Definition and Scope
The standard covers the mechanics of exercising cooling-off options established in the Cooling-Off Options standard. It addresses:
- How revocation is communicated.
- What restitution is due.
- Liability for damage or loss while goods are held.
- Liability for increases or produce from the goods.
- How expenses are allocated.
- Post-revocation rights and disputes.
Communication of Revocation
Method: Revocation may be communicated:
- Explicitly, through a clear statement such as "I revoke the contract."
- Implicitly, through conduct such as returning goods, refusing delivery, or refusing to pay.
The revocation must be clear. Ambiguous statements do not count.
Rights and Liabilities Upon Revocation
When the option is held by buyer only:
- The buyer has already taken ownership of the goods.
- Upon revocation, the buyer must return the goods in their original condition.
- If goods are destroyed or damaged in the buyer's possession, the buyer is liable for their value.
- The price is refunded to the buyer in full.
When the option is held by seller only:
- The seller retains ownership throughout; goods never pass to the buyer ownership-wise.
- If the buyer took possession and damaged the goods, the buyer is liable for the damage.
- If goods are destroyed without the buyer's negligence, the seller bears the loss.
- The seller may revoke and keep the price already received, or return the price and take back the goods.
When the option is held by both parties:
- Neither party owns the goods yet.
- Goods must be returned to their original state.
- Increases and produce from the goods belong to the seller.
- Damages are paid by the party responsible for the loss.
Liability for Increases and Produce
Critical rules for increases and income:
| Increase Type | Rule |
|---|---|
| Physically attached increases, such as crops, offspring, or improvements | If the buyer holds the option, the buyer gets the increase upon confirmation and the seller gets it if the buyer revokes. If the seller or both parties hold the option, the seller gets the increase. |
| Physically separate derivative income, such as rental income or dividends | If the buyer holds the option, the buyer gets the income upon confirmation and the seller gets it if the buyer revokes. If the seller or both parties hold the option, the seller gets the income. |
Damage, Loss, and Expense Allocation
Liability for loss or damage:
- Buyer responsible: if the item is destroyed due to the buyer's negligence while the buyer holds the option.
- Seller responsible: if the item is destroyed due to the seller's negligence or while the seller holds the option.
- Neither responsible: if the loss is due to force majeure, such as fire, theft, or natural disaster not caused by either party.
Expenses for return:
- The seller bears the cost of receiving returned goods back at the original place of sale.
- The buyer does not have to pay shipping to return the goods.
- If the good is consumed or destroyed, return is impossible and the buyer is liable for full value unless the seller caused it.
Applications in Practice
Bank as buyer with option: A bank buys goods for investment and stipulates a cooling-off option. If it revokes:
- Goods return to the seller.
- The bank pays nothing, or gets a refund if already paid.
- The seller bears the loss if goods are damaged while in the bank's hands without the bank's negligence.
Bank as seller with option: A bank sells to a customer and retains a cooling-off option. If it revokes:
- The customer must return the goods.
- The bank keeps any payment received or unwinds the payment as required by the revocation mechanics.
- The bank is liable only if damage is due to its negligence or retained ownership risk.
Neither party holds option; third party does: A contract between bank and customer has a cooling-off option exercisable by a third party (e.g., Shari'ah board). Rules about ownership and damage follow the general principles.