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Contract Law Notes

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Aspects of contract law:
: Agreements- in writing
: Upholding promises
- Promise: great deal of importance placed on promise, very important to fulfil that promise. Legal obligations within the promise- applying Uqdh. It's all about exchange in that sense.
: Law of obligations - as a result of the exchange of promises in the contract
: Exchange Three primary consideration of contract:
- Formation,
- Unjust enrichment/interest
- Uncertain contracts What is a contract? - Commercial dealings and agreements in a commercial context, promises made by parties in exchange for another promise - notion of promise, if a promise has been made, its considered very important to fulfil that promise. What is contract law? - It's a declaration of exchange on the basis of an agreement in its narrow sense and in its wide sense, its any statement of words to perform a duty. One particular view of an academic is that contract law ensures that any promise made must be enforceable. Why have laws on contract? - It is essential to prevent fraud and to ensure certainty. In many ways the answer to the question is central to the notion of why we need law and its importance. Certainty in knowing what you have agreed to is one of the key aspects of a contract. It ensures that rights under a contract are efficiently upheld and also that economic activity is regulated. It's a means to an end in itself in that having these rules reinforces the sanctity of promises. Where a promise is made it must be upheld. Introduction
? 'TIJARAH': Arabic term which describes 'trade and commerce' - this constituted an important area of economic activity of Islamic society.
? The importance of Trade
- Many Quranic Injunctions encouraging Muslims to engage in lawful trade, and Allah wanting Muslims to trade and travel
: Mention trade as seeking the "fadl [bounty] of Allah" - highlighting the fact that success and wealth in this world is a reward from Allah
: "whoever coveys food from one city to another and sells it at its price on that day will have the rank of the martyrs with Allah" - Allah regards as equal to a mujahidun and those earning halal livelihoods in order to spend it on themselves and their dependents
: "He sends the winds bearing good news to give you a taste of His mercy and to make the ships run by His command, and to enable you to seek His bounty so that hopefully you will be thankful" (Surat ar-Rum 30:46) - analogous to the wind for the age of sailing ships is the bounty of Allah in creating the oil that drives contemporary forms of transport 1

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Trade is of fundamental importance, constituted an important area in the financial activities of Arab society
: Prophet the founder of Islam was a merchant himself, engaged in a number of trade related activities e.g. his travel to Khadija [first wife] to assist her in commerce, Prophet is a manifestation of the ideal role. Body of rules concerned with the enforcement of obligations.

? Moral Dimension
- It is a moral dimension set by the primary sources which is the essence behind the rules that apply to freedom of contracts
: "...do not consume one another's property by false means, but only by means of mutually agreed trade" (Surat an-Nisa 4:29) - Quran emphasises mutual agreement in the trade and thus there should be no dissatisfaction or disagreement between the parties in a commercial transaction
: "...nor offer it to the judges as a bribe, trying through crime to knowingly usurp a portion of other people's property"
: "whoever acquires unlawful wealth and then gives it away as sadaqah will have no reward, and he will have to bear the burden [of his wrong doing]" (Ibn Khuzaymah,Ibn Hibban and alHakim from Abu Hurayrah cited in Kanz al-ummal)
: Prophet said: "Allah does not erase evil by means of evil, but He erases evil by means of good. Dirt does not erase dirt" Ahmas, al-Hakim in al-Mustadrak, and al-Bayhaqi in Shu'ab al-iman from Ibn Mas'ud, cited in Kanz al-ummal)
- Both the Quranic injunctions and the further explanations given by the Prophet, it becomes clear that Divine laws strike at the very root of modern capitalism. They enjoin moral rules upon man in his earnings and spending and hold him responsible for the well-being of his fellow man. Hoarding is thus condemned, usury forbidden, extravagance denounced and moderation enjoined. Wealth is not to be devoured in vanity but is to be developed by fair means and through generosity and trade so that it is used for the welfare of the community, hence there will be no need for inventions such as socialism.
- The Quran thus enjoins the cardinal values of equity, justice, mutual co-operation and selfsacrifice for organising the socio-economic fabric of Islamic society.
: Prophet, many traditions and records recording his honesty and morality, with him being the manifestation of the ideal role in relation to merchant activity The law of tort doesn't really have distinct body of law but is a part of Islamic law.
? Meaning of Trade
- Exchange of goods i.e. buying and selling
- Can be either monitory consideration or goods alike
- Men and women alike are allowed to engage in lawful trade in the Shari'ah
: Hadith: 'men and women are mentioned as selling to and buying from one another'
: All are equally entitled to trade, hence while a transaction is being carried on with one man and an agreement has been reached, another should not intervene - Prophet said: "Do not let any of you bid against each other" (Al-Muwatta, Book 31, No.31.44.96)
? Contractual obligations
- Extensive body of rules concerned with the performance of contractual obligations. 2

Law of Contract

Introduction of Terms:
? Arabic word for contract: 'Aqd'
- Literally means an 'obligation' or a 'tie'
: an act of 'putting a tie to a bargain' - thus when two parties enter into a contract it is called 'in'iqad' i.e. the joining or tying the offer and acceptance together Union of the decleratin of one of the contracting partie with that of the other reflecting promises made by both parties in th subject matter in the narrow sense. Wider sense- any statement of word that has the effect. The 'Aqd' in Islamic law of contracts comprises 3 main components or pillars:

1. 'Al-Aqidan: parties to the contract

2. 'Mahalal-Aqd': subject matter(s) of the contract- consideration

3. 'Sighah: an offer (ijab) and acceptance (qabul)- capacity- in English law minors and non minors/ for example existence of subject matter etc.

4. Contract must be legal

5. Prescribed format of contract.
? 'Uqud': Arabic word for obligations
- This is the obligations arising out of contracts
- 'Uqud' in its general context covers all obligation i.e. to fulfil the right of Allah by establishing salah, sawm, zakah and hajj, to fulfil the rights of the slaves of Allah, by repaying debts, honouring contract, neighbourliness, kindness and mercy to all human beings
- In commerce it covers the whole spectrum of obligations of parties in regard to their respective undertaking
: Thus the term 'Uqud' has much wider connotation compared to the term 'contract' in common law
? Importance of fulfilling 'Uqud'
- Quranic revelation: "You have iman! fulfil your contracts" (Surat al-Ma'idah 5:1)
: "O ye who believe! fulfil [all] obligations"
: Surah Mariam verse 45 "Ismail used to keep promises" Importance of upholding promises is recurrent theme in Islamic Law These types of provisions talk abut the sanctity of promises. Ensures any promises made are enforceable through the machinery system. So its seen as an agreement that must be honoured in accordance with the terms.

Function of Contract Law in Islam

1. Sanctity of promises
: Contracts and commerce was a usual practise in Arabia, thus needed regulation and guidelines to ensure no unconscionable receipt, and it was being conducted in the correct manner

2. Unfairness
: unconscionable results - breach of duty means you will have the right to enforce the promise
: Pre-Islamic Arabia, Prophet revived the Hilf Ul Fudul (Pledge of Virtues) - the prophet said he would still answer to the call of covenant of redress because it's based on justice and the importance of upholding contractual terms

3. Preservation of rights

4. Regulation - need a body of rules for every aspect. Need to ensure that society follows through. 3

5. Ensuring effective trade relations

Ethos of Contract in Islamic Law
? Types of Transactions:

1. Sale transaction (transferring ownership from one party to the other.)

2. A lease is the transfer of a benefit (Usufruct - benefit/ right that you derive from something which is not yours)

3. Loan - giving something temporarily. Islamic doctrines say loans are to be charitable because there is a danger that when you enter into a loan when you return you end up giving extra. Gold for gold, on the spot, equally in equal amount. Ownership of the rights/use of something.

4. Islamic perspective on wealth and money; it is a trial from God on how you spend it, since life is a test

5. Wealth is anything which is permissible under the shariah, useable and useful. It has to have material value and be capable of being bought. It's got to have a legitimate legal use.

6. Different types of wealth: Fungible items; something similar to another good e.g. grains Durable items Perishable items Money

7. Function of money: a medium of exchange, an ease, a measure of value is based on confidence and trust - may be the case you need to convert it to something else for it to be of benefit

8. Bukhari: "one would rather cut and carry a bundle of wood on his back to sell to people then to ask somebody who may or may not give it to him" - This hadith suggests that work is required by those who have the ability to work, and that work is required for those who have the ability, even more so for those that have dependents - 'using that which you have to accrue as wealth'

9. Life in medina; hadith narrated by a companion of a prophet Abu Huraira "my immigrant brothers (Mecca migrants) were busy trading in the market and my ansar (someone on your party, those who assisted the immigrants) brethren were busy with their properties" - highlights importance of trade at the time of the Prophet

Ownership in Islamic Law
? 'Mulk' Arabic term for ownership in Islamic Law, refers to a relationship between a man and his property, which is under his control to the exclusion of other claimants
: Important to remember that since Man is the 'khalifah' (vicegerent) of this world, all things originally belong to Allah s.w.t. whereas Man has been given the capability to own by proxy
? Types of Ownership, one may have...

1. 'Milk al-yad': Physical possession of the property

2. 'Milk at- tasaruuf': Rights of disposal of the property

3. 'Milk ar-raghabah': Have proprietary rights of the property
? Types of Partial ownership (whereby you do not enjoy full rights and benefits that come from total ownership)
- Arabic term 'Usufruct' i.e. the right to use something [not under you ownership, but you can use it) Examples:

1. Legal ownership or ownership of the property alone
: an owner has given the ownership of usufruct to another for a specified period of time - at the end of which the legal owner or his heirs will regain complete ownership

2. Personal usufruct ownership
: 5 ways of establishing ownership of usufruct, which are: 4

a) a Lease b) a Loan c) a Mortmain (waqf) d) a Will bequeathing usufruct e) a Permission

3. Easement rights (haqqal-'irtifaq)
: "rights associated with one immovable property and assigned to another immovable property belonging to another owner"
: examples of such rights are water rights, water-flow rights, drainage rights, passage rights and neighbouring rights

THE AGREEMENT

Classifications of Contracts:

1. Valid contract 'sahih contract'
- is legal both in its 'Asl' (fundamentals i.e. [rukn] offer and acceptance, and object) & legal in its 'Wasf' (ancillary components i.e. components that are in addition to rukn and object e.g., a condition that violates the nature of the contract, or if the object is not deliverable
- Contract is concluded and exchange of ownership takes effect

2. Invalid contract 'void contract' 'batil'
- 'Rukn' and conditions on the object are not satisfied, or that is illegal in both 'rukn' and ancillary characteristics
- Contract is not concluded and exchange of ownership does not take effect

3. Defective, voidable contract [particularly in Hanafi school] 'fasid'
- Legal in its 'Asl (has all the elements of a contract), but is not legal in its 'wasf' (ancillary) component
- Contract is concluded and ownership is realised upon possession
? Riba and Gharar: are both causes of irregularity in a contract according to Hanafi view; and cause invalidity according to the other Schools
[Gharar can be described as: 'uncertainty that is present in the basic elements of an agreement eg wording, subject matter, consideration and the liabilities' Other Ulama have defined Gharar as that level of uncertainty which can lead to disputes. Hence if a contract has uncertainty which is insufficient to lead to dispute then the contract is valid in the eyes of this group of Ulama]

What is a contract?
-?The Arabic word is Aqd which literally means an obligation or a tie (to join something together). Unifying them and making them one. A contract is putting a tie to a bargain. Narrow meaning of Aqd - means the union of the declaration of one of the contract parties with that of the other in a legal manner, the result of which is reflected in their subject matter. Wider meaning - a contract is defined as a statement or word that has the effect of legally binding a person to fulfil and obligation or to perform a duty.

Aqad - unifying offer and acceptance (Ijab and Qabul) Hanafis refer to them as the same thing, together known as the 'Sighah'. Ijab comes from one of the parties and Qabul is the response 5

Prerequisites of a contract 1 2 3 4 5 6

Existence of an agreement Mahall - existence of the subject matter Contractual capacity of parties (Ahliah) Contract must be legal Genuine assent - no duress so unification of two consenting minds Contract must be concluded in its prescribed format

. OFFER & ACCEPTANCE
? The Law of contract centres round property i.e. 'Mal'
? 'Mal' is something that exists, and can be held in use and be beneficial at the time of need.
: air and water, grass, wild trees cannot be secured and hence cannot constitute 'mal'
? The 'usufruct' of the property will also be included in the 'Mal'
: e.g. the rent collected by the landlord from a tenant in respect of the house let to him
? The offer and acceptance must mirror one another with regards to subject matter
? The offer and acceptance should be issued in the same session - suggests future payments not right
: Islamic law doesn't like contracts, which are 'in futuro' as it has an element of risk and uncertainty for the parties i.e. not being sure of deliverance
? The offer should be open to be accepted by the offeree. So no opportunity of going back. Raises questions? Can acceptance take place beyond meeting area? General rule it must unless parties agree to the contrary. For example oferee may give more time to offer. P. Niaazee- concept of reasonable time needs to apply to certain situation. Concept of meeting place to emails and transactions that takes place electronically (article). Can be made verbally, in writing or via a messenger, signs an gestures and you might have agreements based on conduct aswell.

Offer:
? It is the first stage in the making of a contract and can be made in a number of ways:

1. Verbally; 'bi'kalam' (is to be made in the same meeting)

2. Writing; 'bi'l-kitabah' (effective as soon as the letter leaves the offeror until received by the recipient, offer must be replied to immediately)

3. Offer made through a messenger whose honesty is not doubted

4. Through signs or gestures, [particulary where the person offering is deaf or dumb, or language barriers,

5. Through conduct; [Maliki approve an offer through the delivery of goods
? Cannot be made through silence, where there is an expectation to express yourself, and you be silent, will be deemed as an invalid contract
? The person making the offer has the option to withdraw before it has been accepted [Hanbali &
Hanafi jurists] - the time between making an offer and its acceptance is called 'majlis al-aqad' Why? since the person who has received the offer has time to accept or reject the offer, its equitable that the person offering should have the right to withdraw his offer during this time (may have made a mistake, or forgot something in the offer) - But Maliki's say once offer has been communicated to the recipient, there is no right to withdraw

Consideration: in legal sense must be lawful. 6

? In the Shari'ah a contract is made only when one party offers something to another party for some consideration and the other party accepts the offer
? The offer and acceptance must be made in a free manner, where the consideration must is lawful
? It is something that motivates the exchange of promises in a contractual agreement
? It must have legal value; it refers to the benefit and use. It is a value given in return for a promise Conditions laid down to what constitutes legal value: 1 The item must be clean/pure 2 It should be known to the parties 3 It should be potentially capable at delivering at the time of the contract 4 It must be in existence at the time of the contract 5 It must be legal i.e. wine, pork etc. which are not lawful in Islam cannot be offered as consideration Consideration is what motivates the exchange of promises in a contractual manner. There has got to be some kind of benefit to the promise or promiser. The contract isn't going to be valid without a legal basis. Contracts for consideration in the future isn't considered, good that haven't been created eg fish in the sea unless they are caught. - contracts in faturation.

The Contract of Sale
? 'Aqad al-Bay'; means the delivery of a definitive object which possesses legal value in exchange for something equivalent in value (the price)- the sale being the exchange.
? P Naizee-Normally translated as a sale but has a much wider meaning in Islamic law. When we talk about sale it covers all commutative and synallagmatic contracts. Exchange of two counter values, in other words ownership in one counter value is passed to the other party in lu to the other party
? Price may be paid immediately on delivery of goods sold, or it may be paid after delivery of the goods bought has been made, or goods may be delivered immediately and the price may be paid later
? Is an exchange of two counter-values; (not just confined to money)
: 4 types of sale

1. Goods for goods

2. Goods for currency

3. Delayed payment for goods

4. Currency exchange or money loans
? Purchaser known as: 'Mushtari' / Seller: 'Ba'I' - Together they are 'Aqid'
? The 'Aqid' must possess the following qualifications

1. He must be a 'Mummayiz i.e. be able to understand the implications of the contract of sale
: Thus an insane person, or minor will not be a mummayiz

2. He must be capable of disposing of his property

3. He must be free to use his own discretion 'mukhtar' i.e. no working under coercion, undue influence, misrepresentation or misapprehension Loans with and without interestsQardh= hasana- good loan. Fungible = something which is freely transferable, quantification of something.

Types of salesMujtari- purchaser Bay- seller/ both seen as akid.

There are certain general provisions which need to be established for a commercial transaction to take place, 7

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