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INTRODUCTION

  • Contract, from an Islamic legal perspective is conceptually divided into two main categories, namely unilateral and bilateral contract.

  • The bilateral contract covers the remaining transactions in Islamic law which can be further divided into different classifications according to the very purpose and reason of the deal and agreement.

Six (6) classifications of contracts :

1) Contracts of Exchange (Uqud Al-Muawadat) 2) Contracts of Security

(Uqud Al-Tawthiqat)

3) Contracts of Partnership

(Uqud Al-Shirkah)

4) Contracts of Charity

(Uqud Al-Tabarruat)

CONTRACT OF EXCHANGE

(UQUD AL-MUAWADAT)

  • Main contract of exchange in Islamic

commercial law is the contract of sale

  • Involves an exchange of a commodity

for another commodity (barter trading) or of a commodity for money (sale) or of money for money (sarf).

  • Trading activities in example in contracts of exchange of a commodity for money however, are relatively more exposed to the element of gharar, literally hazard or risk.

  • The difference between the two types of contract such as between the contract of exchange and gratuity would induce different legal effects for example khiyar or the right to revoke the contract.

  • Uqud Al-Muawadat which will include a variety of contracts which differ from one another on terms of specific legal requirements, rights, obligations and liabilities but common to each other in

terns of the result of the contract,

namely the transfer of ownership from

one party to another.

4 categories of sales :

  • Sale of property

  • Sale by exchange of money for money

  • Sale by barter

  • Sale by immediate payment

Another perspectives:

Sales are also divided into four (4)

categories:

  • Musawamah sale

  • Murabahah sale

  • Tawliyyah sale

  • Wadiah sale

3 possibilities of payment

pertaining to a sale contract:

  • Cash sale

  • Deferred payment sale

  • Lump sum payment

  • Earnest money (Bay Al-Arabun) in which advance payment

Subject matter of the sale, it

can be divided into three (3)

categories namely :

  • Sale of commodity (movable and immovable)

  • Currency (sari)

  • Debt (dayn)

The personal reflection on certain contracts of sale available in the Islamic law of transactions. These classifications are as follows:

  • The price is mentioned by the offeror and accepted by the offeree.

  • The price is mentioned by the buyer and later accepted by the seller.

  • The price in some sale transactions is divided into two stages.

The fundamental basis of sale contract consists of one piece of property being exchanged for another.

The fundamental basis of sale contract

consists of one piece of property being

exchanged for another. Offer and acceptance are also referred to as the

fundamental basis of sale, since they

imply exchange.

CONTRACT OF CHARITY

(UQUD AL-TABARRUAT)

  • Tabarruat means a donation or gift

  • The purpose of Tabarruat is not for commercial but is done to seek the pleasure of Allah

  • Example:

i. Hibah (gift or donation)

ii. Waqf (endowment)

iii. Ibraa’ (waiving of debt)

CONTRACT OF HIBAH

CONTRACT OF HIBAH Hibah is the giving of a gift whether it is given to one

Hibah is the giving of a gift whether it is given to one who is in need or to a well-to-do person

CONTRACT OF WAQF

CONTRACT OF WAQF Waqf is a religious endowment, a property giving revenues, as regulated by Islamic

Waqf is a religious endowment, a property giving revenues, as regulated by Islamic law

CONTRACT OF IBRAA’

  • Ibraa’ is waiving of debt

  • Ibraa’ arises out of a deferred payment sale where the buyer makes early redemption

  • The essential elements and the conditions of essential elements of

Ibraa’ are as follow:

4 Essential Element :

  • Creditor (seller) and debtor (buyer)

The necessary conditions of creditor and

debtor are the same as those of buyer and

seller in a contract of sale

  • Debt (deffered selling price)

The debt as the selling price must meet these two necessary conditions:

i. absolute in amount ii. known currency

Contract (offer and acceptance) The contract is incorporated in the ASA. It must be absolute and

Contract (offer and acceptance)

The contract is incorporated in the

ASA. It must be absolute and in definite

and decisive language

Ibraa’ (the partial refund of money paid) There are two ways of dealing with Ibraa’: i.

Ibraa’ (the partial refund of money paid)

There are two ways of dealing with Ibraa’:

i. It must not be stated in absolute amount or percentage in the asset sale agreement.

ii. It may be stated in the ASA in an absolute amount and a known currency. When this is done there will two prices in he contract and the seller (creditor) is entitled to the lesser of the prices only. It is then invalid and forbidden for the seller

to withdraw the Ibraa’.

CONTRACTS OF SECURITY

(UQUD AL-TAWTHIQAT)

  • Islam recognizes other additional

contracts to provide security to the

parties in a contract

  • This contract concern with the provision of securities to protect the

interests of the parties to the

contract

  • e.g Kafalah(Guarantee/Suretyship), Rahn(Pawning or Mortgage), Hiwalah (Transfer of Debt)

  • These security contracts are normally combined with other types of contracts

  • e.g the contract of BBA may be secured by a contract of security involving collateral (Rahn)

CONTRACTS OF KAFALAH

  • Kafalah means to add an obligation to an

existing obligation in respect of a demand

for something

  • Not release the principal debtor in whose favor the contract is concluded

  • Relate to

Person : for whom the kafalah is given

Finance : implies the obligation to pay the debt due to inability of payment by the debtor

Act (performance) : to ensure the performance of certain act

5 Essential Element :

  • Guarantor (Dhamin)

    • Able to take responsibility

    • Not prohibited from dealing with his property

  • Creditor (Madhmun lah)

  • Debtor (Madhmun anh)

    • Debt (Madhmun bih) Must be establish and sure Must be obligatory (obligation on the debtor) The amount must be specified

    • Contract offer and acceptance Clear wording etc Understandable language Absolute all information required

    CONTRACTS OF RAHN

    • Creditor prefers to secure the loan either through personal surety or a pledge

    • To make the a property a security to have a right of claim

    5 Essential Element :

    • Pledgor customer

    • Pledgee Islamic bank

    • Obligation or right to a claim debt

      • Must be establish

      • Must be known

    • Pledge property pledged (anything that can be bought and sold)

    Exist Pure (halal) According to Syariah Owned by pledgor Can be delivered

    Must be known and specific all information is included

    • Contract offer and acceptance

    CONTRACTS OF HIWALAH

    CONTRACTS OF HIWALAH Transferring debt from one debtor (transferor) to another (transferee)

    Transferring debt from one debtor (transferor) to another (transferee)

    CONTRACTS OF PARTNERSHIP

    (UQUD AL-SHARIKAH)

    • It means signifies the conjunction of two or more persons to carry on

    a business to share the profits by

    joint investment

    • It is by the sharing in the capital contribution, management of the capital as well as profits and liabilities

    CONTRACT OF MUDHARABAH

    CONTRACT OF MUDHARABAH Mudharabah is a contract where the owner of capital entrusts his funds to

    Mudharabah is a contract where

    the owner of capital entrusts his funds to an entrepreneur who

    contributes skills is business and

    the profit generated is to be shared between them

    4 Essential Element :

    4 Essential Element : Owner of capital and Entrepreneur  Capable of taking responsibility  Not

    Owner of capital and Entrepreneur

    • Capable of taking responsibility

    • Not prohibited from dealing with their properties

    • No coercion (force) is exerted on either of them

    • Capable of appointing agents and be appointed as agents

    • Capital Money only Not debt Specific amount From owner of capital only Paid to entrepreneur

    • Business Halal business Managed by entrepeneur only

    • Profit Sharing Profit shared according to agreement in fraction, ratio or percentages not in absolute amount Loss is to borne by owner of capital only

    • Contract (offer and exchange)

    In definite and decisive language (in the present or past tense, not future tense nor imperative)

    Acceptance must agree with the offer and

    The offer and the acceptance made at the one and the same meeting

    CONTRACT OF MUSHARAKAH

    CONTRACT OF MUSHARAKAH It is a general partnership whereby two or more parties enter into a

    It is a general partnership whereby

    two or more parties enter into a contract to exploit their labour and

    capital jointly and to share the

    profit and losses or the partnership.

    5 Essential Element :

    • Partners

    • Capital

    • Business

    • Profit Sharing

    • Contract (offer and acceptance)