Lecture 6: The Theory of Contract (Islamic Law) PDF

The Theory of Contract ‫العقد‬ Humans are social beings who are not self-sufficient to fulfil all their needs individually without help from others. They need to trade, interact and cooperate with each other. It is through Trading, and exchanges that humans fulfil their mutual economic nee...

The Theory of Contract ‫العقد‬ Humans are social beings who are not self-sufficient to fulfil all their needs individually without help from others. They need to trade, interact and cooperate with each other. It is through Trading, and exchanges that humans fulfil their mutual economic needs. A Muslim should not take another’s property unlawfully but by way of trade and with mutual consent. ‫”يأ يها الذين آمنوا ال تأكلوا أموالكم بينكم بالباطل إال أن تكون تجارة عن تراض‬ “‫منكم‬  The only valid way through which ownership could be transferred is through mutual agreements and trading. Much of Islamic economics and finance is based on contracts between two or more parties. Whether it is a contract to purchase goods or a contract to make a loan In this theory we will discuss the principles of trading and mutual agreements. And will explains detailed rules and regulations on the formation of a contract.  Definition of Contract (‘aqd) The word ‘aqd (contract) in Arabic language means: Literally: tying tightly, as in tying a rope. Arabs used the word to speak about firm belief or determination. They used to say ‘aqd al yamin to mean ‘give an oath’. Along the same line is ‘aqdat al nikah meaning a marriage contract. The word ‘aqd also carries the meaning of obligations, as used in the first verse of Surah al-Maida. “ O ye who believe! Fulfill your obligations “. In Islamic jurisprudence the word contract is used to mean Technically: “a legally binding obligation, which has consequences for its subject”. According to Islamic Law a promise may not be legally enforced although it is strongly recommended by religious and moral values to be fulfilled. (Surah al-Saf 61:2). Therefore, a breach of promise to marry does not give a cause of action according to Shari'ah. However, in certain circumstances a promise may become legally binding. promise is widely used by Islamic banks in B.B.A. and murabahah transactions. When the bank relies on the promise and purchases the property, the customer is under an obligation to purchase the property from the bank based on the promise which he has made  Pillars of Contract (arkan) “Rukn is what is considered to be necessary for a thing to exist, and it is part of it”. Consent is the cause for the existence of a certain contract. If either party to a contract does not give his consent the contract does not exist. The Prophet is narrated to have said: “It is unlawful to take the property of a Muslims except by his consent”. consent is a hidden phenomenon and cannot be known unless expressed.  Consent can be known through an offer (ijab) and acceptance (qabul) by the parties. According to Hanafis, a contract stands on two pillars which are offer and acceptance. According to Hanafis, the elements of ‘aqd include anything that manifests the meeting of two intentions either through conduct, action or writing. Some other matters are not considered as pillars of a contract however their existence is necessary. For example, it is necessary that there must be contracting parties to have ijab and qabul. Similarly, there must be the subject matter upon which the parties have the agreement to indicate that there is the meeting of two intentions.  According to The majority of the Fiqh Schools, pillars of contract are three: 1- expression (sighah), which includes offer and acceptance. 2- the party, or the parties (al ‘aqidan). 3- the subject matter (mahal al ‘aqd) or the property on which a contract is concluded.  I. Expression (Ijab and Qabul) (Sighah) Mutual consent of parties is the basis for formation of a contract. However, consent is an intangible mental fact, therefore, this intention must be manifested in sufficient form of words/conduct that indicates a definite intention to contract. Sighah is “a method to manifest the intention to contract. It consists of Ijab and Qabul”. The contract is concluded when the connection between the ijab (offer) and qabul (acceptance) takes place. According to the Hanafis: offer is a statement that comes from the party who first expresses his consent, and this could be from the buyer or the seller, the latter is considered (qabul). The Majority Schools: offer is a statement that comes from the seller who is an owner of a property. qabul is made by the buyer or the person to whom the subject matter of the contract is addressed regardless as to whether this comes first or later. If the first statement comes from the buyer and the second statement comes from the seller the latter is considered offer while the former is acceptance. For instance: if a buyer in a sale contract offers to buy the goods from the seller by saying: “ I bought this book from you for “RM 100”. To which the seller replied: “I sold that book to you for“RM 100 ”. In this situation, according to Hanafis’ view, it was the buyer who has said the ijab being the first person who manifested the intention to contract. On the other hand, according to the others’ view, the word of seller is the ijab since he was the owner of the book.  Forms of Expressing Consent : The most obvious form through spoken words or verbal communication. Any phrase and words reflecting the intention of the offer are acceptable. the words used should show a definite intention to form a particular contract. also indicate the nature of the contract i.e. a sale, waqf, rent or a mortgage contract. Both present and past tenses may be used. words showing intention to offer in future or to ask for confirmation are not enough. For example, the phrase “I will sell the house to you” only indicates a promise to sell in the future and is not a contract. A contract may also be concluded by writing. For instance: when an e-mail sent offering a specific object for sale for a specific price. This amounts to a valid offer which will be binding on the offerer. A person not being able to express his consent verbally can use gestures. For dumb people, a sign or gesture is equal to speech. A contract may also be concluded by action: (the seller delivers the commodity to the buyer without any expression of words): In Fiqh it is known as “mu‘âtah”, “ta‘âti” or “murâwadah”. This simply refers to the conduct of a seller, displaying commodity for sale with price tag attached to it. customarily this indicates that the parties consented to the transaction Exchange of offer and acceptance through modern means of communication such as fax and the internet is included under writing. It can be also concluded through Automatic Teller Machine (ATM). Machines that dispenses food and drink or coins are written exchanges.  Conditions of Offer and Acceptance 1- Clarity: The words used in offer and acceptance should clearly indicate and express the consent of the parties with certainty. 2- Conformity of Offer with Acceptance: For example, when a seller offers to sell two computers for RM 3000 the buyer should accept the offer and buy both computers for RM 3000. He cannot buy one of the computers for RM 1500. 3- Continuity Between Offer and Acceptance: which means acceptance should reach the offer within particular time or in the same session of contract (Majlis al’aqd). The session of contract (Majlis al’aqd) The session of contract refers to: “a period of time in which an offer is made, negotiated and accepted at the presence of both parties at the same place”. This means the acceptance should be made before the separation of the parties. If acceptance is not taken within time, offer may not survive. The party who has made the offer has the right to withdraw or change the offer. The Majority view: an offeror can also withdraw his offer within the session of the contract before an acceptance could be made. The Malikis: hold that unless the offeree accepts or rejects, the offer cannot be withdrawn within the session of the contract. They argue that the offeror, by making his offer, has established to the offeree the right to accept the offer. Thus, offeror is bound by his offer, until it is either accepted or rejected by the offeree, or when the session is over.