December 31, 2009
Caveat Emptor and “As-is” sales

Investment & Startups


5 min read

In terms of Islamic Law, defects in an object of sale are of two types:

1- Those that occur naturally, such as a home with a faulty foundation or a car with a cracked head.

2- Those that are initiated by a legislative prohibition; selling ground meat as chicken, when in fact it’s pork, or tying the udder of an animal so as to appear to give more milk.

Both types are considered when adjudicating a dispute. So someone who was sold a set of CD’s in which one was cracked or scratched may have the right to a replacement, but may not have the right to recover for damages, as the market price of the CD set is not adversely affected by one faulty CD and no ill intent can be determined in the sale of pre-packaged media.

The right of the buyer to recover for defects is considered when those defects were present before the period of sale. These are, by consensus, valid causes for litigation and recovery. Scholars differed as to those that appear during the period of sale and before the sale is finalized; Malik saw that the buyer has three days to claim defect after which the claim must be dropped. In cases where the defect does not appear except seasonally or over a long period of time he allotted one year. An example of this would be an animal with mange. If the disease was treated before the sales period and is known to reappear without re-treatment, selling the animal in this case would be cause for anullment of the contract or recovery of damages. The three day period was substantiated by a hadith (judged weak by the opposing opinion) and the period of one year substantiated by precedent found in the custom of the people of Medina. This application may be viewed as similar to the principle of Caveat Emptor in English Common Law although not synonymous.

The Majority (Abu Hanifah, al-Shafi, and Ahmad) saw no difference between the period of sale and that before it, allowing for a claim to res indefinitely. They cite the principle “Presumption of Continuity” (Arabic: istiS-Ha_b al-Ha_l استصحاب الحال). That is if a defect is found, we presume, in order to protect the rights of the contracting party that the defect was present before contractm until proven otherwise.

For “As is” sales scholars held three opinions. The first, held by the Hanafi and Hanbali schools, is that “As is” conditions are permissible, and liability can be disclaimed from every type of defect. The second opinion, held by scholars of the Maliki, Shafi, and Hanbali schools, is that liability can be disclaimed only from those defects that are unknown to the seller at that time. The third opinion, being an alternate opinion held by those mentioned in the second, is that liability can be disclaimed except in the case that they were known before hand. This third opinion is in reality a subset of the second, and as such consideration for only two opinions should be given.

Proponents of the first opinion cite a hadith collected by Ahmad that two men came to the Prophet having disagreed over inheritance that had since expired or dilapidated. After having been warned of the dangers of false litigation and the appropriation of another’s property wrongfully earning that person divine punishment in the next life, they agreed to forgive each other. At this the Prophet told them “Go then, divide your wealth, and be just to each other, then let each of you forgive the other.” The implied meaning of this hadith is that each of them after dividing the wealth in question would then forgive his partner for any defects found in his share, mutually disclaiming all liability.

Those that held the second opinion however countered that this hadith is applicable only to cases of inheritance, which in itself is not a commutative form of transaction. Proponents of the second opinion used case-precedent from the time of the Caliph Uthman, in which two men disagreed about a slave who had some defect that had been sold, the seller disclaiming all liability. When it became clear that the seller would not go under oath that he knew of this defect, the Caliph Uthman, acting as Judge in this case, ruled that the price paid must be refunded to the buyer by the seller and the slave returned.


Related Posts