Commercial Papers — practice questions

Correct answer: A. Clauses 2/1 and 2/2: A promissory note is a certificate by which the issuer (a debtor) promises to pay a certain amount at sight or at a particular or determinable date to a beneficiary (creditor), and in Shari’ah characterisation it is a certificate of debt. An unconditional written order from one person to another to pay a third person describes a bill of exchange (Clause 2/1), while the Hawalah characterisation applies to cheques (Clause 2/3). Because it represents a debt, dealing in it is subject to the rules on debts and Riba.

Correct answer: C. Clauses 3/1 and 3/2: Dealing in bills of exchange, promissory notes and cheques is permissible provided it does not contravene the Shari’ah, e.g. through Riba or prohibited delay. It is not permissible to use a bill of exchange or promissory note in transactions that require possession of the countervalues, such as treating them as a countervalue in Sarf or as the capital (Ras al-Mal) of Salam, because the paper represents a deferred debt rather than possession of money. Deferred sales, rentals and Hawalah do not require immediate possession of the price.

Correct answer: D. Clauses 7/1 and 7/2: Receipt of a prompt-payment cheque constitutes constructive possession of its amount only if it is a banker’s cheque, a certified cheque, or one legally deemed certified (where the amount is mandatorily maintained in the drawer’s account); such cheques may be used in transactions requiring possession, such as currency exchange, purchase of gold or silver, and Salam capital. An ordinary uncertified cheque is not constructive possession and may not be used where possession is stipulated. Deferring delivery of the gold would itself breach the spot requirement.