Ethica Institute of Islamic Finance™

What conditions are acceptable in a contract?

Besides the permissible pre-agreed conditions that exist in a typical contract, the following conditions are also permissible:

• Condition of Payment: Where a good or service will be delivered according to payment;

• Condition of Receipt: Where a payment will be made according to delivery of some good or service;

• Condition of Collateral: Where a specified good secures the underlying price of a contract;

• Condition of Guarantor: Where a specified individual becomes legally obligated to ensure payment;

• Condition of Caveat Emptor: Where the seller declares himself free of responsibility for any defects, assuming the seller could not have been aware of any defects at the time of the sale;

• Condition of Payment Deferral: Where the date of deferred payment is clearly specified and agreed upon in the contract;

• Condition of Industry Practice: Where the contract includes a permissible condition that is accepted as the industry standard in the locality in which the transaction is conducted.

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