I am a trader in France and I sold goods to a trader in Algeria. According to custom, I shipped the goods and sent the freight documents to my bank which would in turn send them to the bank of my client. Hence, my client would receive the documents and pay the price of the goods. However, after my client paid the bank, the bank became bankrupt. I became unable to receive the money. Who should bear this loss? Please advise in details and mention the evidence.

All perfect praise be to Allaah, the Lord of the worlds. I testify that there is none worthy of worship except Allaah and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and Messenger.

Your case has three probabilities:

First: the client deposited the money in your account in the mentioned bank. Accordingly, he becomes free from liability because depositing the money in your personal account equals receiving the money. Consequently, the bank becomes responsible to pay the money. The rulings of the bankrupt apply to the bank and the rulings of the creditor apply to you.

Second: the client sent you a money transfer addressed to the mentioned bank and you accepted the transfer. The client – in this case as well – is free from liability to pay the money again and the bank takes over the liability and owes the money to you. Ibn Hajar Al-Haytami, a Shaafi‘i scholar said, “Hawalah (money transfer) frees the transferor from liability to the creditor assignee and the transferee. According to consensus, the creditor-assignee becomes liable for paying the debt to the transferee because this is the benefit of transferring debt.”

Third: which is the probability apparently understood from the question; the client deposited the money at the bank to transfer it to you or to your bank account in another bank. In such a case, the client does not become free from liability because the bank in this case is considered an authorized or hired person by the client to transfer the money or to deposit it in your account. However, the bank did not fulfill the task because of bankruptcy. Hence, the client is still liable to pay the money. The rulings of the bankrupt apply to the bank while the rulings of the creditor apply to your client. This ruling applies so long as the bank which received the money was not the agent of the seller or the agent of his agent in terms of receiving the money.

Allaah Knows best.