Islamic Law Of Options (Khiyarat)

Islamic Law Of Options(Khiyarat)Introduction

Muslim jurists have suggested many devices to safeguard contracting parties against hasty undertaking. These devices are called khayarat, i.e., options in Islamic law. These devices give a party an option to revoke the contract.

The purpose of these devices is to maintain balance in transactions and to protect a weaker party from being harmed.The meaning of khiyar is that a contractor has right to ratify the contract or to annul within the period of option.Kinds of Options Khiyar al-Sharat (option of condition) Khiyar al-Tayin (option of determination) Khiyar al-Ayb (option of defect) khiyar al-Ruyah(opion of inspection) Khiyar al-wasf (option of description)Option of defect and Option of inspection has been granted by Shariah.

Option of stipulation , Option of determination and Option of description are established by agreement.1-Khiyar al-Shart(Option of condition)Definition

It is that option through which one party or both of them stipulate for themselves or for someone else the right to revoke the contract within a determined period.Example the purchaser says to the seller I purchased this thing from you but I have right to return it within three days

The result of this option is that contract which is binding initially becomes non-binding with the stipulation of this option.Legality It is reported that Holy Prophet(P.B.U.H) granted this option to Hibban Ibn Manzir who complained that he was defrauded each time he made a purchase. He was directed by Holy Prophet (P.B.U.H) to say whenever he made a purchase No cheating and I reserve option for three days. According to Imam Shafi and Imam Ahmad it should be stipulated at the time of the contract.Other jurists allow it even after the contract has been concluded, as long as the parties are in the same session.Khiyar al-Shart is permitted in those contracts which accept revocation like sale, hire etc.. It cannot be stipulated in those contracts which do not accept revocation such as divorce etc.The option can be stipulated by one of the parties for :HimselforFor a third party (the third party then becomes wakil of the party for purpose of exercising the option) but it does not prevent a party from exercising this right himself.There is agreement among the jurists that khayar al-Shart can be stipulated for a period of three days or less.

The jurists disagree as regard any period over three days.Imam Abu Hanifa and Shafi do not allow it for more than three days.According to Malikis the period varies from case to case.

Termination of the OptionThe option ceases to be applicable in the following cases:Death of one in whose favor the option was operatingThe exercise of option is a personal right and cannot pass to the heirs. Option becomes extinct and the contract is now binding on heirs.According to Shafis and Malikis it is right which can be inherited and heirs can exercise the right of Option within the stipulated period. Termination of the periodOn termination of period contract becomes binding and irrevocable.

Destruction of the subject matterIn this case contract also becomes binding.2-Khiyar al-Tayin(Option of determination)Meaning It is the right of buyer to choose, designate or determine within a pre-stated time one object out of two or more which are proposed to him.

The basic rule is that the subject matter must be known at the time of contract.

Example

One buying a car out of three vehicles offered for fixed price, gets opportunity through this option to have cars examined by a specialist and choose one of them.

The reserving of the right to ascertain the bought item later is known as the khiyar al-tayin.Effects Of the Option Shafis and the Hanbalis do not permit the stipulation of the determination because their opinion is based on the general rule which is that the goods being purchased must be ascertained at the time of the contract. The Hanafis and Mallikis allow this option on the basis of need because one may be in need of consulting other or purchaser is the agent of someone and wants to refer the matter to his principal..etc.So, this option is allowed as an exception through Istihsan (Juristic preference).Its operation is very narrow permitted mainly in the contract of sale.It is permitted to the buyer as the necessity .This option cannot be used by the seller according to the majority of the Hanafis.

Duration of khiyar al-tayinMaximum period to exercise this khiyar is three days according to Imam Abu Hanifah.According to Imam Yusuf and Muhammand time period is unlimited.Some Jurists consider khiyar al-tayin , a kind of khiyar al-shart and grant the same period for it as stipulated for the khiyar al-shart.Conditions The number of unascertained items should not exceed three, out of which one has to be ascertained.There should be a difference in value between the three items and price of each must be known.The period of the option should be determined and not more than three days.Effects of the Khiyar al-tayinA contract with this option is binding for the seller and non-binding for the buyer.It is possible for the buyer to revoke the purchase in all three items.According to Hanafis on the termination of period the contract becomes binding it is now necessary for the buyer to select one of them.According to Malikis on termination of the period, the sale is void in all items. So this option must be exercised within the period.Termination Following factors terminate this option:Exercise of the option Destruction of one of the items in possession of buyer: The goods destroyed become ascertained and the buyer is liable for the price.3. Destruction of one of the items in possession of the seller:Buyer has a choice to accept what remains or to revoke the contract.

3. Death of one who possessed the option. The contract becomes binding for the heirs and the heirs must ascertain one item. 3-Khiyar al-Ruyah (Option of Examination)Definition

It is the right given to a person; buying or brings anything not yet present at the time of the signature of the contract, to confirm or revoke the said contract after inspecting the goods or commodity.Knowledge of subject matter at the time of contract is an essential condition.Such knowledge is possible through an examination of subject matter at the time of contract or by description in a manner which removes all kinds of Jahalah.Opinions Of FuqahaThere are two opinions relating to the khiyar al-ruyah:Opinion # 1

The Shafis are of the view that the contract in which subject matter has not been examined is not valid.They reject the validity of this option.

They argue on the basis of this Hadith:

Do not sell what you do not have

The Malikis agree with the Shafis in general but they allow sale by minute description when:When examination at time of contract becomes impossible orIt is likely to result in grave loss.In such case the buyer may exercise option of examination and reject the good if it does not conform to description.

The Hanbalis agree with Shafis and Malikis.They reject khiyar al-ruyah also.

Opinion #2The Hanafis having difference of opinion with the other schools.According to Hanafis the contract in which the buyer has not seen the goods is a valid and enforceable contract but it is non-binding and the buyer has the option to revoke it upon examination.

The buyer can reject the goods under this option even if the goods were described minutely and are found to conform to the description upon examination. Hanafiss ArgumentsThey argue that the tradition Do not sell what you do not have applies to one who does not own the goods and has not capacity to deliver.It does not apply to the goods, which cannot be seen at the time of contract.They quote in support a tradition to the effect that: He who buys a thing which he has not seen has an option upon seeing itThey also base its legality on a judgment against Hazrat Usman (r.a.t.a) who has sold land to Hazrat Talhah. Either had not seen the land . Jubayr ibn Mutam arbitrated the dispute and allowed Talhah right of option.ConditionsThe buyer must not have seen the goods.The contract must be property, which is specified like houses, land, horses..etc.Facts terminating the optionThe option ends with the examination of the subject matter. There is no fixed period for this. Destruction of subject matter makes the contract irrevocable.The death of the buyer makes the contract binding for the heirs of the buyer.If the buyer examines the property and transfers it to other person , the contract becomes irrevocable.4-Khiyar al-Ayb (Option of defect)Definition It is right given to purchaser in a sale to cancel the contract if he discovers that the good acquired has in it some defect diminishing its value.The option has been imposed by law itself and the parties do not have to stipulate it. The goods are liable to be rejected if undeclared defects are discovered. If the seller specifically states that he is not responsible for any defects then the buyer acts at his own risk and goods cannot be rejected.Legality of this OptionThis option is based on the traditions:He who defrauds another is not from amongst usIt is not permitted for seller to sell things which are defective unless he points it out to himConditions for exercising option of defectThe defect should be such which causes decrease in the value of property.Defect may be obvious/apparent or hidden.The defect should be existed prior to the contract.The defect should continue after delivering till the time of the exercise of the option.The buyer should have no knowledge of the defect at the time of contract or at the time of delivering.There should not be any agreement of non-guarantee. If the purchaser by the agreement of non-guarantee expressly excludes the seller from any responsibility for defect in the sold good, then he cannot avail this option in future.Effect of Option of defectThe contract with option of defect is revocable.The purchaser of an object with defect has an option to confirm the sale or to reject it.Factors terminating the OptionAcceptance of object with defect by the buyer.Destruction of good/object in the hands of buyer.The death of buyer does not terminate the option. The right in such case is inherited by the heirs.