Sunday, November 17, 2013

Q&A: Selling in Instalments with the Presence of a Penalty Clause

Is the selling contract legal when the selling price is fixed as a monthly payment with a written penalty clause of increasing the value of instalment in case the buyer fails to pay on time or delays the payment?
From Aboudhia Taki

Answer:
The contract of selling can be set for an upfront payment and it can also be as a deferred payment i.e. instalments.
But it is not permissible to increase the price due to the failure of the buyer to make the payment. If the failure of payment is by a wealthy person who is delaying; he will be punished by the state, a suit will be filed against him for delaying due to the saying of the Prophet صلى الله عليه وسلم as narrated by Abu Dawoud on the authority of Amr bin ash-Shreidi from his father from the Messenger صلى الله عليه وسلم said:
«لَيُّ الْوَاجِدِ يُحِلُّ عِرْضَهُ، وَعُقُوبَتَهُ»
"The delaying (in payment) by the wealthy (who is able to pay) permits the verbal attacks (to be called a delayer) on him and his punishment".
And "ليّ" 'me' means delaying, and the "الواجد" the 'wealthy' is the one able to repay. "يحل عرضه" i.e. it is permitted to call him a procrastinator and may even chastise him and "عقوبته" to punish him which is clear.
If the reason for non-payment is due to a hard time he is facing, then he should be given respite. Allah سبحانه وتعالى says:
وَإِنْ كَانَ ذُو عُسْرَةٍ فَنَظِرَةٌ إِلَى مَيْسَرَةٍ
"If someone is in difficult circumstances, there should be a deferral until things are easier."
(Al- Baqara, 2:280)
He should be given the time to be able to pay.
Therefore, if the selling contract is fixed for instant cash payment or by instalments then the price becomes binding on both parties. The price must not increase in the failure of making a payment as this would be Riba (interest). This form of interest was widespread during the days of ignorance (Jahiliyah). It was narrated from Ash-Shafi'i: "From the Riba of the days of ignorance, a man who lends another a loan, then he resolves the contract and says to the one in debt to pay it or to pay by riba and he delays the payment, the value of debt will increase and will delay the payment."
In conclusion the price which has been agreed upon at the beginning is binding on all parties and its value is not allowed to be increased due to failure to pay on time or to postpone payment with the increase in the price, otherwise it will be Riba.
Your brother,
Ata Bin Khalil Abu Al-Rashtah
27 Rajab1434 AH
06/06/2013 CE
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