Islamic Law Of Contract And Business Transaction 1265h

INTRODUCTION  This chapter deals with the general principle of

contracts , the elements of contracts , condition of subject matters , qualification of contracting parties classification of contracts with regard to validity , the nature of remuneration or compensation in contracts or consideration of the contracts and the causes and effects of invalidity

Various Aabic are used to denote transactions.  Various Arabic are used to denote transactions

and contracts and convey the meaning of undertaking a contractual obligation. These are: Mith¯aq, ‘Ahd & W‘adah and ‘Aqd.

 Mith¯aq

 Mith¯aq means a covenant. It is a formal written

agreement between two or more people.  It refers to an serious and sincere agreement parties have to fulfill their contractual obligation.

Ahd or W‘adah  It refers to a unilateral undertaking or promise extended by one person to another in which he promises to execute a contract in future. To sell something in a future  E.g: A promises to sell his car to B within the next three

months for rupees two hundred and fifty thousand(250000) this is a unilateral undertaking or wa’da.  For example, A promises to sell next month a house to B (a

bank) for $100 000, but subsequently he sells the house to C before the month elapses. A would be liable to make up any actual loss incurred by the bank

 ‘Aqd (Contract)  ‘Aqd, which lexically means “contract” of modern law. a contract involves: the existence of two parties; the issuance of an outward act depicting internal willingness; an offer (Ijab) and acceptance (Qabul).  An Aqd or contract is bilateral agreement that is executed between two or more parties Example: Contract of sale, contract of Marriage.

ELEMENTS OF A CONTRACT  A contract comprises the following elements: the

existence of two parties who must be capable of entering into contracts, i.e. they must be mature and sane.  Muslim jurists in general hold that, intrinsically, the

essential elements of a contract are threefold and if these elements are not found properly, the contract is invalid:  the form, i.e. offer and acceptance (Sighah);  the subject matter (Ma‘qud ‘alayh).

 Offer and Acceptance: Form of the Contract  The form (offer and acceptance) Juristic rules require that the offer should be in clear language and unconditional. There should be conformity of the offer and acceptance on the subject matter and the consideration and issuance of the offer and its acceptance should be in the same session.  An offer is considered cancelled in the following cases:   

Withdrawal of the offer by the maker; Death of a party or loss of its capacity to enter into the contract; Destruction of the subject matter;

 Elements of the Subject Matter  The subject matter of a contract may include the object of the contracts, a commodity or the performance of an act.  Detailed conditions in respect of subject matter in various types of contracts are different, but on the whole, the subject matter should be existing/existable, valuable, usable, capable of ownership/title

 Conditions regarding the subject matter .  The basic attributes of the merchandise should consist of pure materials, which should be objects of intrinsic/legal value having some use.  Legality of the subject matter requires that the commodities should be owned by someone. It also requires that it should be free from legal charge.  The subject matter should fulfill the objective of the contract. Thus, perishable goods like vegetables cannot be the subject of a pledge.  The subject matter should not be harmful to the contracting parties or the public in general. As such, producing and trading in intoxicants like heroin, etc. is not a valid subject for contracts

 Precise Determination of Subject Matter  The subject matter should be precisely determined with regard to its essence, quality and value. Determination can be made either by pointing or by detailed specification.

 Possession and Certainty of Delivery of the

Subject Matter  The capacity to deliver the subject matter of the contract

at the time of the conclusion of the contract is an essential condition of a valid contract. If such a capacity is lacking, the contract is void.  The holy Prophet (pbuh) is reported to have said: “He who buys foodstuff should not sell it until he has taken possession of it”.

Types of contracts. Valid contract  Voidable contract  Void contract 

Valid contract  A contract is deemed valid when all

elements of the contract are found to be in order.  Elements of conditions free from external prohibited activates.  Essential of parties.

Voidable (Fasid) contract  A contract that is legal, it has all the elements of a

contract, but is not legal in its Wasf, i-e with respect to external or nonessential attributes of the contract, will not necessarily be void ,rather it will be voidable or fasid,  A contract being voidable include coercion, undue

influence, misrepresentation or fraud.  E.g: If an owner of a shopping mall says to a person: “I sell one of the shops to you” and the person accepts it, the contract is voidable unless the shop intended to be sold is specifically identified or pointed out to the buyer.

Void(Batil) contract  Absence of element of contract.  the sale of a thing having an element of

absolute uncertainty or speculation is not valid,  for example, the sale of milk in the udder of a cow is not a valid sale  Contracts involving an illegal subject matter such as gambling, prostitution, or committing a crime.

Rules For The Validity Of Mu’Amalat 1. 2. 3. 4. 5. 6.

Free Mutual Consent. Prohibition of Gharar. Avoiding Riba. Avoiding Qim¯ar and Maisir (Games of Chance). Prohibition of Two Mutually Contingent Contracts. Conformity of Contracts with the Maqasid of Shar¯ı´ah.

FREE MUTUAL CONSENT  Transactions should be based on free mutual

consents.  Consent obtained by fraud, misperception is

invalid as per Islamic law.

Prohibition of Gharar  All valid contracts must be free from excessive

uncertainty (Gharar) about the subject matter or the consideration (price) given in exchange.  In order to avoid gharar existence of a product and

accuired ownership should be their.

Avoiding Riba  Transaction price should be fixed.  Contract should be free from Riba transaction.  — “Allah deprives Riba of all blessing but

blesses charity; He loves not the ungrateful sinner.” (276)  — “O, believers, fear Allah, and give up what is still due to you from Riba if you are true believers.” (278)

Avoiding qimar and maisir (Game of chance)  Qim¯ar includes every form of gain or money, the acquisition of which depends purely on luck and chance

 Maisir means getting something too easily or getting a profit without working for it.  All contracts involving Qim¯ar and Maisir are

prohibited.  Dicing and wagering are rightly held to be within the definition of gambling and Maisir

Prohibition of Two Mutually Contingent Contracts  In order to avoid this prohibition, jurists consider it

preferable that a contract of sale must relate to only one transaction, and different contracts should not be mixed in such a way that the reward and liability of contracting parties involved in a transaction are not fully defined.  parties should enter into separate transactions under

separate contracts.  Bait‘ (sale) and Ijarah (leasing) are two contracts of totally different impacts; while ownership and risk are transferred to the buyer in Bai‘, neither ownership nor risk transfer from the lessor to the lessee.

Conformity of Contracts with the Maqasid of Shar¯ı´ah  The objectives of the Shar¯ı´ah have been emphasized

in a large number of the texts of the Qur’¯an and Sunnah.  Any contract or transaction that militates against any of these objectives is invalid in Shar¯ı´ah.  Any contract should not be against the benefits of the public at large.  It is quite obvious that the rights of fellow beings have to be honoured in respect of all transactions. The rights of Allah (SWT) in Shar¯ı´ah also refer to everything that involves the benefit of the community at large.

Commutative & non-Commutative contracts:  Uqood-e-mu’awadha ( Commutative contracts): With respect to the consideration or counter value in exchange, contracts are of two types. The first are Uqood-e-Mu‘awadha, or compensatory/commutative contracts, as a result of which one party can get remuneration or compensation – like sale, purchase, lease and Wakalah contracts  Classification according to object.  Bai‘ Muqayadhah (barter sale).  Bai‘ al H¯al (simultaneous exchange of goods for money, spot sale).  Bai‘ Mu’ajjal (deferred payment sale, commonly known as a credit

sale);

Cont. Classification according to price. •

Bai‘ Tawliyah (resale at cost price). •

Bai‘ Murabaha (resale at cost price plus profit – bargaining on profit margin).

•

Bai‘ Wadhi‘ah (resale with loss) (The above three forms of sale are termed Buyu’al Amanat or trust sales).

Uqood Ghair Mu‘awadha (Tabarru‘) or Gratuitous Contracts  The main feature of these contracts is the donation

    

of property. The donor transfers ownership of any property to a party without consideration. The following contracts fall under this category: Hibah (gift). Wasiyyah (bequest). Waqf (endowment). Kafalah (guarantee). ‘A¯ riyah (loan of usable item free of any charge);

Conditonal and contingent contracts.  As a general rule, conditional contracts are not valid.

This, however, requires some detail and some conditions could be acceptable. We find discussion in the Fiqh literature on three types of stipulations/conditions:   A)T‘aliq – conditions which suspend a contract to any

future event.  B)Idafa – an extension that delays the beginning of any contract until a future time.  C)Iqtiran (concomitance) that varies the of the contract

 A void condition is any condition which directly infringes any rule of the Shar¯ı´ah,  E.g a condition that the seller will provide five years’

guarantee and one year’s free service is not void, neither is the availability of a warranty against defective goods a problem

ANY QUESTION