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Contracting With Client Who Failed To Honor Previous Contracts With Other Parties

Is it permissible for a bank to contract with a client to finance construction on land owned by the client in case the client had already contracted with a contractor to construct on the same land but failed to honor that contract?

It is permissible to contract with such a client. The client must first be asked to rescind its previous contract with the contractor according to the terms and conditions set out in that contract. The bank has absolutely no liability with regards to the previous contract since it was not a party to it.

Any outstanding debts are considered the responsibility and liability of the customer. Once the previous contract is terminated, the bank shall draft a fresh contract with the client. Due care should be taken to verify solvency of owner and ability to pay on due date. The bank is under no obligation to hire the contractor who was previously hired by the client.

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