ISLAMIC CONTRACT

LAW
[DOCUMENT SUBTITLE]
 Table of Contents
Introduction...................................................................................................................................... 2
Summary.......................................................................................................................................... 2
Significant Contract Basics............................................................................................................ 2
Contract of Sale of Uqd Bay.......................................................................................................... 3
a. Contract (Aqd)/Uqd........................................................................................................3
b. Sale/Bay..........................................................................................................................3
c. According to Shariah: -..................................................................................................3
d. According to Sunnah: -..................................................................................................3
e. Basic Elements of Bay/Sale: -......................................................................................3
General Theory of Islamic Contract Law: -.................................................................................. 3
Elements of Valid Contract According to Shariah: -................................................................... 3
Formulation of Islamic Contracts: -............................................................................................... 4
An End to Islam Contract of Sale.................................................................................................. 4
f. Iqalah...............................................................................................................................4
Nominate and in-nominate Islamic Contracts: -.......................................................................... 5
g. Nominate Islamic Contracts..........................................................................................5
h. In-Nominate Islamic Contracts: -..................................................................................5
Contract Law and English legal System: -................................................................................... 5
Comparison: -.................................................................................................................................. 6
Exemptions...................................................................................................................................... 6
Certainty in Contract Formation: -................................................................................................ 7
The Prohibition of Riba: -............................................................................................................... 8
English Common Law.................................................................................................................... 8
Conclusion....................................................................................................................................... 8
Introduction

Adams & Adams Legal Services PLC company is seeking a better understanding
regarding Islamic Contract Law. Their interest further inclines towards the reflection
of nominate and innominate pertaining to Islamic contracts and basis for this
categorisation. This further include the formulation methodology of Islamic contracts
of sale in Islam and their end disposal. A brief advise has been provided enlightening
all the concerns of the Adams & Adams Services PLC for further disposal of the
information as deemed appropriate. Therefore, this study is an effort to present
controlling principles of Islamic Contracts Law briefly for better understanding.

Summary

Contract with to context to Islamic view can be described as the matching expression
between the positive proposal offered by one person and acceptance of the same by
the other which subsequently forms a contract. Fiqh Muammlat also labelled as
Shariah Commercial Law establishes an important branch of law which deals with
the issues regarding any contract and legal issues arising from a valid contract
including void and avoidable contracts. The capability according to Islam required to
transact s based on two conditions namely prudence and puberty.

Contracts are further divided into two types which are called unilateral and bilateral
contracts. This classification may not be considered as exhaustive as contracts may
further divided and classified into different categories with respect to the validity,
impact and effectiveness. Contracts according to Islamic Shariah may divided into
communitive and non-communitive. Both types of contracts form consist of a sale
and payment of loan respectively.

Significant Contract Basics

Few key contracts elements are delineated below for further guidance and
assistance in evaluating the information from the document:
a. Offer & Acceptance
b. Qbdha (Possession) – Haqiqi/ Hukammi
c. Absolute/ Instant Sale
d. No contingent elements.
e. Nature & Value of subject.
f. Capacity of Contractors
g. Delivery
 h. Price

Contract of Sale of Uqd Bay

Contract (Aqd)/Uqd
Literally means to knot, to contract, to tie, to conjunct etc Or A contract between 2-
parties on a particular subject matter which is to be concluded upon offer (Ijab ) and
acceptance (qabul) of the parties.

Sale/Bay
It refers to both activities selling and buying and the word bay is derived from term
“ba” means for arm because one extends one’s arm to give / to take.

According to Shariah: -
It means that exchanging property for property/ property for money/ money for
property upon mutual consent among contracting parties.

According to Sunnah: -
“A sale must be by mutual consent”

Basic Elements of Bay/Sale: -

i. Seller and Buyer
ii. Price
iii. Items sold
iv. Contract/ Aqd

General Theory of Islamic Contract Law: -

Shariah does have general theory of Islamic contract law contrary to one western
writings. According to that, consenting is central to law of contract and contracting an
arrangement not falling within the categories of recognized nominate contracts is not
forbidden in Sharing and conditions recognized by Muslims are attached to
irrevocable contracts so that it can enhance the applications of such contracts.
 Without consent, contract have no binding force.

Elements of Valid Contract According to Shariah: -

 Figure 1: www.islamicmarkets.com

Formulation of Islamic Contracts: -

Following rules must be followed according to Shariah: -
a. Subject of sale must be existing at the time of sale. Because if subject
matter is non-existent at that time, though by mutual consent, sale will be
void.
b. Sale must be instant and absolute.
c. Subject of sell must be in possession / ownership of seller at time of sale.
d. Subject of sell must be in physical / Constructive possession of seller
when he sells it go another person.
e. Sale must be unconditional (conditional sale is invalid unless recognized
as part of transaction).
f. Subject of sale must not be a thing which is not used except for a harsh
purpose like wine and pork etc
g. Delivery of sold commodity to buyer must be certain and should not
depend on contingency/chances.
h. Certainty of price is necessary condition for validity of sale. If price is
uncertain then sale is void.
i. Subject of sale must be known and identified to buyer.

An End to Islam Contract of Sale

Shariah wanted to ensure elimination of all types of risks / gharar which means
uncertainty in contractual transactions. It can come to an end by following ways:

Iqalah: Means dissolution of contract by mutual consent /agreement. I case if one

of the contracting parties is regretful and wants to be the contract. It has some
similarity with English Common law doctrine of recession like both require a new
offer and acceptance of their formation and thus none of the contracting parties can
independently annul the existing contract. It also has some differences as well.

Automated dissolution: -
i. By death of one party to the contract

ii. Contract of lease (Ijarah) which means automatically dissolution by

death of one contracting party

iii. Mortgage (rahn) and surety (rafalah )

iv. Partnership (sharikah) and agency (wakalah)

v. Non- performance within stipulated time

vi. Destruction of subject matter

Al- Fasakh: -
Which means dissolution of contracts by revocation and termination .

Nominate and in-nominate Islamic Contracts: -

Nominate Islamic Contracts

Also called Uqud Musammat means class of commutative contracts (Uqud
Muawadhah) or non-commutative (uqud tabarru).
Examples: -
Sale(ba’i), Partnership (Musharakah), Guarantee (Kafalah), Agency (Wakalah), Gift
(Hibah), Debt Transfer (Hawalah), Loan (Qardh) etc.

In-Nominate Islamic Contracts: -

Also called Uqud ghair musammat inquiry Shariah neither assigned specific names
nor handled in detail their respective rules and stipulations. These are formulated in
response to new needs and requirements evolving conditions of society and people

as they emerge over time.

Examples: -
Redemption Sale (Bai al-wafa), supply sale (Bai al-istijrar) , construction contracts
etc.
 The categorization of these contracts was need of the time because of their
different nature, conditions, rights, responsibilities, parties’ roles etc.Sale
contract is different from lease agreement like in sale contract ownership
changed from owner to buyer while in lease agreement lessor/Owner of
property remain the same.
Contract Law and English legal System: -
Islamic Contract law have wider scope than English law or other western laws
because it considers some dispositions like endorsement etc which are not
considered “contract” in either English or other Western laws. Shariah also have
facilities to accommodate uncatalogued agreements.

Comparison: -
a. English law which is developed through works of judges on the other hand
Islamic law developed through work of jurists (fugaha) which is based on
principles laid down in Quran and Sunnah.
b. A mistake is known in the Islamic contract law as ghalat. Mutual mistakes
have ability to vitiate a contract no matter whether it was signed under
Islamic Contract Law or English Common Law. But the validity of a
contract changes with unilateral mistake. According to the English
Common Law contract having unilateral mistake is valid but according to
the Islamic contract law the same mistake makes the contract void, but
this relies on the fact and circumstances which may vary case to case.

c. The Islamic contract law provides a better protection to buyers than the
English law. Sellers in the Islamic religion were directed many centuries
ago by Prophet Muhammad (PBUH) which summarizes to disclose the
defects if there are any in the good to the buyer if you are aware of the
defect” (Muslim Hadis book). But the same contrasts in the English
common law where seller is neither obliged and neither directed to
disclose any defect in the good even if the seller knows before selling
them to the buyer. When it comes to the legality of the aforementioned
situations then under the Islamic laws if the seller chooses not to disclose
the defect and the buyer comes to know the same then law empowers the
buyer to get payment back as refund and repudiate the contract
accordingly. But English law does not provide this ease to the buyer which
leads many misunderstandings.
d. Islamic Law further quotes the saying of the Prophet (PBUH) that if the
seller sells defective goods without informing the defects to the buyers
and attempts to cheat them will remain under the anger of God and all the
angels will continue to curse the seller until unless he informs the buyer
about the defects present. In another hadith the Prophet Muhammad
(PBUH)) said 1431 years ago that “whoever cheats buyers while selling
goods, they are not real Muslims” (Bukhari hadis book).
 e. Unlike English-based common law, for example, which does not recognise
a principle of inequality of bargaining power, the shari’a ‘emphasises the
idea of balance of counter values.

Exemptions

Now days standard terms are prepared by one party and presented to the other
before the agreement is signed between the two parties. Such agreed terms
consequently bound the parties with class of contracts. Even though an exemption
clause is the term used mostly in contracting. This also covers the compensations
against the loss of material. In any case of frauds, the power of the word becomes a
question. If the contract has been made without the signatures of either parties then
a notice is required to be placed in the premises of both parties. This notice should
also state the exemption.

Certainty of Contractual Obligation

Even though principles are present in the Sharia which bind the nature of the
agreement. Notwithstanding, certain limitations are also set with respect to the
nature of the contract which may vary contract to contract. It is also limited by
notions of fairness. Uncertainty may arise due to this judicial capacity to adjust the
contract terms accordingly. Considering that thought necessary in English-based
common law. Islamic Contract Law requires the following to call a contract valid:
a. Presence of Two Parties
b. A communicated offer and an acceptance in response
c. Voluntary agreement
d. injunctions of the Shariah should be considered before the contract is made.
e. Government permits legal consequences in respect of the subject matters of
the contract.
Similarly, an offer can be revoked before the acceptance but not the afterwards. The
revocation can be intimated through a kind of notice. But this obliges the offeror to
deliver the notice before the acceptance. This also reveals that a revocation will only
be effective if it is communicated on time. It proves the role; the communication plays
in Islamic Contracting Law.

Certainty in Contract Formation: -

There may be difference certainties in the contract formation. Equality and equity are
needed the most which may result in rule the contract formation and are quite
different from what we find in Western Systems. Therefore, all the possible risks
associated with the transaction and all the risk tend to be reduced to the least
acceptable by either party. Common laws make the contrast stronger along with the
civilian systems and yet the latter is present. It is indeed hard to even roughly picture
these three traditions which reflect unique point in terms of certainty as compared to
each other. English common law at one hand which possesses minimal certainty
requirements, moving to the civilian law which contains something in the middle and
lastly the Sharia law with higher requirements than the preceding laws discussed.
The price to be fixed at the time of the contract.

The Prohibition of Riba: -

The most well-known rule is the prohibition of riba. It has been described as ‘unlawful
excess or deferment’ commonly translated, and treated, as ‘interest’, in fact riba is
much wider than that; even if there is a clear consensus that interest is included in
riba. Ban on interest is considered to be the first implication of the prohibition which
was further expanded to barter and ultimately long-drawn-out to all the transactions
which involve exchange of counter values. This prohibition was mentioned in the
Holy book of Muslims several times at 2:275-278 & 4:161. This prohibition is
shouldered by many reasons which are delineated below to further clear the
reflection of prohibition.

a. the protection of the disadvantaged from exploitation by the wealthy and

knowledgeable;
b. the corrupting effect on the lender of making money from money, rather than
from honest toil; and
c. the Islamic contention that money is solely a means of exchange, not a
commodity.

English Common Law

English common law was first developed in England and was later constituted in
different countries of the world. It has proved to be an effective institution for
expansion of a strong legal system. This law is known by its colonialism.

Key Concerns

Islamic contracts laws can be extremely multifaceted be it in the application or

jurisprudence. Technological growth has created some grey areas in the Islamic
Contract Law relating to authenticity of digital systems. Cautious reflexion needs to
be given to the insinuations of one party’s failing to credit the agreement given that
Islam forbids the exploitation of another party’s disaster.
Conclusion
Rule of law is a structural necessity and to make the democracy function as
legitimate then the presence of law matters. Even though the Islamic Shariah and
English Common Law are different by structure despite the similarities either of them
possesses. No law needs to be the same to be valuable. Shariah is the law whose
baseline is ethics therefore, basic values associated are permanent and universal.
Law is generally considered to be more absolute and constant in Islamic countries
as compared to civil or common laws which contrarily are more flexible, negotiable
and changeable unlike Shariah. That consequently reflects the difference between
the Islamic law and English law. Furthermore, there are many requirements required
by the Islamic shariah to make a contract valid. In Islamic Contract Law often
transactions are declared unfair to keep up the safety of the particular party as such
transactions harm the said party. Islamic Contract Law also empowers the buyers to
rescind the contract when they feel their rights to be at stake.

Contractual law was refined a century before the English Law by Islamic Sharia.
Shariah focuses on the key elements as mentioned above to make a valid
transaction. Depending upon all the necessary requirements the contract will be
called either valid or invalid / Void. However, future sales are not shouldered by
Sharia. Most of the scholars persuade about the Qabdha (Point of Sale). Subject
matter cannot be considered as the centralized pillar rather the ability to deliver a
particular product is considered as the pillar of central support. In general view of the
Sharia, offer is revocable as long as the acceptance is incomplete from the other
party. If the said condition is compared with the common law, then one may claim a
payment proportionate to the portion of acceptance. Therefore, Islamic law offers
fair opportunity unlike the common law which operates with the rigid legitimation.
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