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Termination of Contract

Cessation of Contract
Cessation by execution (tanfidh) or extinction
(inqida) Ends upon fulfillment of obligation.
Annulment (Ibtal) In case of invalid contract
Dissolution (inhilal)

Causes of Dissolution
Dissolution by mutual agreement (iqalah).
Automatic dissolution by death, destruction of subject matter,
expiry of period, achievement of purpose, etc.
Dissolution by revocation and termination (faskh)
(a) Unilateral termination in non-binding contarct
(b) Termination for options (khiyarat)
(c) Termination by non-approval to suspend contracts
(b) termination for breach or fault
Dissolution for impossibility (istihalah) of contractual
performance- beyond control (samawi or maksubah)

Why Dissolution is Legitimated?


Dissolution is designed to avoid hardship in
performing the contract and also harm to the
contracting parties based on hadith: there
shall be no unfair loss not the causing of such
loss (la darar wa la dirar)
Legal maxim and the principle of necessity
Theory of independence obligation
Theory of Equilibrium

Iqalah
The contract is formed by mutual consent. It
cannot be dissolved except by the same mutual
consent.
Termination of contract by mutual consent of
the parties in case one of them is regretful and
wants to turn away from contract.
The authority of iqalah is attributed to a hadith
whoever discharge a regretful person of his
undertaking, Allah swt will remove his obstacles
in the hereafter

Conditions of Iqalah

Satisfactions (ridha) of the parties


Meeting (majlis)
Reciprocal possession
The asset is still in existence

Methods of Iqalah
By performance
By express agreement

Automatic Dissolution
Death i.e ijarah, rahn, kafalah, sharikah,
wakalah, muzaraah and musaqah
Expiry of the period of contract and
achievement of purpose. i,e fulfillment of debt
Non-performance within stipulated time. i.e
condition to pay the price within specified
time.
Destruction of subject matter

Al-Fasakh
Unilateral revocation of contract
Non-binding contract for both parties
shirkah, wakalah, wadiah
Non-binding to only one party - rahn

Termination by Options
System of options aims at removing risk
A party decides to exercise his option
Islamic law recognizes a wide number of
options which may be divided into two broad
categories:
1. Created by mutual consent khiyar syart
2. Created by operation of law Khiyar aib

Termination by non-approval of
contingent contract
Applicable to mawquf. i.e fudhuli
Mawquf is due to absence of authority over
the object or authority of disposition.
Mawquf contract is categorized as fasid

Termination for Breach


The right to terminate the contract when one
of the contracting parties fails to perform his
contractual obligation, the nature and scope
of non-performance or breach depends largely
upon the type of contractual obligation.
Fails to achieve a specific result of goal
Fails to adopt certain standard of care.