What is a Contract of Hawalah? (حوالۃ)

Abstract:     
Literally, the word hawalah/حوالہ means shifting a thing from one place to another.

Technically, as a term of law, hawalah/حوالہ means the shifting or assignment of debt from the liability of original debtor to the liability of another person.

According to Imam Abu Hanifah , Hawalah/حوالۃ is a transfer of debt terminating the liability of the original debtor, to a third person.

After the conclusion of Hawalah/حوالۃ, the principal debtor is relieved from the liability. He argues that the term Hawalah/حوالۃ is derived from the word Tahwil/تحویل, which necessitates the transfer of debt to the transferee and exemption of the transferor. The transferor is also exempted because of the acquiescence of the transferee.

According to Imam Muhammad , Hawalah/حوالۃ is the transfer of demand only while the actual burden of payment rests with the principal debtor.

According to Imam Zufar , the transferor is not exempted because of the analogy that subsists between his case and that of bail, for both are contracts of bail. The person who is bailed is not exempted from the debt so neither should be the transferor.

Parties involved in Hawalah/حوالۃ:
There are three parties in the contract of assignment of debt (hawalah):

1. Debtor / assignor (muhil / محیل). He is the original debtor who assigns his responsibility to another person.
2. Creditor / assignee(muhal/محال)
3. Transferee (New debtor to whom transfer is made) is called muhal `alayh/محال علیہ ).

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