesser Or His Agent On Expiry Of The Leased Period.
kafalah bi al-dark: Guarantee given by a seller that he will return the price of the object if it is taken over by someone else in the exercise of his better right. It is also defined as a guarantee in favors of the seller that if the title of the seller is defective, the guarantor will make good the loss suffered by the purchaser on the account.
CONTRACT OF GUARANTEE IN ENGLISH LAW: the contract act of 1872 describes a contract of guarantee as follow:
“A contract to perform the promise or discharge the liability of third person in case of his default". Three persons are involved in it:
The one who gives the guarantee (surety)
For whom the guarantee is required(principle debtor)
The Pakistani law relating to guarantee lay down the following three types of guarantee:
General: It’s without any condition and restrictions.
Specific: when it is given for a specific transaction
Continuing: A guarantee, which extends to a series of transactions.
RULES FOR KAFALAH:
Following are some rules which lay down for the contract of kafalah:
Kafalah for principle debtor who dies insolvent: To this point different scholars have different opinions.now we will discuss each scholar one by one:
Imam-Abu-Hanifah says a surety ship for a principal debtor who dies in a state of insolvency is not valid. Because he is unable to perform his obligations. It’s an debt which stands discharge after his death.
Imam Abu Yusuf and Muhammad hold that surety ship for a deceased is valid because death can’t discharge off liabilities of an insolvent debtor.
Imam Ibn hazm have view that there is no kafalah on behalf of principle debtor if he dies insolvent and the guarantor will not be accountable in hereinafter because he was not able to perform obligations during his life time.
Rules Relating Surety:
As this contract of surety is liable for surety to perform this is then necessary that he will be competent to enter into such a contract. Legal terms used for competency are sanity, puberty and a physical and mental ability to handle financial matters. Some points which causes incompetency are as follow:
Minor should not be allowed to enter into such a contract.suretyship from such a person is invalid regardless of that he handles his business be himself. He cannot take any undertaking whether his guardian allow him to do so, as the guardian is not authorized to do such act.
Same will be in the case of Insane; he should not be allowed to enter into such a contract.
A person on death bed if gives surety it will be held valid but the surety should be extent to one third of his property. Increase from that will be held invalid.
Rules relating to the makful lahu:
The following terms are related to the creditor:
The creditor must be known to the kafil, because without this the objective of surety ship would not be realized.
According to imam Abu hanifah and Muhammad the makful lahu should have to present in the session of contract, or there must be someone like agent must be present on the behalf of creditor to approve the contract, because this is a contract of claim that’s the reason why the creditor or his agent on his behalf must be present in the same session of contract. There is a offer from surety and acceptance from creditor. But according to imam Yusuf there is no need of acceptance from the creditors as it’s a unilateral declaration from the side of kafeel and its type of junction.
Rules Relating To Makful Bihi (subject matter):
Following are some points related to the makful bihi or subject matter of the contract of surety ship:
Surety ship for the property held by somebody in a fiduciary capacity is not allowed such as : deposits , capital of partnership or mudarbah, loan for use or commodate loan, hired property, property of the seller taken by a person with an intension to purchase but before the mentioning of price to him.
Surety ship for giving possession is valid and the surety will be bound to ensure the delivery of possession. The surety ship comes to an end when the reversionary claim expires.
The debt should have to be an established debt. A debt, which is not established yet, cannot be the subject matter of the contract of surety ship.
Surety ship in cases of crime will be held invalid. Because the rights whose fulfillments is impracticable is invalid in eye of law.
MODES OF KAFALAH:
Following are given some modes of kafalah which are as follow:
mutlaq (unrestricted) no new condition, only the original debt.
Muqayyadan bi al-wasf (restricted by description) current or deferred.
mu’allaq bi shart (suspended pending condition) a tells b that if c steals his property, he will make good the loss. A valid contract according to (majella in article 636), shafi’is – not allowed. aaoifi follow the hanafis.
mudafan ila waqt (deferred) or muhaddad ilwaqt (limited to a certain time).
LEGAL EFFECTS OF KAFALAH:
1. Seeking compensation from the guarantor
Guarantor can be one or many. if many, some jurists opine that all should contribute equally due to the joint guarantee to the debtor.
According to majella, unless specified, the debtor may choose from amongst the guarantor.
one of two opinions of Imam Malik Rahimahullah is that the creditor should exhaust his option of demanding from the principal debtor first and the demand to the guarantor could be made only if recovery otherwise is impossible.
contrary to that, the majority opined that the creditor has the choice unless the guarantor has stipulated a condition otherwise.
2. Absolution of the Guaranteed Debtor
the majority - the principal debtor, because of the guarantee, is not exempt from his original liability. to them, the creditor has an option unless stipulated.
shafi’is – disallowed the option for the creditor else it would be like hawalah.
majella – if there is a condition which frees the principal debtor, then the contract is changed into hawalah contract.
the minority – (zahiri, imami schools, ibn abi laila and ibn shubrumah) the debtor has transferred the liability to the guarantor.
3. seeking compensation from the principal debtor
when the principal debtor is discharged by the creditor, the guarantor is also free.
if otherwise – two opinions:
shafi’is, hanbalis, malikis – opined that the guarantor could take how much he paid to the creditor.
hanafis – opined otherwise.
4. Termination of kafalah
Through guaranteed property – normal closure, gift, absolution and speech.
Through guaranteed person.
delivery of the person – Abu hanifa (R.A) vs. his students
5. kafalah for a fee
only if the debtor gives a gift to the guarantor, it is accepted.
the four majors – unanimously agreed in non-permissibility in taking a fee.
a. kafalah is a charitable and payment would make it a contract of exchange.
b. comparing kafalah and loan to their closeness and taking a fees is prohibited as both are for sake of allah.
c. guarantee doesn’t involve work or property – so taking fee would be like bribe.
d. if a price on the guarantee is agreed, would be like riba.
only allowable if the fee is for a dire necessity.
however, there is an opinion narrated from ishaq ibn rahawiah that he permitted the charging of fee for the guarantee contract
Normally, the shariah scholars do not allow any remuneration to be received against financial guarantee.oic fiqh academy resolved in its second session(December 1985) that no return can be taken for issuing guarantees; the reason being that guarantors payment of guaranteed sum will resemble a loan generating a profit to the lender that is prohibited in islam.However, fee representing actual administrative expenses is allowed for the services rendered by the banks in both kinds of guarantee either with or without cover.
The approach of the Jordan Islamic Bank, in this regard , is as follows: “ A bank guarantee is an undertaking to settle a debt at the request of a client ordering it. The Islamic Bank offers this service to its clients on a fee basis (Wakalah bil Ajr), and it claims the rights to seek fee commensurate with those charged by other banks. The fees will of course exclude the interest which accumulates from the date of demand and the date of actual settlement by the client. (IIBI,2000,P:192)
APPLICATION OF KAFALAH TO MODERN COMMERCIAL TRANSACTIONS:
There are two ways in which the transactions of kafalah to the modern ways can be implied these are as follow:
- When the financial institutions act as a guarantor, where the guarantee is for its customer to a third party. It’s a recourse guarantee. Aaoifi stipulates that only recourse could be done by a financial institution unless its shareholders and investors have authorized to make such benevolent donations.
- Guarantee contracts
5. Sharikah and mudarabah,
6. Guarantee in documentary credit,
7. Credit card based on contract of kafalah.