2021

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. Under both the
common law of England and the Islamic law of contract, mutual mistake can
vitiate a contract. However, in the case of a unilateral mistake, the common
law says, the contract is valid. But in the Islamic contract law even a
unilateral mistake may nullify a contract based on the fact and
circumstances of the case.

c. The Islamic contract law provides a better protection to buyers than the
English law. The Prophet Muhammad (peace and blessing be upon him)
said 1431 years ago to sellers that “It is your duty to disclose any defects in
the goods to the buyer if you are aware of the defect” (Muslim Hadis book).
Under the English law, the seller has no duty to disclose defects in goods
even if he knows about it, but under the Islamic law it is the duty of the seller
to disclose any defects in the goods before selling them to the buyer. The
legal effect is that if the seller fails to disclose any defect in the goods to the
buyer whilst the seller is aware of it, then under the Islamic law of contract
the buyer has a legal right to repudiate the sale contract and get the refund
of payment. However, despite the glaring legal anomaly on the matter, this
right is not available in the English law of contract.
d. In another hadis the Prophet Muhammad (PBUH)) said 1431 years ago that
“whoever cheats buyers while selling goods, they are not real Muslims”
(Bukhari hadis book). In another hadis the Prophet Muhammad (peace be
upon him) said: “If any one sells a defective article without drawing attention
to the buyer on the defect, he will then remain under God’s anger or the
angels will continue cursing him unless he (the seller) informs the buyer of
that defect.
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

The sharia contains a principle of the binding nature of the contract which is, however,
subject to limitations set by the nature of the nominate contract system. It is also limited
by notions of fairness. Such judicial capacity to adjust the terms of the contract results
in a level of uncertainty and a level of protection which are quite different from, say,
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: -

The need for equality and equity results in a regime for the formation of contracts
which is also markedly different from those found in Western systems, the idea being
that the risk to the parties must be reduced to an acceptable minimum, notably by
the provision of adequate information regarding all the relevant circumstances of the
potential transaction. The contrast is stronger with the common law than with the
civilian systems, but still present as regards the latter. Indeed, one can (very roughly)
picture the three traditions as occupying different points on a spectrum of certainty,
with English-based common law at one end (with minimal certainty requirements),
civilian law somewhere in the middle, and the shari’a at the other end (with very high
requirements). 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. The prohibition seems to have started life as a ban on interest, was extended to
barter, and then was enlarged to cover ‘all transactions involving the exchange of
counter-values’. The prohibition is mentioned on several occasions in the Koran
(2:275, 2: 278 and 4:161).
The reasons behind the prohibition are commonly stated to be:

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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