Speculation contract in the civil transactions system

Speculation contract in the civil transactions system

The Civil Transactions Law addresses many of the issues facing individuals and companies in their commercial transactions and contracts by regulating the contractual relationship and setting the terms and rules governing it.

One of the most important contracts discussed in detail by the system is the speculative contract, which clarifies the relationship between the contracting parties, their obligations and rights, the mechanism for distributing profits between them and who bears the loss, the methods for terminating the contract, and its effects.

What is meant by a speculative contract in the civil transactions system?

Article 550 of the Saudi Civil Transactions Law defines a speculation contract as a contract concluded between two parties in which the owner of the money undertakes to deliver money to the speculator in exchange for a joint share of the profit.

The Mudaraba contract is considered one of the most popular types of contracts among traders and businessmen. 

The Commercial Court has jurisdiction to consider disputes between partners in a speculative company because the work they carry out is a commercial business between merchants in accordance with Article 16 of the Commercial Courts System.

Speculation contract in the civil transactions system

Types of speculative contracts

• An absolute speculative contract without specifying an end date for the contract.
• A speculative contract restricted to a specific time or type of business.

What are the pillars of a speculative contract?

A speculative contract consists of two parties:

• The owner of the money is the merchant who wants to invest and trade his money.
• A speculator is a professional trader who specializes in conducting speculation and who manages capital. He is part of a speculation company because he conducts the business.

What are the terms of the speculative company?

• The speculative contract must be in writing.
• The company’s capital must be specified.
• Determine the percentage of profits between partners within the contract.
• The owner of the money alone must bear the loss unless the reason for the loss is negligence on the part of the speculator.

Speculation contract in the civil transactions system

What are the obligations of the parties to a speculative contract?

Obligations of the contractor “owner of the money”

• Handing over money to the speculator.
• Giving the speculator the authority to manage, invest and dispose of funds in a manner that does not conflict with the regulations in force within Saudi Arabia.

Speculator’s obligations

• The speculator is obligated to carry out the work agreed upon in the contract.
• Providing the owner of the money with information related to speculative activities.
• Not to mix the amount of speculation with his money and not to hand it over to others unless an agreement is reached between him and the owner of the money to do so.

What is the difference between a company contract and a speculative contract?

What is the difference between a company contract and a speculative contract?

A company contract differs from a speculative contract in that the company contract is between two parties participating in the company’s capital, and profit and loss sharing is based on each party’s share in the company.

While in a speculative contract, the owner of the money is the owner of the company’s capital and bears the loss incurred by his money, the speculator carries out business and invests this money due to his experience in the field and takes a percentage of the profits or a wage agreed upon between them. 

How are profits distributed in a speculative company?

It must be agreed to determine each party’s share of the profit in the contract, but if there is no agreement on this, custom is used to determine each party’s share.

The Civil Transactions Law gives both parties the right to determine the method of distributing profits, such as distributing the profit equally between them. A fixed wage may be set for one of the parties for his work, provided that it does not violate the provisions of Islamic Sharia.

When does the speculation contract end?

When does the speculation contract end?

The speculative contract ends in accordance with Article 562 of the system in the following cases:

• If the speculation contract is limited to a specific period: The contract ends either with:
  • Expiration of the agreed upon work or expiration of the period specified in the speculation contract.
  • The owner of the money may withdraw from the contract before the expiry of the specified period by filing a lawsuit in the commercial court if there are reasonable grounds accepted by the judge.
• If the speculative contract is absolute and of indefinite duration: the owner of the money may withdraw from the contract at any time provided that the speculator is informed of this a reasonable period before withdrawal.
• Death, confinement or insolvency of one of the contracting parties.

What are the implications of the expiration of a speculative contract?

• The speculator may not dispose of speculative funds after the end of the contract and is obligated to return these funds to the owner of the funds.
• The speculator must submit an account statement of the speculative funds and the value of profit and loss in the speculative contract after its expiration.
• The speculator is liable for loss of capital if it is due to his negligence.
• In the event of the death of the speculator, his heirs must inform the owner of the money and take the necessary measures to preserve the money.

Speculation contract in the civil transactions system

It is important to seek the assistance of a specialized lawyer from the office of Lawyer Abdul Majeed Al Rashid who has experience in commercial contracts and drafting them in accordance with the regulations in force within the Kingdom.

A commercial lawyer from the office of Attorney Abdul Majeed Al Rashid provides a variety of legal services, including studying and analyzing cases, drafting commercial contracts and reviewing their terms, representing clients before relevant companies and competent authorities, attending sessions before commercial courts, and pleading on behalf of clients, among other services.