Islamic Contract LawIslamic Contract Law (1)

Ruzian MarkomFaculty of LawUKM

Ruzian Islamic Contract law

Understand the underlying philosophy of business transactions in IslamExplain the meaning of contracts , and the legal concepts and theories of the various types of contracts in Islamic law;Describe the classification of contract, what constitute a contract of sale, and the legal capacity to enter into such contract in islamic lawAnalyse the main forbidden contracts in Islamic commercial transaction*Ruzian Islamic Contract law*


*Ruzian Islamic Contract law*


Quran 2: 275 : Allah has permitted trading and forbidden usury.

Quran 2: 188 : And do not eat up one anothers property unjustly, nor give bribery to the rules (judges before presenting your cases) that you may knowingly eat up a part of the property of others sinfully*Ruzian Islamic Contract law*


Fundamental objectives of the Shariah:The right to lawful acquisition of legitimate property.The Right to earn a livelihood:Quran 4: 32 For men is the benefit of what they earn. And for women is the benefit of what they earn. And ask Allah of His grace..Rafi ibn Khadij narrated:It was said : O Messenger of Allah, what kind of earning is best? He said: For a man to work with his hands and every honest transaction.Al Miqdam wrote that the Prophet once said: No one ever eats anything better than that which he earned with his own hands.Different types of work: Imam Mawardi : best work agriculture, trading and manufacturing Al Nawawi prefers a particular means of livelihood whereby people earn their living with their own hands regardless of the type of work .Involved men and women- Saidatina Khadijah RA*Ruzian Islamic Contract law*


Leading companion of the Prophet : Saidina Abu bakr, Uthman ibn affan, Abdul Rahman ibn Auf engaged to lawful trade and the proceeds were spent on the development of the Muslim communitySome migrants and helpers in Media engaged in agriculturalProfessional jobs connected to the state teaching, the giving of compulsory alms and adjudicated of disputes.Lawful business and trade best mode of earnings legitimate money through hardwork is rewarding from both the financial and spiritual perspectives. *Ruzian Islamic Contract law*


The Quran and Sunnah prohibit unlawful gains in strong terms.

Quran 2; 188 : And do not eat up one anothers property unjustly, nor give bribery to the rulers (judges before presenting your case) that you may knowingly eat up a part of the property of others sinfully. Gains derived from the following sources are prohibited in Islam;Earning a living through money lending that involves usury;Trading in prohibited items such as intoxicating wine, pork and dead animalsGambling and lotteriesOffering short measures in tradeHoarding to inflate prices at a later timeAdulterating commodities and trading in defective in itemsEarning through prostitutionMisappropriating public funds-exploitation of others people financial resources through unhealthy business dealingsBusiness dealings required to be conducted in fair and just mannerEarnings from clean and just business. *Ruzian Islamic Contract law*


Aqad- literally to tie between two ends, to fasten to linkIslamic law- an agreement, commercial arrangement, legal transaction, document or deed2 major interpretation general- any thing or disposition that is intended to be performed by a person of their own will or through mutual agreement nikah, wasiyyah Specific agreement among contracting parties that is concluded through an offer and acceptance with the consequence of binding legal obligation *Reuzian Islamic Contract law*

Reuzian Islamic Contract law

Article 103-104 of the Majallah Al Ahkam Al adliyah : Aqd is the two parties taking upon themselves an undertaking to do something. It is composed of the combination of offer (ijab) and acceptance (Qabul). The making of aqad is connecting in legal manner, ones offer (ijab ) and acceptance (qabul) with the other, in a wat will be clear evidence of being mutually connected.*Ruzian Islamic Contract law*


Al Sanhuri : The conjunction of the offer emanating from one of the two contracting parties with the acceptance of the other in a manner that it may affect the subject matter of the contract. As a result of the conjunction, both are under obligation to each other.The obligation to undertake certain actions in exchange for some sort of consideration represents the underlying spirit behind the valid contractConsideration something that has value given by one party to a ctt in return for a benefit or promise from the other party



Waad binding unilateral promiseMuwaadah- bilateral promise in comercial transactionsIn simple terms , waad is a promise or undertaking by a party to carry out a unilateral contract that signifies their commitment to perform an obligation- murabahah cost plus financing contract where a sale is made at a specified profit marginAl ijarah thumma al bai a lease agreement where the lessee gives a binding commitment /promise to purchase the underlying asset upon expiry of the lease period*Ruzian Islamic Contract law*


Quran 5: 1 : O you who believe! Fulfill your obligations.Quran 17: 34 :And fulfill (every ) covenant. Verily, the covenant will be questioned about.Quran 16: 91: And fulfill the covenant of Allah when you have covenanted, and break not the oaths after you have confirmed them-indeed you have appointed Allah , your surety. Verily! Allah knows what to do.Quran 9: 4: Except for the idolaters with whom you have a treaty, and who have not subsequently failed you in aught, nor have supported anyone against you. So, fulfill their treaty to them for the end of their term. Surely Allah loves the piuos.*Ruzian Islamic Contract law*


Basic shariah principles of contract are based on the general wellbeing of the community, economic justice and equitable distribution of resourcesNo form of unjust enrichment is allowed in commercial transaction under the ShariahClassification of contract according to :nature, its circumstances ;and legal consequences*Ruzian Islamic Contract law*


Unilateral contracts (aqd infiradi)Bilateral contracts (aqd thunai)Quasi contracts (shibh alaqd)Example of common contract Contract of sale aqd al bay- bilateralContract of bequest al wasiyyah unilateralSome bilateral contract can transform into quasi contract depending on the manner in which they were created, if any contract was created by the mere operation of law without a formal agreement between the parties, it becomes a quasi contract.



A contract initiated and concluded by a single party which involves some form of benefit being transformed to another party , usually without considerationQuran 12: 72 : They said: We have lost the (golden) bowl of the king and for him who produces it is (the reward) of a camel of load and I will be bound by it.An open promise that is meant for the whole world. Anybody who comes forward with the golden bowl of the king automatically accepts its offer. The contract then becomes binding to both parties*Ruzian Islamic Contract law*


A contract between two parties with the necessary legal effect that makes their terms and conditions binding on themContract of exchange (muawadat)Contract of security (thawthiqat)Contract of partnership (shirkah)Contract of safe custody (wadiah)Contract relating to use of an asset (ijarah)Contract relating to performave of work /rendering services eg wakalah and jualah*Ruzian Islamic Contract law*


An arrangement or obligations created by the law despite the absence of contract.Eg when a buyer wrongly pays the price of acommodity to the wrong person due to a mistaken identity, such a realtionship is a quasi contract, as it is not originally based on mutual consent. As a result, the person receiving the money in error must return the sum paid to the buyer for onward payment to the rightful seller. *Ruzian Islamic Contract law*


Mudharabah A trust partnership between a capital provider and an entreprenuer where the parties shared the profit but in the event of any loss, the capital provider bears the lossMusharakahA joint business partnership enterprise in which the parties share the profits based on the contractual ratio and losses are borne based on the equity participation ratioMulilateral contractsContracts involving more than two parties such as bank, client and agent. *Ruzian Islamic Contract law*


Valid contract (sahih)-- a contract where a party has the legal remedy to execute the contract. Invalid contract (fasid )A transaction where the basis of the contract itself is valid but there are defects in its attribute that makes it invalid and thus unenforceable under the shariahVoid contract (batil)- an unenforceable contract that is invalid from the very beginning, which cannot be remedied by addressing any missing element in such transactionBinding contract (lazim )enforceable contract ( nafidh)Withheld contract (Mawquf)- when the ctt is concluded by someone who does not own a property, the ctt may be dependent on the final approval of the real owner of the subject matter. E.g power of attorney is given to a person to sell a propert y subject to the final ratification of the negotiated price, the contract is kept hanging until such ratification is given by the actual owner. *Ruzian Islamic Contract law*


There are three main fundamentals:Contractual expression or sighah, i.e offer and acceptance (ijab wa qabul)Parties to the contract (aqidan) i.e. offeror and offereeSubject matter of the contract (mahall al aqd) i.e. the goods and the price /consideration*The Theory of Ruzian Markom

The Theory of Ruzian Markom

The offer and acceptance must be clear and unambiguous- choice or words /phraseThere must be conformity between the offer and acceptance- actual or impliedThe offer and acceptance must be made in one contractual session (ittihad al majlis)The unity of the contractual session may be actual or constructive

**The Theory of Contract Law in Islam Ruzian Markom

The Theory of Contract Law in Islam Ruzian Markom

The parties to the contract must have full competency to enter into and execute the contract (ahliyyah al ada al kamilah)The impediments to legal competency (awarid al ahliyyah) include minority, lunancy and other interdiction orders due to bankruptcy etcThe parties must have the legal power/authority to conclude the contract: either by actual ownership; or representation through guardianship, administration or agency contract**The Theory of Contract Law in Islam Ruzian Markom


The subject matter of the contract must exists at the time of contract (jumhur) and /or is capable of being delivered (hanbali school)The subject matter must be known and ascertained by the parties at the time of the contract-no uncertainty or ghararThe subject matter must be legally recognizedThe subject matter must be something of value (mal mutaqawwam)**The Theory of Contract Law in Islam Ruzian Markom


Definition of sale (bay)Condition for sale contractTypes of sale contract:Normal sale (musawamah)Trust SaleMurabahah (mark up)Wadiah (discount)Tawliyah (at cost)

BBA (deferred payment sale)Salam (advanced payment sale)Istisna (manufacture sale/purchase order)Some Controversial Sales:Bay al dayn (sale of debt)Bay al inah (sell and buy back)**The Theory of Contract Law in Islam Ruzian Markom


Literal Meaning: Exchanging one item for anotherTechnical Meaning :Hanafi: the exchange of a property (mal) with another property in a specified manner (offer/acceptance)Shafii: the exchange of a property for another property as a transfer of ownership (tamlik)Hanbali: the exchange of a property for another property as a transfer of ownership(tamlik) and acquisition of ownership (tamalluk)**The Theory of Contract Law in Islam Ruzian Markom


Conditions for the partiesFull contractual capacity,i.e sound mind and of age (tamyiz for the Hanafis and bulugh for the shafiis)There should be more than one party, even if in the capacity of agents. Thus, one agent cannot act for both parties i.e buyer and seller(except for guardian, administrator, judge and messenger of both parties)**The Theory of Contract Law in Islam Ruzian Markom


Conditions for the contractual expression(sighah):The acceptance must conform with the offerUnity of place of offer and acceptance (ittihad majlis alaqd)

Conditions for the subject matter of contract:The goods should exist at the time of contract(with the exception of salam and istisna sales)The goods should be a valuable property (mal mutaqawwam)The goods should be capable of ownership and possession (tamalluk)The goods should be capable of delivery at the time of contract(qabadh)



Sale is a contract of exchange (aqd al muawadah)The exchange is between the two conuter values i.e. goods and pricesOnce validly concluded with all the necessary conditions, sales contract is considered as binding (lazim)The sale contract presupposes the real transfer of ownership between the parties (regardless of any formal registration transfer)Any term and condition attached to the contract of sale , limiting or defeating the purpose of transfer of ownesrhip, may render the contract to be either not good (fasid)-shart fasid or the term itself may be nullified-shart batil**The Theory of Contract Law in Islam Ruzian Markom


Normal sale (musawwamah)Trust SaleMurabahah (mark-up)Wadiah(discount)Tawliyah (at cost)BBA (deferred payment sale)Salam (advanced payment sale)Istisna(manufacture sale)**The Theory of Contract Law in Islam Ruzian Markom


Known as musawammah saleBased on bargaining no need to disclose cost price /mark upPrice is paid in cash/spotGoods is delivered immediately**The Theory of Contract Law in Islam Ruzian Markom


Thank you. *Ruzian Islamic Contract law*


Islamic Contract LawIslamic Contract Law (1)

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Transcript of Islamic Contract LawIslamic Contract Law (1)