Transfer of Debt

Hawalah/‫ا ل حوا لة‬

 Definition

Literally: Transfer or change from a locality to another locality or from a person to another
person
 Legally:
 Moving the claim from the liability (zimmah) of the debtor to the liability of the payer.
(Hanafi)
 Transferring the debt from the liability of the primary party to the liability of the payer for
ensuring (repayment). (Hanafi)  
 A contract where a debt is shifted from a liability to another liability. (Shāfi’i)
 A contract through which a debtor is released from a debt by another person who
becomes responsible for it.
 Hawalah Resembles To
Kafalah and wakalah.

 Hawalah is similar to the sale of debt but is not sale, it also

resembles kafalah and wakalah.
 In hawalah, the debt is transferred from the principal debtor to the
transferee.
 Hawalah establishes a right for the creditor to demand the
settlement of debt from the transferee.
 Legality of contract of transfer
 Hadith says:
 Protraction by a wealthy person (i.e. who is capable of settling a debt that has fallen due) is
injustice (i.e. a violation of the other’s right, which is prohibited). When one of you is
required to demand from an affluent person (i.e. when debt due to you is transferred), let
him do so (i.e. accept the transfer).’ (al-Bukhari and Muslim)
 In a version reported by Imam Ahmad, ‘(a creditor, the debt of who is transferred to an
affluent person should accept the transfer.
 The opinions of fiqh schools
 Hanbalis and Zahiris :

 It is a binding command and as such it creates an obligation ‫ب‬ ( ‫)وجو‬.

 The agreement of the creditor and the transferee is not necessary.
 It is necessary that the principal debtor should agree with the hawalah.

 Majority of Schools:
 The hadith only conveys a recommendation ‫ب‬
( ‫)استحبا‬.

 Hanafis: there must be consent from all three parties.

 Malikis and Shafi’is:

 There must be an agreement between the principal debtor and the creditor.
 Consent of the transferee is not necessary because the debt can be collected from him
through the agent on behalf of the principal debtor.
 Hawālah is a permissible contract, and it is not obligatory for the creditor to accept the
transfer.
 The words of command used in the hadith are indicative of recommendation, according to
the scholars. Thus, it is recommended for the creditor to accept the hawālah, when the
person to whom the debt is transferred has sufficient wealth to settle the debt, and his
wealth is not of questionable purity.
 Accepting the hawālah is obligatory on the creditor, according to Hanābilah.

 Hawālah is allowed in debts. It is not permitted in assets (a’yān), i.e. in obligations to

submit particular assets, as liability for the latter is not transferable.
  
Pillars of Hawalah

 Hanafis: two pillars only:

1) Offer from the principal debtor
2) Acceptance from the creditor and the transferee.

 Majority of schools: six pillars:

1) Principal debtor
2) Creditor
3) Transferee
4) Principal debt
5) Debt owed by the transferee to the principle debtor
6) Expression which include offer and acceptance.
 The Conditions of Hawalah
1) Legal capacity of all parties
2) Consent of parties for hawalah. ( according to Hanafis)
3) The acceptance of both creditor and transferee should be given during the session.
4) The subject matter of hawalah should be debt (dayn) and not a specific thing (‘ain).
5) Both debts should be known.
6) The debts or one of them should not arise from the salam contract.
 Cont...

7) Majority of schools: the transferee should owe a debt to the

principal debtor otherwise it is a kafalah (guaranty) contract.
Hanafis not allowed.
8) The principal debtor (muhil) should owe a debt to the creditor
(muhal) otherwise it is a wakalah.
9) Malikees: both debts should be identical in quality and quantity
otherwise it is a contract selling debt for debt.
Hawalah is not valid if the principal debt is payable instantly and
the debt on the transferee is payable at a fixed future time.
 Characteristics

 Hawālah is a binding contract. According to the majority of

schools, hawālah is a contract of exchange that also
incorporates an element of muqāssah or setting off one
liability against another. The Hanafi school regards hawālah
as a unique contract that resembles contracts of exchange as
well as gratuitous contract and is subject to specific rules.
 Types of Hawalah

Hanafis: two types of hawalah:

1) Absolute hawalah (mutlaqah): This is a type of hawalah where the
contract is concluded without reference to the debt on the
transferee and he accepts the transfer.
The majority argues that the contract is a kafalah and not hawalah.
This is upheld as valid only in the Hanafi school
2) Restricted hawalah (muqayyidah) when a transfer is made with
reference to the debt on the transferee.

- Majority of schools recognize only this type of hawalah.

 
 - In general transfer, when the muhāl ‘alayhi (payer) is not indebted to the
muhīl, the former is obliged with one debt only.
 If there was a debt on the payer due to the muhīl, when the hawālah was not
particularly related to it by the muhīl saying ‘I transfer to you the debt due from
me to X, against what you owe to me,’ the payer will be obliged with the
settlement of both debts if he accepts the hawālah.
 - If the transfer was restricted, when the debt due to the transferor from the
payer falls away due to some reason, the transfer becomes annulled, as it is
relevant only when there has been a debt due from the payer. The transfer
does not become annulled if it was general.
Transfer of Right (‫)حوا لة ا لحق‬

 It is a transfer of right from one creditor to another.

 While in transfer of debt one debtor replaces another in transfer
of right one creditor replaces another.
(ex: a seller asks a purchaser to pay the price of the sold item to his
(the seller’s) creditor; a pledgee asks the pledgor to pay the debt
to another person).
 In hawalah al-haq the initiative is taken by the creditor while in
hawalah al-dayn the initiative is taken by the debtor.
 Termination of Hawalah

1) When the transferee pays the debt to the creditor.

2) Death or bankruptcy of the transferee:

Hanafis: hawalah is terminated when the transferee dies or becomes bankrupt or he
refuses the transfer and the creditor has no evidence against him.
 Shafi’is Opinion

A valid hawalah contract transfers the debt to the transferee. The debt actually should
never be retransferred to the principal debtor even if the transferee is not dead or
bankrupt.
The creditor before giving his consent to the hawalah should have investigated whether
the transferee is bankrupt or not. In this case his position is the same with a person
who has bought a certain property for a price higher than the market price.
Malikis and Hanbalis Opinion

If the creditor has stipulated that the

transferee should not be a bankrupt, and later
found to be bankrupt, then he can claim his
debt from the principal debtor.
Cont:

3) When the creditor gives the debt as a gift or charity (sadaqah) to

the transferee or

4) When the creditor releases the transferee from the debt (ibra) and
the latter accepts it.
5) Cancellation of hawalah (faskh) before it becomes effective or
executed.
 The difference between
Hawalah and Kafalah

1) In hawalah the debtor is released while in kafalah he is not.

2) Majority of schools: in Hawalah the transferee owes to the debtor while in
kafalah the guarantor does not.
 The difference between Hawalah
and the sale of Debt (bay’ al-dayn)

1) In hawalah a debt is transferred while in bay’ al-dayn it is sold.

2) In hawalah a debt is transferred for its par value, while in bay’ al-dayn it is sold for a
discount.
3) The majority of schools: in Hawalah the transferee owes the principal debtor while in bay’
al-dayn the purchaser of the debt does not owe the debtor.
4) In hawalah it is the principal debtor who transfers the debt, while in bay’ al-dayn it is the
creditor who sells it.
5) Hawalah is a permissible contract while the validity of bay’ al-dayn is disputed by the Fiqh
Schools.
The End