What is the ruling if the capital (mal) in a Mudarabah contract perishes before the purchase is finalized?
General Chapter
Al-Mughni
Book of Partnership
Primary text
If the capital perishes before the purchase, the Mudarabah contract is nullified due to the cessation of the capital upon which the contract depended. Any subsequent purchase made by the working partner (Amil) is binding upon him, and the price becomes his liability, irrespective of whether he knew of the capital's perishing before paying the price or not. There are two narrations regarding whether this is subject to the approval (Ijazah) of the capital owner (Rabb al-Mal). In one narration, if the owner approves, the price is upon the owner, and the Mudarabah remains valid as is. If the owner does not approve, the liability falls upon the Amil. In the second narration, the liability falls upon the Amil in all cases.
Supporting text
If the Amil purchases an item for the Mudarabah, and the original capital perishes before payment, the purchase belongs to the Mudarabah, and the contract remains valid. The owner must pay the price, and this price becomes the new capital, replacing the perished capital because the original capital perished before any disposition was made regarding it. This is the opinion held by some Shafi'is. It is also narrated from Abu Hanifa and Muhammad ibn al-Hasan that the new capital is the paid amount plus the perished amount.