Article 557 of the Saudi Civil Transactions Law
المادة 557 من نظام المعاملات المدنية · الفرع الثاني: آثار عقد المضاربة
The capital owner alone bears any shortfall in the capital and any condition to the contrary is void; the mudarib compensates for the shortfall only if he committed a transgression or default.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يتحمل رب المال وحده نقص رأس المال، ويقع باطلًا كل شرط يقضي بخلاف ذلك.
2- إذا نقص رأس المال في يد المضارب من غير تعد ولا تقصير منه فلا يلزمه تعويض رب المال عن النقص.
3- إذا وقع من المضارب تعد أو تقصير لزمه تعويض رب المال عن نقص رأس المال وعن كل ما يترتب على ذلك من ضرر.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 557 explained in plain English
This article addresses a basic question in mudaraba: who bears a shortfall in the capital?
First: the capital owner bears the shortfall. The general rule is that the capital owner alone bears a shortfall in the capital. Any condition providing otherwise is void, such as a condition obliging the mudarib to guarantee the capital in all circumstances.
Second: no compensation without transgression or default. If the capital falls short in the mudarib's hands without any transgression or default on his part, he is not obliged to compensate the capital owner for the shortfall.
Third: compensation in case of transgression or default. If the mudarib commits a transgression or default, he must compensate the capital owner for two things:
- the shortfall in the capital.
- all damage resulting from it.
This article is linked to Article 556, which prevents the mudarib from mixing the mudaraba money with his own or handing it to another except by custom or authorization. It is also linked to Article 558, which makes each contracting party's share of the profit depend on the agreement and, failing that, on custom.
Because proving a transgression or default depends on the facts of each case, a person facing a dispute of this kind is advised to consult a lawyer who specializes in commercial contracts and civil cases.
Practical example
Badr handed SAR 200,000 to a mudarib to trade in phones, and included in the contract a condition that the mudarib guarantees the whole capital. Phone prices suddenly dropped and the trade lost part of the capital through no fault of the mudarib. The condition is void, and Badr bears the shortfall. But if it turned out that the mudarib left the goods in an unsafe warehouse and they were damaged, that is a default, which obliges him to compensate for the shortfall and the damage that resulted from it.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 557 of the Saudi Civil Transactions Law
Who bears the loss of capital in a mudaraba?
The capital owner alone bears the shortfall in the capital, and any condition providing otherwise is void.
Is a condition that the mudarib guarantees the capital valid?
Any condition providing otherwise than the capital owner alone bearing the shortfall in the capital is void.
When is the mudarib liable for the loss?
If he commits a transgression or default, he must compensate the capital owner for the shortfall in the capital and for all damage resulting from it.
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1- الشركة عقد يسهم بمقتضاه شريكان أو أكثر بتقديم حصة من مال أو عمل أو منهما معًا في مشروع لاقتسام ما ينشأ عنه من ربح أو خسارة. 2- لا تسري أحكام هذا الفصل على ال
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تتحدد حصة كل شريك بالحصة التي التزم بها في عقد الشركة، ولا يجوز للشريك زيادة حصته عن الحصة المحددة في عقد الشركة إلا بموافقة باقي الشركاء.
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إذا كانت حصة الشريك حق ملكية أو أي حق عينيّ آخر فإن أحكام البيع هي التي تسري على ضمان الحصة إذا هلكت أو استحقت أو ظهر فيها عيب، وإذا كانت الحصة مجرد الانتفاع با
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.