Payment Of Fees For Guarantees

Payment of Fees for Guarantees

Dr. Ali bin Raashid Ad-Dubayaan*

*

Judge at the Ministry of Justice and Editor-in-Chief of Al-Adl Journal.

Payment of Fees for Guarantees

All praise belongs to the Lord of all the worlds and peace and blessings be upon the best human being, our Prophet Muhammad, his family, companions and those who follow his guidance until the Day of Judgment. The perfection of the Islamic Sharee'ah is greatly evident in the fact that the laws and provisions it has laid down provide for sublime tenets and principles that attach much significance to the feelings of kindness and mercy that should prevail among members of the Muslim society. These tenets raise human acts to a lofty position whereby Muslims develop a sense of social solidarity among each other, which in turn fosters and deepens relations of cooperation and sympathy towards one another. This comprehensive objective of the Islamic Sharee'ah is clearly provided for in the Holy Qur'an and the Prophet's Sunnah. In the Qur'an we read, "Help one another in righteousness and piety." (Al-Maa'idah: 6:3); "But do good; for surely Allah loves those who do good." (AlBaqarah: 2:195) and "Allah commands justice, the doing of good, and giving to kith and kin." (An-Nahl: 16:90), to mention but a few verses. In the Prophet's Sunnah, An-Nu'maan bin Basheer (may Allah be pleased with him) narrated that the Prophet (may Allah's peace and blessings be upon him) said, "The example of believers in their affection, compassion and benevolence is like one body; If one part of it becomes ill the whole body comes to its aid with fever and sleeplessness."2 Also, Abu Hurayrah (may Allah be pleased with him) narrated that the Prophet (may Allah's peace and blessings be upon him) said, "He who alleviates a distress from a Muslim, Allah will remove a distress from him on the Day of Judgment; he who makes it easy for someone who is insolvent, Allah will make it easy for him in this life and the life to come; he who covers [the pitfalls] of a Muslim, Allah will cover his pitfalls in this life and the life to come and Allah is in the help of a servant as long as he is in the help of his brother."3 Hudhayfah bin Al-Yamaan (may Allah be

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Reported by Al-Bukhaaree and Muslim. See Al-Lu'lu' wal Majraan fima Ittafaq Alayhi Ash-Shaykhaan, 3/196, no. 1671. Reported by Abu Dawood in his Sunan, p. 747, Book of Morals, Part on Helping Muslims, no. 4946.

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pleased with him) also said, "Your Prophet (may Allah's peace and blessings be upon him) said, 'Every good deed is a charity.'"4 Among the sublime Sharee'ah provisions which have covered this principle of cooperation among Muslims is the guarantee contract which is considered permissible with a view to supporting cooperation and solidarity among members of the Muslim Nation.

Meaning of Guarantee Linguistically speaking, the Arabic word kafaalah means the guarantee5 or the security required for the fulfilment of a condition. Hence, the kafeel and the kaafil is the guarantor. The term is also used to mean 'surety, legal guardian and sponsor', among other things. The plural is kufalaa'.6 Allah says, "You were not with them when they were throwing their lots as to which of them should (kafala) be charged with the care of Mary." (Aal 'Imraan: 3:44) The Prophet (may Allah's peace and blessings be upon him) said, "The sponsor of an orphan and I in Paradise are like these [two fingers]," joining together the middle and index fingers [as he said this]."7 According to jurists, the term is given different definitions though all of them revolve around the same meaning. Some jurists define it as "joining a liability of a person to that of another person with regard to commitment to fulfil due rights."8 This means that the guarantor's liability is joined with that of the guaranteed person with regard to securing fulfilment of a certain due right, which gives the owner of the Reported by Abu Dawood in his Sunan, no. 4947. Regardless of the various senses used in English with reference to the word 'guarantee', it is used in this context to mean "the pledge given by any one (kafeel) to a creditor (makfoolun lahu) to secure that the debtor (makfoolun bihi) will be present at a certain specific place to pay his debt, or to undergo punishment." (Translator's Note) 6 Lisaan Al-Arab by Ibn Mandhoor, 14/109, the root "kafila". 7 Reported by Al-Bukhaaree in his Saheeh, Book of Morals, Part on the Virtues of those who Sponsor Orphans, p. 1278, no. 6005. 8 Sharh Fath Al-Qadeer by Ibn Al-Humaam, 6/283; Haashiyat Ibn Aabideen, 5/282; Bulghat As-Saalik by As-Saawee, 2/155; Haashiyat Ad-Dusooqee, 3/330; Nihaayat Al-Muhtaaj by Ar-Ramlee, 4/432; Al-Mughnee by Ibn Qudaamah, 4/590 and Kashaaf Al-Qinaa' by AlBahootee, 3/362. 4

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Payment of Fees for Guarantees

right assurance to receive it from either the guarantor or the guaranteed. It also means that the guarantor becomes liable in case the guaranteed person is not able to fulfil his obligation. The right here includes all things that can be secured by guarantee, be it financial or personal."9

Proofs Supporting the Legitimacy of Guarantee Several texts in the Qur'an and the Prophet's Sunnah support the legitimacy of guarantee. Therefore, scholars unanimously agree that guarantee is valid in dealings among people. In the Qur'an we read, "They said: 'we miss the beaker of the king; for him who produces it, is [the reward of] a camel load; I will be bound by it.'" (Yusuf: 12:72) This means that the speaker in the above Qur'anic statement guarantees to pay the reward. Hence, this is a clear proof of the legitimacy of acting as a guarantor.10 In the Sunnah, a number of hadeeths are recorded as to the legitimacy of the guarantee. Salamah bin Al-Akwa' (may Allah be pleased with him) narrated, "Once, while we were sitting in the company of the Prophet, a dead man was brought in. When the Prophet was requested to lead the funeral prayer for the deceased, he asked, 'Is he in debt?' The people replied in the negative. He further asked, 'Has he left anything with which to repay his debt?' They replied, 'No.' So, he led the funeral prayer. Another dead man was then brought in and the people said, 'O Allah's Apostle! Lead his funeral prayer.' The Prophet asked, 'Is he in debt?' They said, "Yes,' they replied. 'Has he left anything with which to repay his debt?' he further enquired. 'Three Dinars,' they replied. So, he led the prayer. Then a third dead man was brought in and the people requested [the Prophet], to lead the funeral prayer. He asked, 'Has he left any wealth behind?' 'No,' they replied. He then asked, 'Is he in debt?' They said, '[Yes, he is three Dinars in debt.' He (declined to lead the prayer and) said, 'Then pray for your [dead] companion.' Abu Qataadah

9 10

Al-Mousa, Theory of Personal Guarantee, , pp. 158-165. Tafseer Al-Qur'an Al-Adheem by Ibn Katheer, 3/522; Fath Al-Qadeer by AshShawkaanee, 3/42 and Al-Jaami' li Ahkaam Al-Qur'an by Al-Qurtubee, 9/231.

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then said, 'O Allah's Apostle! Lead his funeral prayer, and I will pay his debt.' So, he led the prayer."11 Abu Hurayrah (may Allah be pleased with him) also narrated, "Whenever a dead man who was in debt was brought to Allah's Apostle [for the funeral prayer], he would ask, 'Has he left anything to repay his debt?' If he was informed that he had left something to repay his debts, he would offer the funeral prayer, otherwise he would tell Muslims to offer the funeral prayer for their companion. When Allah made the Prophet wealthy through conquests, he said, 'I am more entitled than other believers to be the guardian of the believers, so if a Muslim dies while he is in debt, I am responsible for the repayment of his debt; and whoever leaves wealth [after his death], it will go to his heirs."12 Abu Umaamah Al-Baahilee (may Allah be pleased with him) also said, "I heard the Prophet (may Allah's peace and blessings be upon him) saying, 'Allah has given every person his due share. Therefore, there is no special bequest for an heir. A woman shall not spend from her house except with the permission of her husband.' They asked, 'O Messenger of Allah! Will this be the case even if it is food?' The Prophet replied, 'Yes, even if it is food.' Then he added, 'A borrowed thing shall be given back, the grant shall be repaid, the debt shall be repaid and the guarantor is liable."13 Muslims have throughout the ages used the guarantee of each other and Muslim jurists have been unanimous as to its legitimacy and validity. This unanimous agreement is reported by Ibn Qudaamah in AlMughnee14, Ibn Aabideen in Al-Haashiyah15, amongst other scholars. Reported by Al-Bukhaaree in his Saheeh, Book of Transference of Debt from One Person to Another, no. 2289. See Fathul Baaree by Ibn Hajar, 4/466. 12 Reported by Al-Bukhaaree in his Saheeh, Book of Transference of Debt from One Person to Another, no.2298. See Fathul Baaree by Ibn Hajar, 3/477. It is also reported by Muslim in his Saheeh, Book of Inheritance, 11/60. 13 Reported by An-Nassaa'ee, At-Tirmidhee, Ibn Maajah, Ibn Hibbaan and AtTabaraanee. The chain of narrators includes Isma'eel bin Ayyaash who reported it on the authority of the Shaamites and it is a good narration. In general, the different narrations of the hadeeth support each other. See At-Talkhees Al-Habeer by Ibn Hajar, 2/47 and Nasb Ar-Raayah by Al-Zayla'ee, 4/58. 14 Al-Mughnee, 4/491. 15 Haashiyat Ibn Aabideen, 5/285. 11

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Since the Islamic Sharee'ah provides for the protection of human necessities, requirements and complementary needs, all means that fulfil these needs are considered objectives of the Sharee'ah, for these things are needed in the life of human beings to make it easy for them to deal with each other. Moreover, the Islamic Sharee'ah aims at removing any difficulty that may make it hard for people to go about their daily life activities, and hence has provided all the means that are bound to realize this objective. Ibn An-Najjaar Al-Hanbalee writes, "As there is a definite need for securing a debt by a financial or personal guarantee, and as a financial guarantee tends to be avoided by most people, personal guarantee has become a necessity which, were it not permitted, would lead to difficulty in concluding many of the transactions that people need in their daily life."16 Ar-Ruhaibaanee also writes, "Were the guarantee impermissible, this would result in difficulty, and hence no transactions might be concluded by people."17

The Purpose of the Guarantee Contract The guarantee contract is based on benevolence rather than compensation. This is the established opinion of jurists from all schools of jurisprudence as stated in Badaa'i' As-Sanaa'i': "Because it is (i.e. the guarantee) is a benevolent contract, hence it is not valid to be concluded by someone who has no capacity to donate."18 In Fath Al-Qadeer we also read, "As the guarantee offered on order is initially a benevolent act and ultimately an act that leads to compensation, it is, being offered for no order, a benevolent act initially and ultimately."19 Also, in Majma' AlAnhur we read, "No guarantee may be valid except by a person who has the capacity to donate because it is originally a benevolent contract."20 In Bulghat As-Saalik it is stated, "It is a duty on the one who has the capacity Ma'ounat Ulee An-Nuhaa Sharh Ghaayat Al-Muntahaa, 4/407. Ibid, 3/313. 18 Al-Kasaanee, 4/3411. 19 Ibn Al-Humaam, 7/215. 20 Damaad Afandee, 2/124. 16 17

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to donate."21 Also, in Al-Dhakhirah it is stated, "The guarantee of a patient covers the third part of estate because it is a donation, as argued by scholars, and giving him a debt that covers his capital because it is not a donation. However, if the debt consumes the capital, the guarantee is dropped because the debt is given precedence over donation."22 In Nihaayat Al-Muhtaaj, we read, "The condition that the guarantor should meet is that he should have the capacity to donate."23 In Al-Majmoo' Sharh Al-Muhadh-dhab we read, "Chapter: The guarantee is permissible, be it for a current or deferred debt. However, is it permissible for an unspecified term? Two views are expressed on this issue, one of which is that it is permissible because it is a benevolent act and offered for no charge or compensation whatsoever."24 Also, in Al-Kaafee, "Chapter: It is [the guarantee] only valid by a person having the legal capacity to act. However, the person having no capacity to act for reasons related to young age, insanity or mental deficiency cannot offer the guarantee because it is a benevolent act that puts him under the liability for something financial. It is similar to charity and vows."25 In Al-Mughnee, "Chapter: If he offers the guarantee for an unspecified term, the guarantee is not valid… the weightier opinion is that it is valid because it is free of charge."26 According to the above statements and others which can be found in books tackling this topic, it becomes clear that the guarantee contract is based on benevolence for no charge. The question that arises here is: As long as the guarantee contract is based on benevolence, is it permissible to receive a fee for it? This is what I seek to elaborate on in the following pages. However, before answering this question, I would like to elaborate on the forms of fees paid for guarantees based on the actual practice of people. Indeed, some of these forms culminated in disputes before courts. As-Saawee, 2/155. Al-Qaraafee, 9/192. 23 Ar-Ramlee, 4/434. 24 An-Nawawee, 14/47. 25 Ibn Qudaamah, 3/298. 26 Ibn Qudaamah, 7/101 and Mataalib Ulee An-Nuhaa by Ar-Ruhaibaanee, 3/316. 21 22

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Forms of Fees for Guarantees As described by jurists, the guarantee comes in two forms, as follows: 1. Financial guarantee of the money due from the guaranteed person, and 2. Personal guarantee. Ibn Al-Humaam states, "Guarantee can be personal or financial."27 The first is the guarantee to pay the debt on behalf of the guaranteed person if the latter fails to pay the debt and the second is the guarantee to bring the guaranteed person when he is summoned by the authorities. Both forms may be used in that the guarantor has to promise to pay as well as to bring the guaranteed person if the latter procrastinates payment or fails to pay the debt. Both forms of guarantee are a contract of commitment by the guarantor towards the owner of the right to bring the guaranteed person and to pay what he is liable for. It is meant to give the debtor a documentation of his right and to assure him that the guarantor will repay the debt if the guaranteed person fails to do so. As a matter of fact, some guarantors claim a fee from the guaranteed person for the guarantee, whether it is a personal or a financial one. The forms of fees for guarantees in actual practice among people fall within one of the following two types: - The first type is when a person offers to guarantee to another person for being liable to fulfil a due right or for violating the law in order to release him from being detained by the authorities. The guarantor promises to bring the guaranteed person at the time he is requested to appear before the authorities. For this act, the guarantor claims some fee for the guarantee he has offered. - The second type is when a person offers to guarantee the liability of another person for a debt due to a third party or for purchasing a commodity on credit or instalments when the party to the contract requests the other party to bring a guarantor for the purchaser. In this

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Fathul Qadeer, 7/164.

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case, the guarantor accepts to be liable on behalf of the guaranteed person for a fee. - The amount charged for the guarantee depends on the importance of the subject of the guarantee, the amount of debt and the sensitivity of the situation of the guaranteed person, especially when it represents a violation of the law or another defaulting act that those of high position in society seek to keep unknown to the public. In the circles of merchants, these acts are common, as merchants are keen on keeping their financial positions a secret when the guarantee is meant to make up for a loss or a financial setback. Guarantors have largely manipulated those who need to be guaranteed. They usually abuse their need for this guarantee by imposing very high amounts on them, to be paid instantly or to be deferred. So, what is the ruling on receiving these fees for guarantees?

Ruling on Fees Received for Guarantees By referring to the statements of jurists in this respect, we find that they almost take the same stand with some differences as to the validity of the guarantee contract if it stipulates a fee: nullification of the contract or nullification of the condition only. Here are some statements of jurists on the above issues. In Fath Al-Qadeer by Ibn Al-Humaam28 from the Hanafites we read the following: "In summary, if someone offers a guarantee for someone else on the condition that the latter pays some fee to the former and if such a condition is not provided for in the contract, the condition becomes null and void. However, if the said condition is provided for in the contract, the whole contract of guarantee becomes null and void." In Haashiyat Ad-Dasooqee from the Maalikites on Ash-Sharh Al-Kabeer by Al-Dardeer29 we read, "If the guarantee is legally invalid and does not meet the conditions, it is considered as having no authority such as if it is made for a fee, because the main condition that the guarantee should meet is that it is for the sake of Allah and for no charge." 28 29

7/186. 3/340-341.

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In Bulghat As-Saalik ilaa Madhhab Al-Imaam Maalik30 by As-Saawee we also read, "If the guarantee is legally invalid and does not meet the conditions, it is considered as having no authority. The phrase 'for charge' makes the guarantee offered by the guarantor invalid according to the hadeeth: 'Three [things] are made only for the sake of Allah: the charge, the guarantee and the good offices.' In summary, the forms of fees that make the guarantee invalid are nine. These are: a fee paid to the guarantor by the debtor, the creditor or a third party; a fee paid by the guarantor, the creditor or a third party and a fee paid to the creditor by the debtor, the guarantor or a third party. All forms in which a fee is paid to the guarantor are invalid whereas it is valid to be paid to other than the guarantor in the rest of forms." In Ash-Sharh Al-Kabeer by Al-Dardeer31 we read, "He began by explaining the things that make the guarantee invalid until he said: 'A guarantee for a fee paid by the creditor, the debtor or a third party. The reason for making this guarantee invalid is that if the debtor pays the debt to the creditor the fee will be invalid. It will be like eating others' money unjustly. Moreover, if the guarantor pays the debt to the creditor and receives it from the debtor, the fee will be similar to an advance payment with an extra amount which makes the guarantee invalid. In this case, the fee should be repaid to the one who has already paid it. In the third case, the creditor might pay the fee to the guarantor, a fee which makes the guarantee invalid but the act of sale valid." In Al-Majmoo' Sharh Al-Muhadhab by An-Nawawee we read, "Chapter: The guarantee is permissible, to be paid instantly or deferred. However, is it permissible for an unspecified term? Two views are expressed on this issue, one of which is that it is permissible because it is a benevolent act and offered for no charge."32 In Kash-shaaf Al-Qinaa'33 by Al-Bahootee we read, "Or if he accepts to sell the guarantor an item specified by the guarantor, lease his house to him or give him a fee for the offered guarantee, the guarantee will be 2/674. 2/674. 32 14/47. 33 5/1608. 30 31

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invalid because it is similar to concluding 'two transactions in one', which is legally prohibited." In Mataalib Ulee An-Nuhaa Sharh Ghaayat Al-Muntahaa34 by AlRuhaybanee it is stated, "The same applies if he puts a condition in a guarantee contract that he accepts to guarantee the debtor for a fee or if he stipulates that the guaranteed person will sell him something specified by the guarantor, lease his house to him or give him something as a present, the guarantee will not be valid because it is similar to concluding 'two transactions in one', which is legally prohibited."35 According to fatwa No. 11617 issued by the Permanent Committee of Iftaa' in Saudi Arabia, the Committee was asked about taking a fee for personal guarantees of labourers and the Committee answered as follows: "This fee is strictly unlawful because it is paid for a guarantee which constitutes a contract based on benevolence and which should be free of charge."36 In the session held in Jeddah during the period 10-16 Rabee' II, 1406 AH, the Islamic Jurisprudence Academy also decided on the letters of guarantee as follows: "The guarantee is a benevolent contract, motivated by grace and mercy. Muslim jurists have ruled against taking a fee for offering guarantees; the reason being that, in the event of guarantor's payment of the guaranteed sum, it will be comparable to a loan generating profit to the lender, which is forbidden in the Sharee'ah."37 A number of the contemporary jurists including Muhammad AlMousa in his paper entitled "Personal Guarantee", pp. 282-283, and Abdul-Kareem Zaidaan in his paper entitled "Guarantee and Transference of Debts in Comparative Jurisprudence", pp. 138-149, are of the opinion that no fee should be received for offering a guarantee.

Conclusions Based on the above, the following conclusions can be drawn: 3/318. See also Ma'oonat Ulee An-Nuhaa, 4/413. 36 Fataawaas by the Permanent Committee of Iftaa, 14/189-190. 37 See Islamic Jurisprudence and its Proofs by Al-Zuhailee, 7/5093. 34 35

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1. The guarantee contract is based on benevolence rather than compensation, and therefore no fee should be paid for the guarantee. 2. The fee paid for offering a guarantee is made either by the guaranteed person, the creditor or a third party. 3. The fees is paid for personal or financial guarantees. 4. Jurists are of the opinion that the fee paid for the guarantee is forbidden for reasons related to the different forms of guarantee contracts. - In some forms, it is prohibited to charge a fee because such a fee is similar to a loan that generates an interest in case the guarantor pays on behalf of the guaranteed person. - In other forms, it is prohibited because it is similar to concluding two sale contracts in one. 5. The ruling on the guarantee contract conditional on the payment of a certain fee results in either the invalidity of the contract if it contains such a condition or the invalidity of the condition if it is not stipulated in the contract itself. These are the points that I wished to document on this important case which muftees may be asked to answer or which judges may encounter in courts when litigants file lawsuits related to this case. Sometimes, these lawsuits may be awarded to the guarantor who may receive the fees he stipulates from the guaranteed person for the guarantee he has offered. In some cases, the amount charged by the guarantor might sometimes be rather substantial, which makes the claimant stubbornly insist on claiming it and the affected defendant helplessly seek to be released from such a commitment, especially when he knows that it is prohibited to pay it. Therefore, people are exhorted to avoid including such conditions in guarantee contracts for the sake of pleasing Allah. I pray to Allah to grant us sound judgment and to lead us on the straight path in this life and the life to come. All praise is due to Allah, the Lord of all the worlds, and may Allah's peace and blessings be upon His slave and Messenger, Muhammad, his family and companions.

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