chapter 2

• Contract


  In Islamic law, an agreement, commercial arrangement, legal transaction, document, or deed
• Wa'ad


  A binding unilateral promise
• Muwa'adah


  A bilateral promise (in commercial transactions)
• Wa'ad and muwa'adah are said to be different varieties of 'aqd
• Wa'ad


  A promise or undertaking by a party to carry out a unilateral contract and signifies their commitment to perform an obligation
• Whether wa'ad is binding is still an issue of contention among Muslim jurists
• Muwa'adah


  A bilateral promise in a contractual form that may either be conditional or unconditional
• The legality of muwa'adah has been affirmed by modern jurists as being binding on the orderer provided the bank owns the goods</b>
• Affirmative evidence on contract from the Quran


  • Quran 5:1
  • Quran 17:34
  • Quran 16:91
  • Quran 9:4
• Classifications of contracts in Islamic law

  • According to nature: Unilateral ('aqd infiradi), Bilateral ('aqd thuna'i), Quasi (shibh al-'aqd)
  • According to circumstances
  • According to legal consequences
• List of common contracts in Islamic law

  • Contract of sale
  • Contingent contract
  • Contract of agency
  • Contract of arbitration
  • Contract of bailment
  • Contract of bequest
  • Contract of commission
  • Contract of compromise
  • Contract of education
  • Contract of employment
  • Contract of guarantee
  • Contract of marriage
  • Contract of suretyship
  • Gift Contract
  • Insurance contract
  • Lease contract
  • Manufacturing contract
  • Mortgage contract
  • Partnership contracts
  • Social contract
  • Trust investment partnership
• As society progressed, people's needs increased so different forms of contracts, including transnational transactions, began increasingly prevalent
• Types of contracts


  • Insurance contract
  • Lease contract
  • Manufacturing contract
  • Mortgage contract
  • Partnership contracts
  • Social contract
  • Trust investment partnership
• Islamic contracts


  • 'aqd al-wadi'ah
  • al-wasiyyah
  • 'aqd al-ju'alah
  • 'aqd al-sulh
  • 'aqd al-tarbiyyah wa ta'lim
  • 'aqd al-istikhdam
  • 'aqd al-daman
  • 'aqd al-nikah
  • 'aqd al-kafalah
  • 'aqd al-hibah
  • 'aqd al-ta'min or 'aqd al-takaful
  • 'aqd al-ijarah
  • 'aqd al-istisna'
  • 'aqd al-rahn
  • 'aqd al-shirkah
  • al-'aqd al-ijtima'i
  • 'aqd al-mudarabah
• Unilateral contract ('aqd infiradi)


  A contract initiated and concluded by a single party which involves some form of benefit being transferred to another party, usually without consideration. It only becomes binding on the person in whose favor it has been made once he or she accept the promise.
• Bilateral contract ('aqd thuna'i)


  Bilateral contracts are the most prevalent form of contract in the industry. Under this type of contract, one party makes an offer, the other accepts and the contract becomes binding on both parties providing the subject matter is ascertained and it falls within the scope of items that are tradable (the contracts are based on mutual consent). Once both parties accept the stipulations of the contracts, a legal relationship is established between the parties and certain rights and obligations are also established.
• Types of bilateral contracts

  • Contracts of exchange (mu'awadah)
  • Contracts of security (tawthiqat)
  • Contracts of partnership (shirkah)
  • Contracts of safe custody (wadi'ah)
  • Contracts relating to the use of an asset (ijarah)
  • Contracts relating to the performance of a work or rendering of specific services (e.g., wakalah and ju'alah)
• Quasi contract (shibh al-'aqd)

  In essence, a quasi contract is an obligation, not a contract that originates from the operation of law and not by an agreement between parties. Its effect may create a binding legal relationship.
• Classification of a contract according to its circumstances

  • Sale contract
  • Partnership contracts (e.g. mudarabah, musharakah)
  • Unilateral contract
  • Bilateral contract
  • Multilateral contract
  • Quasi contract
• Classification of a contract according to its legal consequences

  • Valid contract (sahih)
  • Invalid or deficient contract (fasid)
  • Void contract (batil)
  • Binding contract (lazim)
  • Enforceable contract (nafidh)
  • Withheld contract (mawquf)
• Valid contract (Sahih)


  When a contract is concluded in its normal manner with an effective offer and acceptance and the parties have the legal capacity to enter into the contract, it is regarded as a valid contract. The legal consequence of such contracts is its binding nature since the parties have showed their desire to create a binding legal relationship. The consideration must be valuable to warrant the description of a valid contract.
• Invalid or Deficient Contract (Fasid)


  Any form of contract short of key elements for a valid contract may be considered invalid or deficient (it is missing if it is lawful in its substance but unlawful in its description) depending on the elements. If a contract is not comprised of an offer, acceptance and subject matter, it will be rendered void from the very beginning.
• Void Contract (Batil)


  A void contract, unlike a deficient contract, cannot be remedied by addressing certain descriptive elements that are missing in the agreement (this is because a void contract is unlawful in both its substance and description).
• Binding Contract (Lazim)


  When a contract is sound in its substance and description it becomes binding on the parties and is enforceable under the law. A revocable contract is a binding contract where either of the parties is given an option to revoke the contract at any stage (partnership contracts such as musharakah and mudarabah are revocable). Irrevocable binding contracts are those that cannot be revoked at any stage once they are concluded.
• Enforceable Contract (Nafidh)


  A binding contract is enforceable under the law and does not usually affect the rights of a third party (it only relates to the rights of the parties to the contract). Accordingly, all binding contracts are enforceable.
• Withheld Contract (Mawquf)


  When a binding contract is concluded by someone who does not own a property, the contract may be dependent on the final approval of the real owner of the subject matter.
• Pillars of Shari'ah contracts

  • Form (sighah)
  • Parties to the contract (al-aqidan)
  • Subject matter and price of the contract (al-ma'qud alaih)
  • Intention to create legal relations and meeting of minds
• Form (sighah)


  Any contract in Islamic law is offer and acceptance (ijab and iqubul). For a contract to be valid there should be an offer followed by its acceptance, (made by the use of words or indications that are commonly used in the particular locality).
• Parties to the contract (al-aqidan)


  The parties to the contract should have the ability or capacity to enter into a valid contract. Subject to certain principles, impediments or incapacity to enter into a valid contractual arrangement include being a minor (sighar), insanity (junun), forgetfulness, sleep and fainting fits, and terminal illness (marad al-mawt).
• Subject matter and price of the contract (al-ma'qud alaih)

  The subject matter of a contract must necessarily have a commercial value, be something of benefit (as permitted under the Shari'ah) to all parties involved, and must also be capable of possession and should exist at the time of contract. The price of the contract is usually in the form of a consideration, which may or may not necessarily be money (there should be some form of consideration in the contract, which should be known to the parties to avoid fraud, deceit, and future disputes).
• Intention to create legal relations and meeting of minds


  The parties should necessarily have the intention to create legal obligations, which involves the meeting of both minds based on mutual satisfaction (this should be based on mutual satisfaction as expressed in the Qur'an). At the formation of the contract, in which the meeting of minds takes place, and where the offer and acceptance are indicated by the parties, is usually concluded at a meeting session known as majlis al-'aqd. Mutual consent and satisfaction is emphasized in all contractual agreements and can be vitiated when the following factors creep in: duress (ikrah), mistake (khata), fraud (ghish), and misrepresentation.
• Contract of Sale (Bay')


  Involves the exchange of property for a well-defined consideration in accordance with the mutual consent of the parties to the contract (the consideration is usually a property). The term used in Islamic law to for a contract of sale is bay' (bay' involves the transfer of an ascertained object in exchange for its equivalent based on consensus ad idem). Most of the contractual transactions in Islamic law are based on this term. Exchange of values can be represented in any form whether in the form of a forward sale (salam or bay' al-salam), or a cost-plus sale (murabahah).
• Nature of a Contract of Sale

  • Trading is encouraged in Islam as a means of lawful earning. The permissibility of trade by barter, a natural propensity of mankind, is asserted in the Qur'an where Allah clearly provides that trading is permissible while interest-bearing transactions are forbidden. The Islamic sale of goods (which must have some value, be permissible, and be owned by the parties who intend to trade in them) is based on the Islamic law of obligations, which provides that Muslims are bound by their agreement and prescriptions (once a person agrees to an exchange of certain goods for a definite consideration, the contract becomes binding). A contract of sale is usually a bilateral contract because there must be a buyer and a seller. Modern means of trade, such as electronic sales, retain the underlying spirit of Islamic contracts, i.e. there must be an offer and a corresponding acceptance with a valuable consideration based on the mutual consent of the parties.
• Essential elements of a contract of sale

  • Offer and Acceptance
  • Subject Matter
  • Consideration or Price
• Offer and Acceptance


  Both the contract's offer and acceptance must be voluntary, expressed in absolute terms (the language may not be in the future tense), and must not be limited to a certain period. Both offer and acceptance should be made at the majlis al-'aqd.
• Subject Matter


  The subject matter should exist at the time of concluding the contract (there is a difference of opinion regarding this, the object of the contract must be capable of being delivered once the contract is concluded between the parties). Essentially, it must be free from all encumbrances. Once it is ascertained the property (which should have some sort of beneficial use) belongs to the seller as the true owner, agent, or guardian of the owner, the description and specifications of that property must also be determined.
• Consideration or Price


  In the modern context, the consideration, popularly known as the price, is usually a form of exchange. The means of exchange should be the prevailing medium of exchange in a particular locality based on customary practices and must be a valuable commodity (such as gold or silver).
• Offer and acceptance


  Should be made at the majlis al-'aqd
• Subject matter


  • Must exist at the time of concluding the contract
  • Must be free from all encumbrances
  • Must have some sort of beneficial use
  • Description and specifications must be determined
• Consideration or Price


  • Usually a form of exchange
  • Should be the prevailing medium of exchange in a particular locality based on customary practices
  • Must be a valuable commodity
  • Amount must be known