Islamic Contract

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Islami Contracts Wa’d requires customer to make a unilateral promise to buy before bank makes the purchase from the supplier OR a unilateral promise given by one party to another to perform an obligation. E.g

Transcript of Islamic Contract

Islami Contract

Islami Contracts Wad requires customer to make a unilateral promise to buy before bank makes the purchase from the supplierOR a unilateral promise given by one party to another to perform an obligation. E.g

A customers promise to buy the leased asset upon expiry of the leasing (ijarah) in (Islamic hire-purchase) transaction.

Does not normally create legal obligation Legal obligation is created: Genuine need of the masses Contingent promiseWadan Unilateral promises given by 2 different parties which are independents from each other and subject to different independent conditions. E.g. in certain Islamic-structured product, a customer promises to sell securities to a bank for an agreedsettlement price with certain conditions. At the same time, the bank also undertakes to buy the securities for certain price with another different conditions. Islamic contracts A promise without any intention of fulfilling it, is not permissible (haram) deemed to be a liar and pretentious (munafiq) person who are seriously condemned by the religion.

If the same promisor takes an oath to convince the promissee will be subject to Allahs condemnation a fine or compensation (kaffarah) to relieve him from his false oath.If a promise with an intention of fulfilling it, the jurists are whether its fulfillment is obligatory or recommended.

Those who opine the fulfilling a promise is obligatory are further divided as to whether it is binding by religion (mulzim diyanatan) or enforceable by the court (mulzim qada-an).

Islamic jurists have different views with regard to the liability imposed to the parties of the promise.4-10-20135VIEW 1:Fulfilling a promise is recommended (Mandub), not obligatory; promise must be fulfilled for religious reason only and it is a question of morality

Al-Zarqa- a promise does not initially bind the person who makes it (promisor), and it does not give any right to the promissee. The Shafii, Hanbali and Zahiri Schools recommend the fulfillment of a promise, even if it is subject to certain condition.VIEW 2: Fulfilling a promise is obligatory by religion; otherwise the promisor is deemed to be sinful. Its non-fullfilment will not be enforced by the court.

Hanafi, Shafii, Hanbali, and a few from Maliki schools - a promise made by a person to the other is religiously binding (mulzim diyanatan) but not a legal duty (mulzim qadha-an).

This is because wad is part of a voluntarily contract Therefore, the judge has no way of such enforcement, because the second party has nothing more than a moral right.

Imam Nawawi - when a person promises another something (provided it is not illegal) he should fulfill his promise. VIEW 3: Fulfilling a promise is obligatory by religion and can be enforceable by the court

Ibn Al-Arabi - The promise is absolutely binding & must be fulfilled by all means unless if its fulfillment is impossible.

Ibn Shubramah made the fulfillment of promise as compulsory.VIEW 4: Where a promise is subject to certain conditions, its fulfillment is obligatory and enforceable although the promissee has not acted upon the promise yet.

Hanafi School - distinguished between absolute promise and conditional promise.

VIEW 5:

Where a promise is subject to conditions, its fulfillment is obligatory and enforceable only if the promissee has indeed acted on the basis of the promise & incurred loss.

Ibn Al-Arabi - if the promise results in particular consequence, its fulfillment is obligatory; but if it is a promise per se without any consequential effect, fulfilling it is not made obligatory.

or the promisee will suffer loss or difficulties as a result of the non fulfillment. This is a preferred opinion in the Maliki School which was expounded by Malik, Ibn Al-Qasim and SahnunRecommended1. The Shafii School 2. Abu Hanifah 3. Some Maliki jurists4. Al-Qarafi (Maliki)

Obligatory1. Majority of Maliki jurists Ibn Al-Arabi CONTRACT IN ISLAMCONTRACTSUBJECT MATTERCONTRACTORSWORDING OFCONTRACTCONDITIONAL CONTRACTS:

A condition, which is not against the contract, is a valid condition. For example a condition of free delivery to buyers premises.2. A condition, which seems to be against the contract, but it is in the market practice, that type of condition is not void, if its voidness is not proven with the clear injunctions of the Holy Quran and Sunnah..

There are four basic rules for judging the validity of conditions in a contract: For example 'A' buys an air conditioner on a condition that the seller will provide him five-year guarantee and one year free service. This type of condition does not invalidate the contract

A condition that is against the contract and not in market practice but is in favor of one of the contractors or subject matter, the condition is void. For example if A sells a car with a condition that will use it on a fixed date every month, this contract will be void .

4.A condition, which is against the contract, not in the market practice and not in favor of any contractor, that is not a void condition. For example if both A and B decide to give to charity, a certain percentage of both subject matter and cosideration , upon completion of sale.VOID CONDITIONS AND VOID CONTRACTS:The contracts of compensation (Uqood Muawadha) like sale, purchase, lease agreements) become void by putting void condition.

Non-compensatory (voluntary) agreements (Uqood Ghair Muawadha) like contract of loan (Qard-e-Hasanah), do not become void because of void condition. DEFINITION OF SALE(BAI)exchange of a thing of value with another thing of value with mutual consent.the sale of a commodity in exchange of cashTYPES OF SALEValid sale ( Bai Sahih)Void/Non existing Sale ( Bai Baatil )Existing sale but void due to defect ( Bai Fasid )Valid but disliked sale ( Bai Makrooh )ISLAMIC SALE CONTRACTVALID SALE ( Bai Sahih)

A sale is valid if all elements together with their conditions are present

Elements of valid sale areContract ( Aqd) Subject matter ( Mabee)Price (Thaman)Possession or delivery ( Qabza )

19ISLAMIC SALE CONTRACT

ISLAMIC SALE CONTRACTELEMENTS OF A VALID SALE (Bai Sahih)CONTRACT ( Aqd )Offer & Acceptance ( Ijab-o-Qobool)Oral ( Qauli )Implied ( hukmi ) e.g creadit sale Buyer and seller ( Mutaaquadeen ) must beSane(mentally sound)Mature( adult) Conditions of contract ( Sharaet-e-Aqd )sale must be non-contingentsale must be immediate

21Contract or transaction (Aqd)1.1 Offer & acceptance (Ijab-o-Qobool): The term Offer means that one person proposes to either sell his commodity to another person or buy from him and Acceptance means that the person who has been offered gives his approval of the proposal. Offer and acceptance are always done in past tense eg. I have sold or I have purchased etc. There are two ways of doing it:1.1.1Oral (Qauli): By saying. 1.1.2 Implied (Isharaa): By indicating. This is of two types:1.1.1(a) Credit Sale (Istijrar) for eg. settlement of the bill at the end of the month.1.1.1(b) Hand-to-Hand Sale (Taati): Exchange of money with goods without uttering Ijab-o-Qobool for eg. procedure adopted in contemporary stores. 1.2Buyer & seller (Mutaaquadeen): Both must be :1.2.1Sane : Should be mentally sound at the time of contract.Mature : Should be adult, however, if minor, must understand ISLAMIC SALE CONTRACTELEMENTS OF A VALID SALE (Bai Sahih)

2.SOLD GOOD OR SUBJECT MATTER ( Mubee )Existing. At the time of saleValuableUsable(Harram things are not allow to sale Capable of ownership/titleCapable of delivery/possessionSpecific & Quantified221.1 Existable The subject matter of sale must be existing at the time of sale. Thus, a thing which has not yet come into existence cannot be sold. If a non-existent thing has been sold, even with mutual consent, the sale is void according to shariah. Eg. A sells the unborn calf of his cow to B. The sale is void.1.2 Valuable The subject of sale must be a property of value. Thus a thing having no value according to the usage of trade eg. a leaf or a stone on a roadside cannot be sold or purchased.1.3 Usable The subject of sale should not be a thing which is not used except for a haram purpose, like pork, alcohol etc.2.4 Capable of ownership/title The subject matter should not be anything which is not capable of ownership/title for eg. sea or sky.2.5 Capable of delivery/possession For eg. an unconstructed building cannot be possessed since it is non-existent. ISLAMIC SALE CONTRACTELEMENTS OF A VALID SALE (Bai Sahih)3.PRICE ( Saman )Quantified ( Maloom ) currency should be known Specified & certain ( Mutaaiyan )23Price (Thaman)3.1 Quantified (Maloom): The measuring unit of the price should be known Eg. Currency etc.3.2 Specified & certain (Mutaaiyan): For a sale to be valid, the price should be ascertained and specified eg. the total amount etc. If the price is uncertain, the sale is void. Eg. A says to B: If you pay within a month, the price is Rs.50 but if you pay after two months, the price is Rs.55. B agrees. The price in this case is uncertain and therefore the sale is void unless any one of the two alternatives is agreed upon by the parties at the time of sale.

ISLAMIC SALE CONTRACTELEMENTS OF A VALID SALE (Bai Sahih)4.DELIVERY OR POSSESSION (QABZA)Physical ( Haqiqi )Constructive ( Hukmi )24The subject of sale must be in the physical or constructive possession of the seller when he sells it to another person. This is done only in respect of movable goods, not immovable. 4.1 Physical (Haqiqi): For eg. A has purchased a car from B. B has not yet delivered it to A or to his agent. However, A cannot sell the car to C. If he sells it before taking its delivery from B, the sale is void.4.2 Constructive (Hukmi): Constructive possession means a situation where the possessor has not taken the physical delivery of the commodity, yet the commodity has come into his control and all the rights and liabilities of the commodity are passed on to him, including the risk of its destruction. For eg. A has purchased a car from B. B after identifying the car has placed it in a garage to which A has free access and B has allowed him to take the delivery from that place whenever he wishes. Thus the risk of the car has passed on to A. The car is in the constructive possession of A. If A sells the car to C without acquiring physical possession, the sale is valid.ISLAMIC SALE CONTRACTVOID/NON EXISTING SALE (BAI BAATIL)Certain conditions are not met. These relate to:conditions of offer and acceptanceOral acceptance OR Implied acceptanceconditions for Buyer and SellerSane AND Matureconditions for Sold Goods where goods should be:Existable, Valuable, Usable, Capable of ownership/title AND Capable of delivery/possession

25ISLAMIC SALE CONTRACTVOID/NON EXISTING SALE (BAI BAATIL)Certain conditions are not met. These relate to:conditions of offer and acceptanceOral acceptance OR Implied acceptanceconditions for Buyer and SellerSane AND Matureconditions for Sold Goods where goods should be:Existable, Valuable, Usable, Capable of ownership/title AND Capable of delivery/possession

26ISLAMIC SALE CONTRACTEXISTING SALE BUT VOID DUE TO DEFECT ( BAI FASID ) sale will exist but will be void due to defect because of non compliance of conditions of contractthe buyer does not have the title to subject matterthe seller does not have title to priceBoth subject matter and price cannot be used lawfullythe produce of both will be unlawful27ISLAMIC SALE CONTRACTEXISTING SALE BUT VOID DUE TO DEFECT ( BAI FASID )the subject matter should not be possessed by the buyerif possessed with the consent of the seller, title or ownership will be passed to the buyer but usage of subject matter will be impermissibleBuyer must return the goods to the sellerHowever if the defect is rectified the sale becomes valid28ISLAMIC SALE CONTRACTVALID BUT DISLIKED SALE ( BAI MAKROOH )sale is valid but not liked due to certain conditions like:sale after Juma Azansale by intervention of a third party while two are negotiating

29 Types of Sales Following are the common Types of sales

1. Bai Musawamah: It refers to normal sale in which cost price is not known. 2. Bai Murabaha: It refers to a sale in which cost and sale price is known to the buyer. 3. Bai Muqayada: It refers to barter sale excluding currency sale. 4. Bai Surf: It refers to the sale of gold, silver and currency..

6. Bai Istisna: It refers to such sale in which commodity is transacted before it comes into existence. It is basically an order to manufacture.

7. Bai Muajjal: It refers to such sale in which payment is delivery is spot while payment is deferred but cot is not known. 5. Bai Salam: It is a kind of sale in which payment is spot while the delivery of the good is deferred