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CHAPTER FOURTEEN » Sleeping Partnership (Muḍārabah)

Ruling 2228. A sleeping partnership is a contract between two people: one of them, the ‘owner’ (mālik), provides capital to the other, the ‘worker’ (ʿāmil). The worker trades with the capital and the profits are divided between him and the owner.

The validity of such a transaction (muʿāmalah) is conditional upon the following matters:

offer and acceptance. In expressing these, any word or action that conveys their meaning is sufficient;

the parties must have reached the age of legal responsibility (bulūgh), be sane (ʿāqil), and have the ability to take care of and use their wealth in a correct way (rushd). They must also enter into the agreement of their own volition (ikhtiyār). With regard to the owner specifically, it is a condition that he must not be prohibited from having disposal over his property (al‑maḥjūr ʿalayh) by a fully qualified jurist (al‑ḥākim al‑sharʿī) due to bankruptcy. This condition does not apply to the worker except in the case where the agreement requires him to have disposal over property that belongs to him but over which he is prohibited from having disposal;

the share of the owner and the worker from the profit must be specified in terms of a fraction, such as a third, a half, or any other fraction. But this condition does not apply when the share of each is customarily determined in the market, such that it is commonly understood that there is no need to state this condition. Furthermore, determining each share by stating an amount of the capital, such as £10,000, is not sufficient. However, once the profits become evident, one of them can reach a settlement (ṣulḥ) with the other with respect to his share for an amount of the capital;

the profits must only be shared between the owner and the worker. Therefore, if a condition is stipulated that some of the profits are to be given to another person, the sleeping partnership is invalid (bāṭil) except if it is in exchange for some work relating to the sleeping partnership;

the worker himself must be able to trade, in the event that a restriction is mentioned in the contract that he must conduct the trade himself. For example, if it is said, ‘I give you this money so that you personally trade with it yourself’ and the worker is unable to do so, the contract is void (bāṭil). But if conducting the trade himself is mentioned as a condition [as opposed to a restriction] in the contract – for example, it is said, ‘I give you this money so that you trade with it on condition that you do it yourself’ – and the worker is unable to do so, the transaction is not void. However, the owner has the option (khiyār) to annul (faskh) the contract in case the worker does not conduct the trade himself. Furthermore, if the contract mentions neither a restriction nor a condition but the worker is unable to trade even by appointing someone else, the contract is void. If he is able to trade at the beginning but not later, the contract is void from the time he cannot trade.

Ruling 2229. A worker is considered to be non-liable (amīn). Therefore, in case the property perishes or becomes defective, he is not responsible (ḍāmin) unless he acts beyond the boundaries of the contract or is negligent in safeguarding the property. Similarly, he is not responsible if a loss is incurred; in fact, all losses are borne by the owner. If the owner wishes to stipulate a condition that any loss incurred is not to be borne only by him, then this condition can be expressed in three ways:

he stipulates as part of the contract that the worker will be partner to any losses incurred just as he is partner to any profits made. In this case, the condition is invalid but the transaction is valid (ṣaḥīḥ);

it is stipulated that all losses are to be borne by the worker. In this case, the condition is valid but all profits will also be his, and none of them will belong to the owner;

it is stipulated that if there is a loss to the capital, the worker will recompense all or a specified portion of it from his own wealth and will give it to the owner. This condition is valid, and the worker is obliged to act according to it.

Ruling 2230. A sleeping partnership that is based on the owner giving the worker permission to trade with his property (al‑muḍārabah al‑idhniyyah) is not one of the irrevocable (lāzim) contracts [in Islamic law], meaning that the owner can revoke the permission he gave to the worker to use his property. Similarly, the worker is not obliged to continue doing the work with the owner’s capital. Whenever he wishes, he can refrain from doing the work; this may be before starting the work or after it, or it may be before profits become evident or after it. Furthermore, the worker can do this whether the contract is non-specific about its duration or it specifies the duration. However, if the two parties stipulate a condition that they will not annul the contract until a specified time, then the condition is valid and it is obligatory (wājib) on them to act according to it. But, in case one of them does annul, the contract will be considered annulled even though the person will have committed a sin by acting contrary to his undertaking.

Ruling 2231. If a sleeping partnership contract is non-specific and does not mention any particular restrictions, the worker can buy, sell, and decide on the type of goods according to what he thinks is in the best interest [of the partnership]. However, it is not permitted (jāʾiz) for him to take the goods from that city to another city unless this is something normal, such that the non-specific nature of the contract would be commonly understood to include it or the owner authorises him [to take the goods to another city]. If he transfers the goods to another place without authorisation from the owner and the goods perish or a loss is incurred, he is responsible.

Ruling 2232. With a sleeping partnership based on the owner giving the worker permission to trade with his property, the contract becomes void if the owner or the worker dies. This is because if the owner dies, his property is transferred to his heirs, and a new sleeping partnership agreement is needed for the property to remain in the worker’s possession. If the worker dies, the permission is cancelled because the owner’s permission was given exclusively to him.

Ruling 2233. In a sleeping partnership contract, both the owner and the worker can stipulate a condition that the other must do something for him or pay him something. As long as the contract continues and is not annulled, it is obligatory for them to act according to this condition whether profit is made or not.

Ruling 2234. Any loss to or destruction of the sleeping partnership property – for example, it is burnt, stolen, or suchlike – is recompensed by any profits made, whether the profit is made before the loss or after it. Therefore, the worker’s ownership of his share of the profit depends on there not being any loss or destruction, and only when the sleeping partnership period is over or the contract is annulled will it be definite. However, if the worker stipulates a condition in the contract that any loss will not be recompensed by any prior or subsequent profit, the condition is valid and must be acted on.

Ruling 2235. An owner can invest in things that are sanctioned in Islamic law (mashrūʿ) by way of a ‘reward’ (juʿālah)[1] to achieve the same result he would achieve in a sleeping partnership; i.e. he can entrust someone with some property and say, for example, ‘Use it for trading or any other operation, and the equivalent of half the profits will be for you’.

[1] The laws of juʿālah are stated in the next chapter.
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