1. ISLAMIC LAW OF TRANSACTIONS
CONTRACT OF HAWALAH
(ASSIGNMENT OF DEBT)
LSS 3023
EN. MOHD LOTPI B. MOHD YUSOB
LOW HENN KAI
‘ATEERAH BT AZIZAN
FATEEN AIDA BT AZAHAR
REX ROLAND AK CHUNDI
IRWAN BIN JOHN IMBAYAN
AFIQ MUZAKKIR B. MOHD RUZANI
5. Examples
• A is indebted with B and has a claim
against C. A may settle his debt by
transferring his claim against C to the
benefit of B
• A shall be discharge as B may claim A’s
debt from C under Hawalah.
• A shall be called as Debtor-assignor, B
as creditor and C as Transferee
6. Validity of Hawalah
1) Lawful to transfer one’s debt to another
2) In case of transfer loan of debtor to
transferee, the latter should be asked to
pay as he substitutes the debtor
3) After transfer, the original debtor may
be discharge
4) The transfer requires consent of all
parties
5) The creditor shall accept the assignment
of debt and pursue collection from the
new person
7. Viewpoint of Hawalah
• Imam Abu Hanifah : Hawalah is a
transfer o debt which terminate the
liability of original debtor to a third
person.
• Imam Muhammad : Hawalah is a
transfer of demand only which the
burden of payment still rest with the
original debtor
8. • Imam Ahmad ibn Hanbal and Imam
Shafie: When the new debtor is solvent,
the creditor/assignee has no recourse
against the creditor/assignor in the
event that the debit is not settled by
the new debtor
• The discharge of debtor is total and
irrevocable , unless he guarantee in the
non-payment of new debtor.
9. • Maliki : The creditor/assignee has the right of
recourse against the debtor/assignor in the
case of misinterpretation in assignment to the
new debtor who was already bankrupt before
the Hawalah transfer
• Hanafis : Hawalah is discharging the debtor
with exception that the creditor/assignee has a
right of recourse against him in the event that
this claim is in danger of failing either for
reason of new debtor insolvent or renouncing
the Hawalah and no proof thereof.
11. EFFECT OF HAWALAH
• To discharge the debtor
from the debts he owes
to the creditor
• Hawalah can occur with
the condition, the
debtor/assignor remain
liable for the debt
(similar to a guarantee)
• The creditor /assignee
has the right to claim
settlement from either
debtor/assignor OR
substituted debtor.
12. Imam Ahmad bin Hanbal
& Imam Shafie
• When new debtor is
solvent,
creditor/assignee has
no recourse v.
creditor/assignor if the
debt is not settled by
the substituted debtor
Imam Malik
Hanafis
• The
creditor/assignee has
the right to recourse
v debtor/assignor in
the case of
misrepresentation in
assignment to the
new debtor (who
already bankrupt b4
Hawalah concluded)
• In principle
discharges the debtorassignor with the
exception the
creditor/assignee has
a right of recourse v
.him which his claim
in danger of failing on
the reason either:• i)New debtor is
insolvent OR because
he refuse the
existence of hawalah
• ii) Creditor has no
proof
15. Hawalah Mutlaqah
(Unrestricted)
• It is the transfer of a debt to the
transferee who owes no debt to the
transferor (only Hanafi).
• Majority view this as a contract of agency.
• If the transfer of a debt is unrestricted;
the transferee is liable to pay the amount
of transferred debt only
16. Hawalah Muqayyad
(Restricted)
• It is the transfer of debt from the transferor to the
transferee who is also indebted to him.
• Endorsed by Majority and view that the transfer can
only be made between the creditors and debtors.
• it is restricted transfer but the transfer of debt was
not tied to that debt, and the transferee accepted
that arrangement, then the transferee is subjected to
two liabilities
• the transfer is restricted and the transfer is tied to
the debt owed by the transferee, then the transferee
is subjected to one liability
17. Types of Restricted
• Hawalah al-dayn
– is the transfer of a debt from an obligation of
a person to another person’s obligation
(replacement of a debtor with another
debtor);
• Hawalah al-Haq
– is the transfer of right or right to claim from
one person to the other (replacement of a
creditor with another creditor);
19. 1. Absolute Hawalah – the transferee,
after making the payment to the
creditor, steps in the shoes of the
creditor as against the original debtor.
2. Restricted Hawalah – the right of the
debtor to property in possession of
transferee, ceases.
transferee accept the liability – returns
the property to debtor – still liable to
pay to creditor- claim from the debtor
20. 3. Views of scholar regarding the restricted
hawalah
• If the debtor die before pay the debt, who
has the superior right?
Majority of Hanafi – all creditor are equal.
If the property is distributed – get some
portion – cannot demand remaining property
from the transferee
Imam Zufar – creditor of the hawalah is
superior as the right of creditor was
attached to property – no more his
property- situation continue to exist after
his death.
21. 4. hawalah with condition – the transferee
would make payment from the amount
realised from the purchaser in the
credit sale. Then the subject matter is
distroyed before the delivery is made /
returned by him exercising his option of
inspection/ defect – the hawalah still
valid – transferee still need to pay.
23. How is Hawalah concluded?
The different modes of concluding Hawalah are as
follows:
a) Hawalah with consent of all the parties
b) Hawalah by agreement of the creditor and the
new debtor
c) Hawalah by agreement of debtor/assignor
(muhil) and the creditor/assignee (muhal lahu)
d) Hawalah by agreement of the debtor/assignee
(muhil) and the new debtor (muhal alayh)
24. a) Hawalah with consent of all the parties
• By concerned parties is meant the
debtor/assignor (muhil), the creditor/assignee
(muhal Lahu) and the substituted debtor.
• This is in principle an ideal situation where all
concerned parties consent to the substitution of
a new debtor for the original debtor.
25. b) Hawalah by agreement of the creditor
and the new debtor
• The original debtor does not participate in
this sort of Hawalah, which is not of common
occurrence but can still be encountered.
• This is lawful according to Hanafi jurists.
26. c) Hawalah by agreement of debtor/assignor
(muhil) and the creditor/assignee (muhal
lahu)
• For the Hanafi this is contingent upon the new
debtor’s agreement.
• To others his consent is not necessary, especially
when he is solvent
27. d) Hawalah by agreement of the debtor/assignor
(muhil) and the new debtor (muhal alayh)
• This Hawalah is contingent the creditor’s agreement
according to Hanafi, Shafi’i and Maliki jurists.
• Hanbali jurists hold that when the new debtor is solvent
his consent is not necessary
28. Legal Capacity of Parties to
Hawalah
The Hanafi jurists differentiate, in terms of
legal capacity between the transferee on the
one hand and the creditor/debtor on the other.
1. As for the transferee, they postulate that
he should be sane of age.
2. As regards the capacity of the creditor and
the debtor (transferor), their ability of
discretion and understanding is sufficient
for the conclusion of Hawalah.
29. 1. As for the transferee, they postulate that he should
be sane of age
• A discerning minor (sabi mumayaiz) is not legally
competent to accept the hawalah because such
hawalah may entail risk or financial loss for the minor
assuming the position of transferee.
• If he accepted the hawalah on the demand of the
transferor then it is a gratuitous act in its beginning
though he may get it back at the end.
• But if he undertook this liability without the
acquiescence or orders of the transferor then it is by
every respect (by its beginning and end) a gratuitous
act quite identical to giving the gift, which is not
permissible for a minor.
• A guardian of a minor cannot also accept hawalah on
behalf of his ward, as It is a harmful act, for which he
has no authority.
30. • In a restricted hawalah where the
transferee has a debt due from the
transferor, the condition of puberty
and sanity is not necessary to some
jurists as in such hawalah the
transferee is already under obligation
to pay the debt or to deduct what he
paid from the property of the
transferor.
31. • 2. As regards the capacity of the creditor and debtor
(transferor), their ability of discretion and
understanding is sufficient for the conclusion of
hawalah. However, it will remain suspended upon the
approval of the guardian.
• This is quite logical and reasonable viewpoint because
hawalah does not create any liability for them rather is
benefits them.
• The transferor is a beneficiary because he is exempted
from his liabilty while the creditor, as a result of such
contract, ensures the the recovery of his debt.
• However, if the creditor fails to recover this debt due
to the transferee being less prosperous than the
transferor, then the law gives him right to have
recourse to the original debtor.
32. • Therefore, a minor with discretion after he has obtained
the approval of his guardian can transfer his debt in the
same manner as he can accept the transfer upon some
third party if he is a creditor.
• In the later case, the person to whom the minor has
transferred must be more prosperous than the debtor.
• In Islamic law, the guardian of the property of the
minors is allowed to undertake only those transactions,
which are unequivocally in the minor’s best interest.
• In disposing of their property the guardian or father is
not permitted to take the risk of accepting the hawalah
to a person who is less prosperous than the purchaser.
34. Where the transferee denies
the existence of the contract
upon oath, and the creditor
cannot produce witnesses to
prove it.
According to Imam Abu
Hanifah
Where the transferee dies
poor and insolvent. In either
case the debt is destroyed,
since in neither case is it
practicable for the creditor
to receive payment from the
transferee.
36. • This circumstance is not admitted by
Abu Hanifah:
– Poverty and insolvency cannot be
established by the decree of court
– Before this declaration the creditor is not
entitled to make any claim against the
transferor.
37. Creditor has no
right to make any
claim for his due
upon transferor
Debt cannot be
reverted to the
transferor
Imam
Shafie
The exemption
is absolute and
not restricted
to the condition
of payment of
transferee
Transfer of
transferor exempted
from the debt
38. Argument of the Hanafi Jurists
• Exemption be absolute •
in the terms of the
contract yet
restricted.
• To the condition of
right being rendered
to creditor.
Contract cancelled
because the right being
destroyed
– Capable of cancellation
– Cancelled by the
agreement of parties
– Condition of safe
delivery of debt to
creditor is equal to that
warranting subject of
sale free from blemish.
39. Termination of restricted
Hawalah
• Hawalah was with condition that payment
is to be made from property of the
debtor-assignor in possession of
transferee and a person who was the
rightful owner of that property took its
possession.
• The debt is returned to the debtor.
• Terminated when property in the hand of
transferee does no belong to the assignor
and is taken possession by its owner.
40. Property held by the transferee in
fiduciary capacity is destroyed
without any negligence on part of
transferee.
