Contract Pillars and Conditions in Islamic Perspective and Its Comparison to

Waad

Fajar Usman Domiri / 1700089

History shows that Muslims have been well-known as good traders. Many of the Rasulullah

(PBUH) companions were bright businessmen. History describes that Islam has spread

through the globe due to the well-known traders. Indeed, Quran and Sunnah have been

implicitly and explicitly encourage trading as an important issue in human life.

''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.'' 1

''And when the (Friday) prayer is finished, then may you disperse through the land, and seek

of the Bounty of Allah: and celebrate the Praises of Allah often (and without stint): that you

say prosper.'' 2

''Allah has permitted trade and forbidden usury.'' 3

1
Al-Quran, Cahpter An-Nisa: 29
2
Al-Quran, Chapter Al-Jumah: 10
3
Al-Quran, Chapter Al-Baqarah; 275


''And O my people! Give just measure and weight; do not withhold from the people the things

that are their due: commit not evil in the land with intent to do mischief. That which is left

you by Allah is best for you, if you (but) believed! But I am not set over you to keep watch!''4

Rasulallah (PBUH) was asked what type of earning was the best and He (PBUH) answered,

''The work of a man's own hand, and every pious sale'', narrated by Hakim. It also reported

that he (PBUH); ''A trustworthy and an honest and truthful businessman will rise up with

martyrs on the Day of Resurrection,'' narrated by Ibn Majah and Hakim. He (PBUH) also

said; ''A truthful and trustworthy trader will rise up with the Prophets, the righteous and the

martyrs.'' narrated by Tirmidhi.

As Muslims, Allah has given us guide for every aspect of our life including trade. He allowed

us to trade in whichever manner we choose by giving us specific rule and guide. Allah taala

sent Rasulullah (PBUH) as that guide. The basis of all trading is the contract. As we are

encouraged to trade we are therefore encouraged to understand the subject of contracts within

Islam. Further to this, it is necessary not just to merchants and entrepreneurs to understand

about the rules that are involved in trading. All humans, not just Muslims, need to exchange

in some form. Therefore, if we are to perform our transactions in accordance with what has

been revealed, it is necessary for us to understand some basic principles of contract.

4
Al- Quran, Chapter Huud: 85
Understanding the concept of contract (aqad) is essential to earn halal earning, contract is

important since it protects both the of contractual parties interest to avoid misleading

(taghrir) in dealings. It binds the contractual parties into a legal agreement that will bring

legal effect. It clarifies shows and manifests the real intention and willingness of the

contractual parties.

Aqad Definition

Aqad ( ) literally means tying or tightening as tying a rope or tightening it5. It is the root

verb of aqada ( ) which means to join, to tie or to bind. The Arab used the root verb to

derive a noun meaning firm believe or resolution. They say; he tied a contract or tied an oath.

In general concept aqad is an agreement which is enforceable by law and only legal

agreements are contracts whereas illegal agreements are not contracts.6 To draft a valid

contract there must be some basic legally enforceable elements which are basically similar

and applicable either in the Islamic law of contract or the English law.7

In Islamic legal literature, aqad has two meanings general and specific meaning8. In the

general sense, aqad is correlated to every act which is undertaken in earnestness and with

firm determination regardless of whether it emerges from a unilateral declaration or

mutual agreement9. In view of this we notice that the concept aqad covers unilateral

intention such as waqf, remission of debt, divorce, undertaking an oath as well as

agreement of two declarations as in sale, hire, agency and mortgage.

5
Alaeddin Kharofa. The Loan Contract in Islamic Shariah and Man-Made Law: A Comparative Study.
pp.3.
6
Vohrah, B. and Aun. The Commercial Law of Malaysia. pp. 6-7.
7
Razali, S.S. Islamic Law of Contract. pp. 1, 27.
8
M. Tahir Mansuri. Islamic Law of Contract and Business Transactions, pp.20.
9
M. Tahir Mansuri. Islamic Law of Contract and Business Transactions, pp.20.
In the specific sense, it means a combination of an offer and acceptance which gives rise to

certain legal consequences10. Once an offer (ijab) is accepted, aqad or contract is final and it

binds both contracting parties as sanctioned in Quran in chapter Al-Maidah verses one:

O You who believe! Fulfil all obligations.

M. Tahir Mansuri has come out with his own definition as he defines aqad as an

obligation arising out of mutual agreement. It is a legal relationship created by the

conjunction of two declarations from which flow legal consequences with regard to subject

matter.

Aqad Pillars and Conditions

According to The majority of the Fiqh Schools, A contract consist of three pillars:

Expression (sighah) that consist of an offer and an acceptance, The contracting parties (al-

aqidan), The subject matter (mahalal-aqad) or the property or services/usufruct on which a

contract is concluded and Some jurists add the purpose of the contract. In contrast with the

Hanafi jurists, they concluded that a contract stands on two pillars which are offer and

acceptance. Offer and acceptance show consent and necessarily include and imply the

existence of the parties and the subject matter. This article is going to explore more about the

majority opinion.

1. Expression (sighah)

Shigah is consisted of an offer and an acceptance.

10
M. Tahir Mansuri. Islamic Law of Contract and Business Transactions, pp.20.
When someone wants to make a contract to show show the consent and the aim, this is

known as an offer11.Offer (ijab) Modes of offer (namat al ijab): An offer can be made in

any of the following ways: by words or oral, an offer can be verbal in which it is expressed in

words as a basis to show the consent to sell something to someone else and is not written

down. A verbal offer is acceptable in Islam from which an acceptance is good for an

immediate sale. However, writing the contract that will take place in future time is necessary,

so that no disagreement can arise later due to ambiguity.12

An offer can be made by conduct, It happens when someone offers something without any

verbal words or gestures being exchanged or expressed. For example, Osman is selling rice

from a pile of rice. The price per kilogram is written on top of the pile at 10 RM per

kilogram. Buyer Hidir gives 20 RM to the seller and the seller gives the buyer 2 kilograms of

rice. Here no verbal communication is shown between the offeror and the offeree. The offer

and acceptance have been concluded by conduct. Offer and acceptance by conduct is

recognized in the Islamic law of contract13. The common usage also can be a means as an

offer and the custom of the place. An offer could also be made in writing to potential

customers. It is the best way of making a contract as the terms of offer and acceptance are in

writing and signed by the parties in which case if any dispute arises later, it can be resolved

by referring to the written terms of the agreement, In fact Al-Quran encourage it in chapter

Al-Baqarah. An offer could also be considered if it is made by a person who is incapable of

making it either verbally or in writing. For example, an offer can be made by a handicapped

or dumb or deaf. According to Hanafi and Shafii Schools of jurisprudence, an offer by

gesture is valid in the absence of capability in words or writing. Maliki and Hambali Schools

of Law approve an offer by gesture, because it is show the consent as well as al-Muatah. An

11
Vohrah, B. and Aun. The Commercial Law of Malaysia. pp. 6-7.
12
Kharofa, A. 1997. Transaction in Islamic Law. Pp.70.
13
Abdullah, N. I. & Razali. Commercial Law in Malaysia. Pp.59.
offer by conduct is in all circumstances valid. For example, an offer by advance delivery or

performance or payment or. An offer also can be made by Post and Telegram, Telex, Fax,

Phone, or by E-mail because, all these technical means represent an offer by word and

writing. An offer could also be made using customary practices. An offer could also be made

using the words of common usage and place.

Modes of acceptance (namat al-qabul)

In the Islamic law of contract, acceptance is known as qabul. When an offer is accepted by

the offeree, it is said that an acceptance has been made. When there is an effective

acceptance, an agreement is made between the parties which become legally binding for

them. An acceptance can be verbal, by conduct or in writing as stated earlier14. Also it can be

concluded by Gesture, The agreement by implication or gesture of the acceptance with the

offer is sufficient. A sale also is concluded by gesture made by a dumb person. Furthermore it

also can be made by delivery; a sale is also concluded by an exchange being carried out, as

that is evidence of that, which is the principal object of an offer and acceptance, which is the

mutual agreement of the two parties. By Payment: An acceptance in a contract of sale could

also be presumed by the payment of the buyer in consideration of the subject matter. By

Performance: An acceptance could also be made or presumed by the performance of the

valuable consideration from the offerors part. By Conduct: It is not necessary that the

acceptance be expressed in any special form; sign, conduct or word which conveys the idea

of an acceptance renders and obligatory character on the contract. By the Customary

Practices: An acceptance is the word used for concluding a sale by the common usage and

custom of the place. 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

14
Abbas, Amanat. Islamic law in the contemporary context. Pp.56.
for the meeting. By Telex, E-mail, Telegrams, Phone and Fax: An acceptance also be made

by these instantaneous methods of long distance communication so long as any method

represent the actual nature and function of an acceptance made by word or writing is justified

by the general principle of contract. Wahbah Zuhaili has termed this sort of communication

as al-Taaqud bi al Hatif wa al-Murasilah (Contracts by Telephone) and other means of

communication). According to him, the Fuqaha in the field of Islamic jurisprudence

recognize such types of modes of acceptance to conclude a valid contract.

It is necessary in Islamic law that the offeree accepting the offer in the same meeting (majlis)
15
not later for a valid contract .The Islamic law of contract emphasizes on an immediate

acceptance of an offer to make a valid contract. However, it seems that such requirement of

an immediate acceptance of an offer in the same meeting between the offeror and offeree

may not be plausible in the modern business world as businessmen need time to think about

the possibility and viability of making a contract and to finally decide positively.

Under the Islamic law of contract thee offeree has to give a time for the offeeror to make

some consideration in a contract. If there is no consideration, the agreement will not be valid

as it is not enforceable by law. There is particular amount time to show an adequate time to

take a consideration as long as both parties give consent expression. A consideration needs

not be adequate as an inadequate consideration is enough to validate a contract as long as the

parties give consent freely to the agreement upon which they are satisfied16.If a contract is not

caused by a misrepresentation, fraud, coercion, undue influence and other attendant legal

ambiguities then the contract is valid even though its consideration is not adequate.

For example, Fajar sells his house to Osman for 500,000 RM while the market value of the

hose is 1,000,000 RM. If Fajar sells the house with a free consent from his consent and he is

15
Zuhaily, W. Al-fiqh al-Islami wa adillatuhu. 6.pp. 125.
16
Vohra, B. & Aun. The commercial Law of Malaysia. Pp.97.
not forced by someone to sell the car or he is not unduly influenced to sell the car and if he is

happy and satisfied with the price, The contract is valid and no one can judge that the contract

is invalid due to a merely inadequate consideration.

2. The contracting parties (Al-aqidan)

The contracting parties are the parties who exercise the sighah of ijab & qabul. In order to

conclude a valid contract, the contracting parties must have legal capacity. In any contract

there must be an offeror and offeree. Otherwise it becomes a unilateral declaration

which cant be called a contract (though it has legal consequences) on the basis of the

modern jurists definition. It is important to note that in order to conclude a valid aqad, the

contracting parties must possess legal capacity or al-ahliyyah. Al-Ahliyah has been defined by

Muslim jurists as the eligibility of a person to establish right for and obligation upon

himself. There are two types of ahliyyah namely ahliyyah alada (capacity for execution)

and ahliyyah al-wujub (capacity for acquisition of rights). In transactions, ahliyah al-ada is

necessary. It is the capacity for the issuance of words and the performance of deeds the

legal effects of which are the exercise of rights and the fulfilment of obligations for

contracts and other transactions. The basis of the ahliyyah al-ada is aql (intellect) or

rushd (discretion), and ataining al-bulugh (attainment of age of puberty).

Completion of offer and acceptance in a legal manner:

Both offeror and offeree must agree with each other in a manner prescribed by the Shariah.

For example, the offer and acceptance must be held in a majlis, both must conform to each

other and the existence of the offer till the acceptance is linked with it.

3. The subject matter (mahalal-aqad)

Legal effect in the subject matter is the main concern in making a contract. The effect may

result the legal status of the subject matter either stands modified or shifts from one state to

another. Transferring the ownership of a subject matter from the seller to the buyer is a

legal effect in sale contract, while in mortgage transferring the possession of the property is

passed from the mortgagor to the mortgagee.

There are four conditions for the subject matter: First, The subject matter must exist: The

existence of subject matter at the time when an aqad is concluded. Otherwise an aqad is

void, even if the subject matter would exist in the future. Therefore, the sale of the animal

foetus yet to be born while it is still in the mothers womb is void if the mother is not part of

the sale. Exception in bay al-salam (sale by advance payment for the future delivery), bay al-

istisna (contract of manufacture), ijarah (contract of hire) and musaqat (contract of irrigation)

based on necessity and customs. Second, the subject matter can be delivered: Islamic law

requires that subject matter must be able to be delivered to the contracting parties. Otherwise

an aqad is void. The process of delivering the subject matter must be possible without

causing any damage to the subject matter, otherwise the aqad becomes voidable. If the

parties tolerate the damage, then the contract is valid. Hence, it is void to sell a bird on the

sky, fish in the sea or runaway horse because it can be dillivered. Third, the subject matter

must be ascertainable and specific: Islamic law requires that subject matter must be

ascertainable and known to contracting parties. Sufficient knowledge about the subject matter

is necessary to avoid future disputes. If the subject matter of the aqad is of different kinds or

articles, it is necessary to determine individually. But if it is of similar articles, it is sufficient

to determine one to these articles in order to attain knowledge of the subject matter. Forth, the

subject matter must be not forbidden matters: Islamic law requires that subject matter must be

of commercial value, otherwise an aqad is void. Therefore, the sale of the wine, blood, pork

is void even if these articles are of value to others or according to civil law. Similarly, the sale
of items that can be acquired gratuitously without purchase, such as fish in the sea, bird in the

air, etc. But once acquired, it can become the subject matter of transaction.

Promise (Waad) definition

Waad ( ) literally means promise, Waad as a verb means to predict, promise or threaten.

While waad or idah as the infinitive or noun of waad a carries the meaning of a promise,

threat, prediction, and provision (from God).

Technically the word waad means to make oneself under obligation on what is not

obligatory in the first place.17 It must be fulfilled for religious reason and it is one of

the hallmarks of good character of an individual. According to Imam Nawawi, the jurists

have made an ijma (consensus of jurists opinions) that whenever a person promises

something permissible to someone, he must fulfils it. However, they are not in consensus in

respect of the degree of obligatory in fulfilling the promise.

In traditional concept, waad is unilateral in nature, and binds the maker only. Islamic

scholars have different views with regard to the liability imposed upon the parties of the

promise. Some schools of thought opine that a promise made by a person to another is

religiously binding (mulzim diyanatan) but not a legal duty (mulzim qadhaan). This is

because waad is part of a voluntarily contract (aqad tabarruat). Therefore, the judge has no

way of enforcing this, because the second party has nothing more than a moral right.

In accordance with the Islamic principles, promises made must be fulfilled as a religious

obligation. Therefore, it is not just a question of morality, but also a question of following the

religious principles. And the scholars are in agreement on this point. A person that refuses to

fulfil a promise is literally categorized as a hypocrite by the Prophet Muhammad (PBUH).

17
Abdullah Ibn Sulaiman, Buhuth fi al-Iqtisod Al-Islami. pp. 105.
Therefore, a Muslim that makes a promise of any kind to another person must fulfil the

promise. Here is a Hadith for reference: Narrated Abu Huraira, the Prophet (PBUH) said:

The signs of a Hypocrite are three: Whenever he speaks, he tells a lie. Whenever he

promises, he always breaks it (his promise). If you trust him, he proves to be dishonest. (If

you keep something as a trust with him, he will not return it, Narrated by Imam Bukhari.

Difference between Aqad and Waad

Aqad is a relationship created by the conjunction of two intentions which normally

establishes an obligation between two parties especially with regards to al-uqud al-

muawadat. Unlike the waad is just a notification or a mere declaration of a promisor

about his future intention the scope of waad seems more suitable to be confined to

cover only al-uqud al-tabarruat or al-maruf for it does not carry any binding effect.

Therefore, if it were to be attached to al-uqud al-muawadat, it could not impose any legal

rights or obligation on contracting parties.

An aqad, according to the opinion of the majority of Muslim jurists whenever its

pillars (arkan) and conditions (syurut) are fulfilled, it creates an immediate effect. This is

rationalized on the basis that the offer (ijab) and acceptance (qabul) in aqad are expressed in

the past or present tense, denoting an immediacy of time sequence between intention and

contract. However the result of waad could materialize in the future.

In addition, all jurists are in consensus that the contracting parties must deliver or fulfill

whatsoever matter that resulted from the aqad. In the event any of the contracting parties had

refused to execute his obligation without a valid shariah excuse, the qadhi or the court of law

can force him to go through with the deal. In contrast with waad Muslim jurists have

different opinions regarding the hukm of fulfilling the waad. The majority goes by the rule
that the promise must be fulfilled for religious reason only. As a matter of fact, it is a question

of morality and breach of promise does not entail any legal consequence.

The Application of Aqad and Waad in Modern Islamic Finance

Contract (aqad) is implicated in every financial transaction, since is the core of legal

financial transaction such as legal contract in ijarah, mudarabah, qard hasan and so on.

Waad can be found in a large number of Islamic banking products. In murabahah to the

Purchase Orderer (MPO) for instance, the waad is an important element that constructs

the deal whereby the purchase orderer promises to purchase the asset from the financial

institution upon the latters acquisition of the asset. The promise must be duly signed by the

former during the purchase requisition and it shall be binding on him. In the event the

purchase orderer refuses to enter into the murabahah transaction upon purchase made by

Islamic finance institutions (IFIs) as per agreed terms, he shall be held liable for breach of

waad and shall compensate for related actual costs incurred by the IFIs for the disposal

of the asset to a third party and the shortfall in the disposal price compared to the

purchase price.18

Islamic project financing relies heavily on the concept of waad. The project financing

structures based on diminishing musharakah (Diminishing partnership where the project

company and the financier co-own the project) use the concept of waad to allow the project

to acquire the share of the financier in the project. Waad is also used in project finance

when the structure is a combination of istisnaa (Islamic manufacturing) and ijarah (Islamic

lease).

18
Bank Negara Malaysia, Draft on Shariah Parameters: Murabahah Parameter, accessed April
11, 2017, http://www.bnm.gov.my/documents/conceptpaper/MurabahahCP.pdf.
The most apparent use of waad is in sukuk structures, where the sukuk holders are promised

by the relevant entity to buy their sukuk for a certain price (usually the nominal value of the

sukuk). Effectively, in certain sukuk structures, the waad is used as a guarantee to investors

(sukuk holders) to receive an amount equal to their initial investment when their Sukuk are

redeemed. The extensive use of waad as a guarantee has leaded the AAOIFI to issue their

famous statement on sukuk.

Conclusion

In Islam in order to bind a contract it is not only mutual consent that has been approved by

two parties in Islamic System, but there are more requirements to make the contract legal.

The pillar and its condition have to be fulfilled, such as the absence of uncertainty, maysir,

riba (usury). The contracting parties have to possess capacity to make a contract, the

existence of Ijab and Qabul from both parties that indicates mutual consent. The subject

matter has to be exist, owned by the offeree, having the benefit or significant result for

contracting parties, and the subject matter shouldnt be carrion, blood and pork. These

requirements come to protect both parties from practicing unlawful and unethical transaction.

In brief aqad is a commitment of two contracting parties that is framed with syariah values

and it binds both party, where waad is a promise between one party to another, that binds

one party only. And both of concepts have been practiced in modern Islamic financial

transaction.

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