Islamic Law of Contract

1. Islamic Law of Contract HASSAN KAMRAN

2. Types Of Commitment • Wa’adah(Unilateral Promise/undertaking) • Muwa’adah(Bilateral Promise/undertaking) • Aqd(Contract)

3. Wa’adah • It means promise. • It basically refers to a unilateral undertaking or promise extended by one person to another in which he offers to do something in future. Example: A promises to sell his car to B within the next 3 months for Rs. 2.5 lakh, it is a unilateral undertaking or Wa’da.

4. Wa’adah Enforceability: • The consensus of present Shariah Scholar is that Wa’da is enforceable by law until and unless the promisor is not in a position to fulfill it. • In this case, if it is not due to any of his negligence then he has to make good the loss to the promisee. • For example in case where A promises to sell a horse to B and the horse dies. • But if it is due to his negligence then he has to make good the loss to the promisee. • For example: A promises to sell a horse to B for Rs. 10,000 within the next month and subsequently sells it to C before the month elapses.

5. Muwa’adah (Bilateral Promise) • It means bilateral undertaking (promise) or agreement. • According to majority of the Sharia Scholars, Muwa’ada is not allowed in situations where Aqd is not allowed (e.g. forward contracts), and thus is not enforceable by law. • According to the some Scholars of the Sub-continent, Muwa’ada is enforceable by law • They argue that some times Mua’ada is genuinely required, for example, importer/exporter need to hedge foreign exchange

6. Muwa’adah (Bilateral Promise) • Since future contract is not allowed in Islam they can hedge through bilateral promise to sell or purchase on a future date for genuine purposes. However, this procedure should not be adopted for speculative transaction and/or short selling. • The difference between future contract and bilateral promise is as follows: • Unlike Future contract, the contract in Muwa’ada is not executed at the time of signing the agreement. Therefore a separate Offer & Acceptance would be required.

7. TYPES OF AQD • AL MUAWADHA(with consideration) E.g. contract of sale & purchase, Ijarah, Musharakah Mudarabah etc. • TABARRU(without consideration) E.g. Contract of loan, Aariyah, Wadiah

8. Al Uqood ul Muawadha (compensation or consideration)) CONTRACT WORDING OF CONTRACT SUBJECT MATTER CONTRACTORS • Non-restricted • Sane • Mature • Present • Unconditional • Non-contingent • Specified • Quantified Consideration

9. Types of Uqood Muwadha Al Uqood ul Muawadha • Mubadalat: • Bai • Ijarah • Musharakat: • Shirkah • Mudaraba

10. Tabrru/Ghair Muawadha(without Consideration or consideration) CONTRACT WORDING OF CONTRACT SUBJECT MATTER CONTRACTORS • Non-restricted • Sane • Mature • Present • Unconditional • Non-contingent • Specified • Quantified Consideration

11. CONTRACT IN ISLAM CONDITIONS OF CONTRACT: • A condition, which is not against the contract, is a valid condition. For example a condition of free delivery to buyer’s premises. 2. A condition, which seems to be against the contract, but it is in the market practice, is not void, if its voidness is not proved with the clear injunctions of the Holy Quran and Sunnah. For example a condition that the seller will provide five-year guarantee and one year free service.

12. CONTRACT IN ISLAM • 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 he. 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 consideration, upon completion of sale.