Salam Definition: Conditions of the Salam Contract: The Conditions relating to Price

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Clement Thompson
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Salam Definition: Salam is a deferred sale; this means that it is a financial transaction in which the price is paid in advance (paid cash) by the muslim (the buyer) to the muslam ilaihi (the seller)

1 Salam Definition: Salam is a deferred sale; this means that it is a financial transaction in which the price is paid in advance (paid cash) by the muslim (the buyer) to the muslam ilaihi (the seller) who makes an undertaking to deliver the commodity according to defined specifications at a determined future date. What is delayed is the commodity that can be known by description (al muslam fihi), and what is paid on the spot, immediately, is the price (the capital of salam). Salam, therefore, is the opposite of deferred sale (bay muajjal) in which the commodity is delivered on the spot while the price is deferred to be paid later. Conditions of the Salam Contract: - Conditions relating to the Commodity (al muslam fihi): - It has to be a liability defined by description (salam is not valid for commodities which quality and quantity cannot be defined) - It has to be a commodity that can be known by description - The specifications of the commodity that can affect its value have to be determined (kind, quality and quantity) - The exact date of delivery has to be specified in the contract - The capability of the seller to deliver the commodity (the commodity must be vastly available in the market at the time of the contract) - The place of delivery should be defined; otherwise the place where the contract is concluded should be considered the place of delivery The Conditions relating to Price: - It has to be known by both parties (like all other contracts of exchange). - The price must be paid immediately in order to avoid exchanging a debt for a debt (paying through the common methods of payment

2 such as certified checks and Hawalah is deemed lawful). The Malikites view it permissible to delay the payment of salam capital (price) for three days (and if there is a need to pay the price on installments, it is possible to conclude a number of successive separate salam contracts). Provisions of Salam Contract: Before Conclusion of Salam Contract: General Framework of Salam Contract: It is permissible to negotiate concluding salam contracts through limited transactions each of which ends with its term. Likewise, it is permissible to prepare a general framework or a basic agreement that includes agreement on the conclusion of successive salam contracts. If the salam contract is concluded based on a memorandum of understanding; this memorandum of understanding becomes an integral part of the contract, except what both parties agree on excluding from this memorandum when signing the contract. (See: the standard of salam in Shari'a standards). Guarantees and documentation of Salam Debt: since the muslam fihi (the price, the salam capital) is considered as debt owed by the muslam ilaihi (the seller), al muslim (buyer) has the right to ask for lawful guarantees he views appropriate (pledge, third party guaranty and the like). Penal Clause in the Salam Contract: it is not permissible to stipulate any conditional increase (penal clause) on al muslam ilaihi because the salam debt (al muslam fihi) is deemed a debt and a liability borne by al muslam ilaihi. Consequently, imposing an additional sum of money conditional to the delay in debt on al muslam ilaihi is considered a type of evident riba. During the Term of the Contract: Selling the debt of salam before receiving it: jurists view that it is not permissible to al muslim to sell the debt of salam (al muslim fihi) before receiving it whether to al musallam ilaihi or to a third party. However; it is permissible to al muslim to conclude another salam sale transaction about the same commodity he buys (al muslam fihi), provided that the second salam is not conditional to the first salam (this is called parallel salam).

3 Salam and parallel salam are made up of two distinct contracts: A- The First Salam Contract: salam purchase of a commodity known by description B- Parallel Salam Contract: Sale of commodity defined by description (bearing it as a Salam debt) that is from the same kind and specifications of the commodity that is purchased in the first Salam (subject to the condition that performance of either of salam contracts is conditional to the performance of the other). Parallel salam is the most common type of salam transactions adopted by Islamic banks as these banks do not need the commodity of salam sale (al musallim fihi) for its sake, but the need emanates from an attempt to facilitate transactions and to provide banking services that abide by shari'a laws. Hence, the bank can buy a commodity and conclude a salam transaction. Then the bank looks for a buyer for the same goods and concludes a second salam transaction on the condition that the price in the second transaction is higher than that the one in the first transaction (profit margin) and that the term of the second contract is farther than that of the first contract, in order for the bank to obtain the commodity (al musallim fihi) and to deliver it to the buyer in the second contract. Again, the execution of either contract shall be dependent from the execution of the other. Rules Governing the Delivery of the Sold commodity (musallam fih) before Due Date: A- If the sold commodity (al musallim fih) is a type of commodity the delivery of which to the buyer before its due date can result in harm incurred by the latter (the products that change by time, or the commodity that requires agreement about it until it is sold ), or in missing an objective intended by the buyer (to receive the commodity in a defined season or with the term of another salam sale the buyer is a party of, fro example), the buyer will not be obliged to accept the commodity before its due date. B- However if the sold commodity is not of the type which reception by the buyer before its due date does not incur any harm to the latter and does not lead to missing an objective he intends ( a product that does not change over time, and there is no difference between its value whether it is new or old, such as iron and copper ), the buyer has,then, to accept the early delivery, for the objective of the transaction is fulfilled (delivery of the commodity) in addition to delivering it earlier than it was originally agreed.

4 Rescission (Iqala) in Salam: Iqala in salam is permissible whether before or after the term of the contract. - At the end of the contract period Delivery of the sold commodity on due date A- Delivery of a commodity (al musallm fihi) according to the specifications agreed on. In this case the buyer has to accept the commodity and discharge the liability of the seller. B- Delivery of a commodity (al musallam fihi) of quality higher than that agreed on. In this case the buyer has to accept it and discharge the liability of the seller. The acceptance of the higher quality of goods is considered as acceptance of the good performance of the contract) and the buyer is not bound to pay the seller for it unless the latter requires that. C- Delivery of a commodity of specifications lower than those agreed on: the buyer is entitled in this case to refuse it, as he may accept it on its state as a kind of concession on his part. In the event of dispute, both parties may solve their difference with lowering the price, if necessary. Failure to deliver the Sold Commodity (al musallim fihi) on Due Date: A- Failure because of genuine incapacity: there should be some tolerance until easier times. B- Failure because of intentional delay and procrastination: execution of the pledge or requiring the guarantor, if any, to honor the contract is permissible. C- failure because of an emergency excuse (extinction of the commodity from the market, for example): in this case, the buyer can, at his own discretion, either to allow time to the seller until the excuse is no longer extant, or to cancel the contract and recover the original price, as he may exchange the commodity with another one (subject of the following point). Exchanging al musallim fihi (salam debt): It is permissible for the buyer (al muslim) to exchange al muslim fihi (salam debt) for another commodity, provided it is not cash if the capital was cash, after the due date without stipulating that in the contract. In this case the new commodity has to be good enough to be accepted as al muslim fihi for salam capital, and of a market

5 value higher than that of al muslim fihi at the time of delivery (see salam sharia standard).

SALAM. Chapter 14. Purpose of use:

SALAM. Chapter 14. Purpose of use: Chapter 14 SALAM In Salam, the seller undertakes to supply specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot. The payment is at spot but the supply of purchased