Guarantees — practice questions

Correct answer: D. Clause 2/2/1: It is not permissible to stipulate in trust (fiduciary) contracts, such as agency or deposit contracts, that a personal guarantee or mortgage be produced, because such a stipulation is against the nature of trust contracts, unless it is intended to cover cases of misconduct, negligence or breach of conditions or stipulations. The prohibition is more stringent in Musharakah and Mudarabah, where the manager, agent or partner may not be required to guarantee the capital or promise a guaranteed profit.

Correct answer: B. Clause 2/2/2: It is not permissible to combine agency and personal guarantee in one contract, because it conflicts with the nature of these contracts; a guarantee by an investment agent turns the transaction into an interest-based loan, since the capital is guaranteed in addition to the proceeds, as though the agent had taken a loan and repaid it with an additional sum that is tantamount to Riba. If the guarantee is not stipulated in the agency contract and is given voluntarily and independently, the agent becomes a guarantor in a different capacity and remains liable even if discharged as agent.

Correct answer: A. Clause 2/3: The lessor bears the risk associated with the leased property and the lessee holds it on a trust basis. The lessor may not stipulate that the lessee provide a guarantee or mortgage to recover rental if the property is damaged, unless the stipulation is restricted to misconduct, negligence or breach of contract. The lessor is liable for damage not caused by the lessee’s misconduct or negligence, is responsible for related insurance expenses and bears the expense of major maintenance.