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Contract Synoptic Notes

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ISLAMIC LAW SYNOPTIC NOTES1 Aspects of Contract Law

Introduction Tijarah refers to trade and commerce. In any part of the world at any time trade is a very important part of the economic activity of a nation. Trade was also an important part of the economic activity in early Islamic Society just as it was an important part in pre-Islamic Society amongst the Arabs. There is an extensive body of rules in Islamic Law which is concerned with the performance and enforcement of contractual obligations. There is a clear area of law within the body of Islamic Jurisprudence that deals with contracts. A great deal of emphasis is placed on the importance of upholding ones promises and agreements in Islamic Law. The Arabic word for 'aqd' literally means a tie or even an obligation. Literally speaking this means to join, knot or tie. Another way of looking at this thus is that we are referring to the act of placing a tie on a bargain of some kind. In effect, what is really happening is that an offer and an acceptance is being tied together that effectively culminates in an agreement. When contracts have been entered into we are effectively saying that there has been a situation where declarations are made between two parties to a contract and each of their declarations is reflected in a bargain. 1 Please note that these notes are a mere summary of some of the important points to think about. They are not to be used in isolation, and are certainly not a substitute for the requirement of extensive reading from the variety of sources in this highly interesting area. Students must engage in reading from the core text and beyond.

The term 'Uqud' refers to the obligations that arise by virtue of the promises made in the contract. Islamic Finance is guided essentially by principles which ensure there is full compliance with the principles under the Shariah. The starting point as far as the basics of Islamic Finance are concerned is that all contracts are allowed, so long as there is no infringement of any Shariah principle. The main injunctions are in relation to:

1. Interest (Riba),

2. Gharar

3. Those transactions that are impermissible.

Generally speaking, an emphatic insistence is placed on the notion of. Honest and legitimate trade and business. There are a number of verses from the Quran which encourage trade and commerce. The agreement/contract The offer is the first stage in the making of the contract. And offers can be made: Orally, In writing, Through a messenger, Signs and Gestures and by conduct. The offer and acceptance must take place at the same meeting (majlis) and with rare exceptions being of immediate effect. Islamic law does not like contracts 'in futuro' as these of necessity involve an element of risk and uncertainty.

The offer and acceptance must mirror one another with regard to the subject matter = If not then this would amount to a counter offer. The offer and the acceptance should be issued in the same session = It is easy if both parties are present in the same session and this presents little or no problem. If one party is missing and the communication is by messenger then the session lasts until the knowledge of it reaches the other party and he replies and communicates his acceptance to the offeror. The basic elements in a contract are said to be: 1=PARTIES 2=PRODUCT -SUBJECT MATTER 3=MONEY - CONSIDERATION. PAYMENT 4=OFFER AND ACCEPTANCE 5=IN ONE SITTING. THE SALE MUST BE COMPLETED IN ONE GATHERING. 6=CAPACITY

Examples of types of sales:

1. Common form of sale. It is known as the spot sale.

2. The credit sale. This is where the period for the payment in the price is fixed. To illustrate = if Jeremy sells a kilo of wheat to Elizabeth on the agreement that Brian will pay the price after 25days.

3. Payments made in advance. This type of sale is a special kind of sale. This is known as the contract of Salam. It is the ordering of goods to be delivered later for a price immediately. There are a number of conditions that need to be satisfied for the contract of salam. This type of transaction is said to be an exception to the general rule.

The changing of money is also another type of transaction that takes place. It is known as 'sarf', and it can be referred to as the sale of a monetary value in exchange for another monetary value. This can be of the a) same genus or of b) another genus. There are many other types of sales too. For example, there is Tawliya - sale at cost price; and wadi'ah - sale at less than cost price.

In Islam there is a restriction on freedom of contract as a result of ethical principles. Of these restrictions the most important is that of unjust enrichment. One of the main types of unjust enrichment is 'riba'.

Riba The literal meaning of Riba is excess. As a general principle, the prohibition of interest governs the entire law of contract. Under the Sharia, Riba refers to an addition, no matter how small, over the principal amount. There are 2 major classification of Riba:

1. Riba al Nasiah
- this comes from the root word nasa'a which means to postpone, defer or wait. It refers this essentially to a delay in the settlement of one counter value or even both counter values.

2. Riba al Fadl

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