Parallel Salam (السلم الموازي): Two Independent Contracts

How a financier can arrange onward delivery without making one Salam depend on the other Read the bilingual lesson for Parallel Salam (السلم الموازي): Two Independent Contracts and test your understanding with a focused quiz.

Lesson

1. Why Parallel Salam Is Used

A bank that buys goods through Salam may want to arrange an onward sale before the first delivery date. Parallel Salam allows this through a second, separate Salam contract with another party.

In the first contract the bank is buyer; in the second it is seller. The two contracts may refer to the same type, quantity and delivery date, but they must remain legally independent.

2. Example: 1,000 Bags of Wheat

A buys 1,000 bags of specified wheat from B for delivery on 31 December. Separately, A promises through another Salam to deliver 1,000 bags of the same specification to C on 31 December.

A is not selling B's specific bags to C. A has created his own separate obligation to deliver conforming wheat to C.

3. The Core Rule: No Dependency

The second contract cannot say: “I will deliver only if my first seller delivers to me.” That would make the second buyer's rights dependent on the first contract.

Each Salam must stand on its own. If the first contract fails, the second contract still remains binding.

4. If the First Seller Fails

If B does not deliver, A must still deliver the agreed wheat to C, even if A has to buy it elsewhere. A may separately pursue his rights against B.

This is the practical meaning of independence: the bank carries real delivery risk in the second contract.

5. Defective Goods Do Not Reduce the Second Obligation

If the first seller delivers goods below specification, the bank cannot pass the defect to the second buyer unless that buyer accepts it. The bank must deliver according to the second contract's own specifications.

This prevents Parallel Salam from becoming a simple pass-through arrangement.

6. The Second Buyer Must Be a Genuine Third Party

The original seller in the first Salam cannot be made the buyer in the parallel contract. That would create a buy-back arrangement.

The source also treats a wholly owned subsidiary of the first seller as effectively the same party for this purpose. Partial common ownership is treated differently from complete ownership.

7. How Commercial Profit May Arise

The bank may buy through the first Salam at one advance price and sell through the second Salam at another price. The difference may become commercial profit.

But that profit is not protected by making the contracts dependent. If the first seller defaults, the bank still carries the cost and risk of fulfilling the second contract.

8. Alternative: A Unilateral Promise to Purchase

If Parallel Salam is not practical, a third party may give a unilateral promise to buy the goods after the bank receives them. Because this is a promise and not the sale itself, the future buyer does not have to pay the price in advance.

The actual sale takes place only after the bank receives the commodity.

9. What Is Not Allowed: Pre-Arranged Buy-Back

The Salam commodity cannot be pre-arranged to be sold back to the original seller at a higher price. Before delivery, the buyer lacks possession; and even after delivery, a buy-back cannot be built into the original Salam arrangement.

That structure would move away from genuine commodity trade toward an interest-like cash exchange.

Practice questions

Question 1

What is the bank's role in the two Parallel Salam contracts?

Buyer first, seller second
Seller in both
Buyer in both
Agent only

Question 2

The bank may condition delivery in the second Salam on receiving goods under the first Salam.

True
False

Question 3

If the first seller defaults, what happens to the second Salam?

The bank must still perform it
It automatically ends
The second buyer bears the loss
Quality can be reduced

Question 4

The first seller may also be the pre-arranged buyer in the second Salam.

True
False

Question 5

What can replace Parallel Salam when it is not practical?

A unilateral third-party promise to purchase after receipt
A guaranteed interest loan
Sale before possession
Pre-arranged resale to original seller

Question 6

Why does the bank carry real risk in Parallel Salam?

It must perform the second contract even if the first seller fails
Its return is guaranteed
Both contracts cancel together
It never owes delivery

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