Buyback — practice questions

Correct answer: C. Clauses 2 and 3/1 to 3/4: Buyback is the sale of a tangible asset or usufruct followed by the seller’s acquisition of it from the buyer or a subsequent owner. It is permitted if the sale is real, transferring ownership, yield and risk to the buyer; the subsequent purchase is made through an independent contract and not automatically on lapse of time; the second contract is not stipulated in the first; and there is no bilateral promise binding both parties to enter into the second contract.

Correct answer: A. Clauses 3/5 and 3/5/1: There must be no collusion or custom of buyback whereby the deferred price in either contract is higher, since this is ’Inah. Prohibited scenarios include selling on deferred terms and buying back cheaper for cash or an earlier deferred price; selling for cash and buying back at a higher deferred price; selling deferred and buying back higher for a longer deferment; and selling spot and later buying back at a higher spot price. Clause 3/5/2 permits cases where a price is in non-cash form or the buyer is an unrelated party.

Correct answer: D. Clause 3/5/2: A buyback is permitted even if the deferred price is higher where it is free of any collusion or customary practice, where the price change reflects alterations in the asset’s characteristics or value rather than deferral, where the second buyer is different from the first seller and neither is wholly or majority-owned by the other, or where the price in one contract is not cash. Here the buyback is unarranged and reflects the rise in value.