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Civil Law

Explanation of Article 560

Explanation of Article 560

The article clarifies the time at which each contracting party is entitled to their share of the profit in a Mudaraba contract. The first paragraph establishes the general principle that the entitlement to profit occurs at the end of the Mudaraba contract, as it is the time when the Mudaraba activities are settled and their results are determined. For example, if the Mudaraba lasts for two years and the profit is shared equally between the contracting parties, and the Mudaraba gains 10% at the end of the first year but loses 20% in the second year, the remaining funds at the end of the Mudaraba belong solely to the capital owner, and the Mudarib receives nothing due to the capital not being intact.

The paragraph also explains that if there is an agreement—explicit or implicit, including customary practice—on evaluating the Mudaraba and determining what each contracting party is entitled to at specific times while the Mudaraba continues, the contracting party is entitled to their share at that time, even before the Mudaraba ends, provided that the Mudaraba is evaluated at the specified time. The principle in this regard is that there is no profit unless the capital is intact, as profit is what remains after the capital; if there is nothing left, it is not considered profit.

For example, if the Mudaraba lasts for two years and the profit is shared equally between the contracting parties, and they agree to evaluate the Mudaraba at the end of each year and profits are due at the agreed evaluation, and the Mudaraba gains 10% at the end of the first year, the Mudarib is entitled to half of it even if the profits are not distributed between them. If the Mudaraba loses 20% at the end of the second year, the Mudarib is entitled to their share of the profit earned in the first year minus 20%, with the remainder going to the capital owner.

The paragraph establishes a legal presumption in this regard, which is a rebuttable presumption, stating that everything distributed between the contracting parties during the term of the Mudaraba is from the profit, meaning after the capital is intact. Anyone claiming otherwise must provide evidence. If the Mudarib distributes amounts to the capital owner during the Mudaraba contract and then claims that what was distributed was part of the capital owner's capital being returned and not profit, this claim will not be accepted without evidence.

Related To

Article 560

  1. A contracting party shall be entitled to his share of the profit upon termination of the mudaraba contract, unless the parties agree to assess the mudaraba and distribute the amounts due to each contracting party on specific dates during the mudaraba. Any amounts distributed during the mudaraba shall be deemed profits.

  2. A contracting party may not obtain his share of the profit prior to the due date without the consent of the other party.