JABATAN PERDAGANGAN POLITEKNIK SULTAN IDRIS SHAH

FIQH MUAMALAT 2
INTRODUCTION TO CONTRACT
1.1 The contract 1.1.1 The foundation of Shariah standard business contract: a. Belief b. God Consciousness c. Knowledge d. Sincerity e. Sources of law f. Human Beings 1.2 The formalities of contract 1.2.1 Offer ( ijab ) a. Modes of offer (namat al ijab) b. Tense of offer ( sighah al-ijab) c. Counter offer (ard al-muqabil) d. Revocation of an offer ( rujuan al-ijab) e. Termination of an offer (butlan al-ijab) 1.2.2 The different types of acceptance a. Modes of acceptance (namat al Qabul) b. Tense of acceptance (sighah al Qabul) c. Communication of offer and acceptance (Ittisal )

Chapter one

Foundation

Ijab and Qabul

1st Edition

The end Chapter One, You be able to understand about the foundation of the shariah standard of business contract and formalities of contract.

The foundation of the shariah standard of business contract and formalities of contract.

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1.1 The contract

The word aqad or contract in Arabic language means tying tightly, as in tying a rope. The word aqad carries the meanings of covenant and fulfillment. The usage of the aqad can be found in al-Quran such as in surah al-Maidah (5:1), surah al-Isra (17:34), and surah al-Nahl (16:91). Islamic Jurisprudence; an engagement and agreement between two persons in a legally accepted, impactful and binding manner. Types of contract in Islam; Ownership (Al-Tamlikat); a) Exchange (Uqud Al-Muawadhat) b) Charity (Uqud Al-Tabarruat) Security (Al-Tauthiqat) Partnership (Al-Ishtirak) Safe Custody (Al-Hifz) Release (Al-Isqatat) Permission (Al-Itlaqat) Restriction (Al-Taqyidat)

Ownership (Al-Tamlikat); The purpose of this aqad is to acquire ownership or right to benefit of a property. Can be divided into two: Exchange (Uqud Al-Muawadhat); If the acquiring of ownership is by exchange such as sale, hire, money changing, compromise, partition, sale by order and the like, where there is an exchange between the two parties. Charity (Uqud Al-Tabarruat); If ownership of a property is acquired without an exchange such as gift, endowment, benevolent loan (Al-Qard Hasan) and assignment of debt. Sometimes a contract can be a contract of charity at the beginning and then the receiving party is required to given an exchange. Examples of such a contract are guaranty requested by the debtor and gift with the condition of an exchange. Contracts such as these are contracts of charity at the beginning ending with contracts of exchange. Security (Al-Tauthiqat); These contracts are meant to secure debts for their owners and guarantee creditors of debts owing to them. These are guaranty, assignment of debt and mortgage. Partnership (Al-Ishtirak); These aqad meant for sharing in projects and profits. Among them is Al-Mudharabah. Safe Custody (Al-Hifz); The purpose of the aqad is for keeping a property safe and having some form of an agency. 2 POLITEKNIK SULTAN IDRIS SHAH, SUNGAI AIR TAWAR, SELANGOR

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Release (Al-Isqatat); These relate to the dropping of rights against others with or without exchange. If the release is without compensation from the other party then the release is absolute release such as repudiation, remission of the penalty of talion, release from debt and withdrawal from the right to pre-emption. If the release is with compensation from the other party then it is release with exchange. Permission (Al-Itlaqat); These are for giving free hands to persons in their work such as agency, appointment of governors and judges, giving a person who is dispossessed of the power of administration permission to administer his property or giving permission to a minor to carry on trade and appointment of a nominee to take care of ones children after his death. Restriction (Al-Taqyidat); Contracts in this group are those preventing the performance of certain functions. Examples of these aqad are dismissal of governors, judges and supervisors or endowment, termination of the appointment of nominees and agents and dispossession of administration of property because of insanity, mental disorder, prodigality and infancy. Contract using at banking operations; Muamalat Tabarruu (NonProfit Contract)
Qard Wadiah Wakalah Kafalah Rahn Hibah Waqaf

Tijarah (Profit Contract) Natural certainty contract Natural uncertainty contract

murabahah Salam Istisna ijarah

Musharakah Mudharabah Musaqah Mukhabarah Muzaraah

Theory of Exchange

Theory of Venture

Classification according to the Nature of Contract; Unilateral Contract (al-Aqad Infiradi); A form of promise made by one with an intention and expectation that it would be accepted by the other. In other words, a unilateral promise binds only the person who makes it until it is accepted by others, and once it is accepted both parties are equally bound by the contract. It is normally 3 POLITEKNIK SULTAN IDRIS SHAH, SUNGAI AIR TAWAR, SELANGOR

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applicable in a transaction like al-Jualah (Reward) in which someone offers a particular reward to the world at large in return for the delivery of a sought after subject-matter. A unilateral contracts is approved by the Jamhur Fuqaha amongst them are Maliki, Shafii, and Hanbali, based on the event between Yusuf and his brother as proven by the alQuran; They said: We miss the great beaker of the king: for him who produces it, is (the reward of) a camel load; I will be bound by it. (12:72) The idea of a unilateral contract is opposed by the Hanafi School of Law, because it revolves around the element of al-Gharar (Excessive uncertainty). Bilateral Contract (al-Aqad al-Thunai); A bilateral contract requires at least two parties, formally, in which one party should make a proposal (Ijab) and the other should accept (Qabul). The minds of both parties must coincide (agree); that is, their declaration must relate to the same subject matter. The object of the contract must be able to produce a legal and beneficial result for both the contracting parties. The dominant idea of bilateral contract in Islamic law is that it establishes a legal relationship, arising from the mutual consent of the minds of at least two parties in dealing with each other, in respect of certain rights and obligations thereof. For example, when A sells or disposes an object to B, the former consents to pass on his proprietary rights therein to the latter, who consents to take the property with whatever obligations might be incidental thereto, such as the liability to past taxes if the subject matter of the transaction is land, or to take care of and to feed if the thing sold or disposed is an animal, and to pay the price in the case of a sale. Quasi Contract (Shibh al-Aqad); A quasi contract is not by nature a contract, but the implication gives rise to an obligation similar to that of contract. A quasi contract is an obligation which does not originate from a proper verbal agreement as in law of contract. A quasi contract has little or no affinity with a contract. A simple illustration is given by the action to recover money paid by mistake. If the innocent party mistakenly interprets the facts, pays to another party a sum of money which he does not really owe, the law being just will require the wrongful receiver of the money to restore it. However, his obligation is manifestly not based upon consent: therefore this description of quasi contractual liability emphasizes its remoteness from any genuine concept of a contract. To conclude here, in the quasi contract, the obligation is enforceable by the Shariah principle, since it is a matter of restoring the right of others. Because an appropriation could not be recognized if something is exacted through a proper transaction with a mutual consent. O you who believe, eat not up your property among yourselves in vanities. But let there be amongst you traffic and trade by mutual good will (4:29) Classification according to Legal Consequences; Valid Contract (Sahih); A valid contract in shariah as a contract in which its essence and attributes are according to the shariah and which subsequently has a legal effect of enforceability. In other words, a valid contract binds the contracting parties equally. There are two scale devised to evaluate the degree of a valid contract. In a broader sense, a valid contract, enforceable by the shariah, is presumed if its origin and attributes (Asl and Wasf) are in accordance with shariah. 4 POLITEKNIK SULTAN IDRIS SHAH, SUNGAI AIR TAWAR, SELANGOR

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The nature of a valid contract is that there must be contracting parties who have legal capacity and express their agreement in terms of a sound Ijab (offer) and Qabul (acceptance) on a particular subject matter recognized by the shariah. In addition, for a contract to be valid there must be an exchange of valuable consideration with a sincere intention, required from both parties, to create a legal relation. Invalid or Deficient Contract (Fasid); A fasid contract is an agreement, which is lawful in its substance but unlawful in its description. The substance of an agreement refers to proposal (ijab), acceptance (qabul), and the subject matter (mahal al aqad). The description of an agreement refers to characteristics of a contract, e.g. the price of the subject matter. If an agreement of a sale for a definite article is concluded by proposal and acceptance but the price is not settled, the agreement would be Fasid, although it is enforceable (munaqad) as far as its substance is concerned. Void Contract (Batil); An agreement in which both its substance and description are unlawful in the sight of shariah. For example contracts of sale of fish in the sea or birds in the sky are uncertain and, therefore the contract is batil on the ground of Gharar. Another example of a batil contract is the agreement of sale concluded by a lunatic or a minor or a prodigal. Such a contract is void because it does not fulfill the requirement substance of an agreement, in which the offer and acceptance must be done by a sane, major or sound minded person. Similarly an agreement to sell a dead body or alcohol is not lawful, for it involves the exchange of mal for something having no legal value (ghayr mutaqawwim). Binding Contract (Lazim); A binding contract is a sound contract without ant defect either in its substance or description. The Majallah distinguishes between a Lazim (binding) and Ghayr Lazim (non-binding) contract in Articles 114-15 respectively. Thus a BaiLazim is a Bai Nafidh (enforceable) without any option. But a Ghayr Lazim is a contract in which an option is found. A Lazim contract, according to legal consequences, is divided into two; Irrecoverable ; Is one in which the parties shall not have any right to revoke in any stage of the contract if such contract is concluded by mutual consent of the contracting parties, e.g. a contract of marriage or any other bilateral contract. O you who believe, fulfill your obligations(5:1) For example, in a contract of marriage, there is no room for revocation by either party once it is concluded except by a Talaq pronounced by the husband. Revocable; One in which both or either party have the right to revoke it; for example, the contract of Wakalah, Sharikah, Mudharabah, Wadiah, Wasiah, and so on. Enforceable Contract (Nafidh); Nafidh is an agreement, which does not involve any right of the third party. It is of two types: Lazim (binding) and Ghayr Lazim (non-binding). 5 POLITEKNIK SULTAN IDRIS SHAH, SUNGAI AIR TAWAR, SELANGOR

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Withheld Contract (Mawquf); Is an agreement in which the substance and the description are lawful, but it is concluded with the consent of a party who does not own the subject matter of the contract. The Mawquf contract as a sale, which is dependent on the right of another like a contract of Fuduli (Catalyst or someone who makes the disposition of a property without the consent of its owner or without the sanction of the shariah). Thus the legal consequence of a Mawquf contract is pending or hangs till it is ratified by the owner on behalf of whom the Fuduli concludes the contract.

1.1.1 The foundation of Shariah standard business contract:

Belief God Consciousness Knowledge Sincerity Sources of law Human Beings

1.2 The formalities of contract (Takwin Al-Aqad)

1.2.1 Offer ( ijab )
Article 101 of Majallah provides that Ijab is the word first spoken, for making a disposition of property and the disposition is proven by it. According to the Shorter Encyclopedia of Islam, the term offer in a commercial transaction is the sole declaration that the offer is irrevocable. In Fiqh; the observation of the prescribed legal form is most necessary and the mutual declaration. The formalities of Ijab are; Modes of offer (namat al ijab) Tense of offer ( sighah al-ijab) Counter offer (ard al-muqabil) Revocation of an offer ( rujuan al-ijab) Termination of an offer (butlan al-ijab)

Modes of offer (namat al ijab)

An offer can be made in any of the following ways;

By words/oral; An offer can be made by words used for concluding a sale (Bai)
by the common usage and the custom of the place. Must expressed and understood in the language of local people. 6 POLITEKNIK SULTAN IDRIS SHAH, SUNGAI AIR TAWAR, SELANGOR

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By writing; An offer could also be made by writing or deed which will have equal legal effect as the one made verbally. By gesture; An offer by gesture is valid if it is made by a person who is incapable of making it either verbally or in writing. For examples, an offer made by a handicapped, dumb, or deaf person. According to Hanafi and Shafie Schools of jurisprudence, an offer by gesture is valid if the offeror is not able to speak or write. The Maliki and Hanbali Schools of Law approve an offer by gesture, because it is better than a contract concluded through conduct. By Post, Telegram, Telex, Fax, E-Mail, Etc; All these instruments convey offers made by words and writings.

Tense of offer ( sighah al-ijab)

An offer is generally made using past tense, but in some situations, an offer could also be made in other tenses and manners. An offer may be made by the aorist tense in which if it indicates a present tense then the sale is valid but if it indicates a future tense then the sale is invalid. In other words, an offer is valid and has a legal effect if it is not made by using the future or imperative tense. A sale is not concluded by words in the future tense.

Counter offer (ard al-muqabil)

In order to create a building agreement, the offer and acceptance must match. The offeree must accept all the terms of the offer. If in his reply to an offer, the offeree introduces or poses a new term(s) or varies the terms of the offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as an offer itself, which can be accepted or rejected.

Revocation of an offer ( rujuan al-ijab)

According to the Hanafi and Hanbali, the offeror has the right to revoke the offer at any time before the acceptance is made. Although this right theoretically exists also in the Shafie. It is doubtful whether the offeror could have time to exercise it. This is because the Shafie is requiring the acceptance to be made immediately after the offer is made, otherwise the offer will cease to exist.

According to the Maliki, the offeror is bound by his offer until the meeting breaks up. Thus if he revoked his offer and the offeree afterwards accepts before the meeting breaks up, the contract would be concluded. In the Hanafi, there are two views on the matter. According to one view, the revocation is not effective until it is communicated. Thus if the seller should say, I have 7 POLITEKNIK SULTAN IDRIS SHAH, SUNGAI AIR TAWAR, SELANGOR

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sold to you this for so much, and added, I have revoked my offer and the buyer without hearing the revocation says, I have bought, the sale is concluded. According to the other view, the offeror can revoke his offer whether or not the other party knew about the revocation. Since the Hanafi insists that both the offer and acceptance should be communicated, a better view would seem to be that the revocation of an offer also has to be communicated.

Termination of an offer (butlan al-ijab)

An offer could be terminated and will not have any legal effect under the following circumstances; Revocation; if the offeror, after making the offer at any time before it is accepted, changes his mind and revokes his offer, the latter will be effective and the offer will be treated as terminated. Rejection by the offeree; if an offer is not accepted and it is rejected by the offeree, it will be treated as terminated. Counter offer; an offer could also cease to have legal effect if it is neither rejected nor ignored by the offeree but the offeree is able to accept it in accordance with his own convenience, which means that the offeree may accept it with some additional condition in which the expression of the offeree would be treated as counter offer and it will eventually terminate the original offer. Absence of acceptance; an offer is made but no acceptance so far has been received to it, hence the offer will be terminated. Death; if death of either the offeror or the offeree occurs before it is accepted, the offer is be terminated. Lapse of time; an offer is made with a condition that it should be accepted within a specified period of time and if the offeree fails to accept within the prescribed time limit, the offer is considered terminated.

1.2.2 The different types of acceptance

Qabul means consent. The formalities of qabul are; Modes of acceptance (namat al Qabul) Tense of acceptance (sighah al Qabul) Communication of offer and acceptance (Ittisal )

Modes of acceptance (namat al Qabul)

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An acceptance may be made in any of the following ways;

Oral Acceptance; An acceptance may be made by words of mouth as long as the

offeror could understand it. An acceptance may be made either by word or sound as long as something covers the meaning of acceptance. By writing; An acceptance may be made by writing in the same way as it is made by words of month. By gesture; An agreement by implication or gesture is sufficient. By delivery; A sale in concluded by an exchange being carried out, as that is evidence of the mutual agreement of the two parties. By payment; An acceptance in a contract of sale could be presumed by the payment made by the buyer in consideration of the subject matter.

By performance or conduct; An acceptance is presumed to be made by the

performance of an act in consideration for the subject matter of the offer. It is not necessary that the acceptance be expressed in any special form; a sign, conduct or word which conveys the idea of an acceptance renders the contract binding. Letter of post; A letter or message sent by post or messenger containing the message of acceptance may be substituted for a verbal and personal communication in the contract of sale, the place of receipt of the letter and delivery of the message being accounted for the meeting.

By Telex, E-Mail, Telegrams, Phone, and Fax; An acceptance can also be made
by these instantaneous methods of long distance communication so long as any method represents the actual nature and function of an Qabul made by word or writing justified by the general principle of contract. The Fuqaha in the field of Islamic jurisprudence recognize such as types of modes of acceptance to conclude a valid contract.

Tense of acceptance (sighah al Qabul)

For a valid contract, an acceptance must either be in the past or present tense. In no situation, can an acceptance be justified if it is expressed in a future tense. Article 169 of the Majallah provides that an acceptance generally uses the past tense. Article 170 of the Majallah provides that, by the aorist tense, if the present tense is made, the contract is concluded but if the future tense is made the contract would not be concluded. Furthermore, Article 172 of the Majallah provides that an acceptance could also be made by an imperative tense provided it indicates present tense. But an acceptance if made using a future tense or imperative tense indicating future tense or aorist tense, which indicates future tense, the contract will not be held valid.

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Article 17 of the Majallah provides that, an acceptance using the aorist tense, which indicates future tense, will not constitute a valid acceptance. Likewise, Article 171 of the Majallah provides that, an acceptance using the future tense will not have any legal value. Similarly, Article 172 of the Majallah provides that, an acceptance by imperative tense which indicates future tense shall have no legal effect.

Communication of offer and acceptance (Ittisal ) The importance of communication of the offer and acceptance appears to have not
played a vital part in the Islamic law of transaction. Most of the texts are silent as to whether such a communication is essential for the formation of a valid contract. The Fiqh under the Hanafi School of Thought, on the assumption that the parties are contracting orally and in the presence of each other, makes it a condition for the conclusion of the contract that the offeree must hear the offer and the offeror must hear the acceptance. The juristic basis for the necessity of this mutual hearing is not clear. According to one of the Fiqh, there can be no consent without such mutual hearing. Some other schools of Fiqh maintain that, the necessary connection between the offer and the acceptance will not take place unless each party hears what was said by the others. It has even been suggested that if the parties did not hear each other there will be no unity of the meeting place. Whatever the true juristic basis of this requirement may be, it seems clear that as far as the Hanafi is concerned, there will be no contract without such mutual hearing where parties are contracting in the presence of each other. The Shafie maintains that it is not necessary that the offeree shall hear the offer or the offeror shall hear the acceptance provided that both the offer and Qabul are made in a voice loud enough that it will normally be heard by those present in the meeting place. Since it is not necessary that the offeree shall hear the offer or that the offeror shall hear the acceptance, it appears that the requirement that the offer and acceptance should be made in a voice loud enough that it will normally be heard by those present in meeting place, is merely of evidentiary value. It could be summed up here that in the Shafie, it is not necessary for the offeror and acceptance to be communicated. It is not clear from the text of the Fiqh of the Hanbali and Maliki, whether the offer and acceptance should be communicated.

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