Classification of Contract

Classification of Contract

Contract, from an Islamic legal perspective is conceptually divided into two main categories, namely unilateral and bilateral contract. While the former is gratuitous in character and does not require the consent of the recipient, the latter is more bound to strict rulings and guideline since it requires the consent of both the parties to a contract. Also what is normally 'tolerated' in unilateral contract, would not necessarily be the case in bilateral contract. Therefore, the (strict) conditions required for both the offeree and the subject matter of the bilateral contract would cease to apply in an unilateral contract. Unilateral contract comprises of transactions in favor of the recipient such as gift (hadiah, hibah), off-set of the debt (ibra), will (wassiyyat) endowment (waqf) and loan (qard).

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 d'etre of the deal and agreement. In this regard, we may perhaps, classify these contracts to six classifications which are as follows:

1. Contracts of exchange ('uqud al-mu'awadat)
2. Contracts of security ('uqud al tawthiqat)
3. Contracts of partnership (shirkah)
4. Contracts of safe custody (wadi'ah)
5. Contracts pertaining to the utilization of usufruct ('uqud al manfa'ah) and
6. Contracts pertaining to do a work (e.g. wakalah and ju'alah)

This classification is not meant to be exhaustive because in the future many new contracts with different features, would possibly come to exist on the basis of the doctrine of permissibility (ibahah), as previously discussed, that would render all commercial transactions permissible in the absence of a clear prohibition. Nevertheless, the above classification seems to be quite comprehensive to cover all existing contracts found in Islamic fiqh literature.

Mention should be made that each of these classifications consists of different transactions but contribute to the same purpose an reason d'etre of the underlying contract. For example, contract of exchange, will primarily concern trading as well as selling and buying activities inclusive of their subdivisions such as cash sale, deferred payment sale, deferred delivery sale, sale on order, sale on debt , sale on currency, auction sale and so on and so forth. Similarly other types of contracts also include many sub-divisions relevant to respective classification. For example, contract of security deal not only with with surety ship (kafalah) but also with pledge (rahn) and transfer of debt (hiwalah) because the very purpose of these sub contracts under contracts of security was to protect the interest of the parties to a contract particularly the interest of the party in whose favor the respective contracts are concluded. As far as contract pertaining to the utilization of usufruct are concerned, it also cover a few sub-contract such as ijarah (hire and lease) ariyah (loan of tangible asset), waqf (endowment), qard (loan of money), etc. The contract of partnership (shirkah) also includes different types of partnership such as mudarabah (profit and loss sharing) musharakah (profit and loss sharing), sharikah al-abdan (partnership by contributing effort and skill), sharikah al-wujuh (partnership based on credit and reliability), muzara'ah (partnership in farming), musaqat (partnership in fruit trees), etc.

5.0  Reflection and Overview on the Classifications of Contracts

Although contracts in Islamic law of transactions are classified into different categories, it seems that the basic contract, in many cases and situations are the contract of exchange and utilization of usufruct. The former presupposes the transfer of ownership while the later the transfer of usufruct of a property from one party to another. This is clear from the definition of both sale and hire in Islamic law Sale is defined as "the exchange of one commodity for another, one of which is called the object and the other the price", or "the transfer of ownership of property for another. Hire or ijarah is defined as the transfer of the usufruct for a consideration. Both these two contracts constitute the main activities of commercial activities because the remaining contracts are largely dependent on these two contracts.

Therefore, the law on sale as the contract par excellence and, next to it, on hire, was greatly expanded in Islamic law literature. These two contracts are the bases for the other contracts to take place. In other words, other contracts are dependant on these two contracts to exist and to give effect. On the contrary, these two contracts, relatively speaking, can be concluded between two parties without any need for other (supporting) contracts. For instance, hiwalah, kafalah and rahn cannot stand by itself in the sense that they are all dependent on the contract of exchange be it sale or lease/hire. In the case of hiwalah which means transferring a debt from one debtor to another, it cannot take place unless the debt relationship has already established between the transferee, the transferor and the principal creditor. The debt relationship, on the other hand, may take place either out of deferred payment sale or out of direct loan (qard) contract. Hence, it is obvious that hiwalah originates from the sale transaction (as well as from loan transaction) kafalah, rahn, etc.

This shows, inter alia, that contracts are inter-related to form a complete system of mu'amalah to ensure justice as well as to meet the needs of people which vary from one condition to another. Therefore, it is relevant to conclude that Islamic commercial law consists of many different types of contracts to suit different needs and circumstances. In other words, theoretically, Islamic commercial law would be able to satisfy the need of a person to buy a commodity on credit, or the need to have the guarantor against the third party, or the need to have the fund for business enterprise purposes, or the need to have in advance the capital to manufacture or produce agriculture produce or perhaps the need to have a transferee to settle the debt owed by a third party (transferor) and the like.