Islamic Contract In Syariah

CONTRACTS IN ISLAMIC COMMERCIAL AND THEIR APPLICATION IN MODERN ISLAMIC FINANCIAL SYSTEM

1.0  Introduction
Islamic commercial law, known as fiqh muammalat in Islamic legal term, constitutes an important branch of law dealing with issues of contracts and the legal effect(s) arising from a contract; be it a valid, void or avoidable contract respectively. Contract is Islamic law, on the other hand is a complex legal discipline in both its jurisprudential foundation and its practical function. Also contract covers a variety of dealings and transactions to meet the needs of the society. No doubt, issues of commercial transactions, unlike devotional issues ('ibadat), are ever lasting and bound to change due to the changing circumstances and situations of both the object and subject of the transactions. Therefore it is not surprising that the first article of the Majallah al-Ahkam al-'Adliyyah (the civil code of the Ottoman Empire) endorses the idea that man is social by nature and that social life is essential to him, stating that, "in view of the fact that man is social by nature, he cannot live in solitude like other animals, but is need of co-operation with his fellow men in order to promote an urban society. Every person, however, seeks the things which suit him and is vexed by any competition. As a result, it has been necessary to establish laws to maintain order and justice. This approach of the Mejelle is seldom found in the other compilation of law.
As mentioned above, contract is a complex legal discipline both in its jurisprudential foundation and in its practical function. Intellectually, it is perhaps the most rewarding field of the law in action. The mechanism of contract formation depends on the fundamental conception of contract(s) under Islamic law, its interrelation with other modes whereby an obligation may be generated, the extent of the freedom of the parties and the grouping of contracts according to different classifications, of the close interaction of all these factors.
2.0  Historical Evolution of Contract in Islamic Law
As for the evolution of the law of contract, Islamic law of contract, unlike other legal systems, starts with Quranic verses which already contain both the rudiments of several types of nominate contracts as well as certain contractual maxims of general import. Thereafter, the traditions supplement the Quranic groundwork. The jurists in all Islamic Schools of law later developed the principles of contract. In the Quran, all in all, there are only over forty verses on a dozen types of commercial contract. Apart form one important verse on performing contract that is Quran 5:1 which enjoins believers to "keep faith contracts" (awfu bi al-'uqud), and the three verses with a common theme of "keeping promise", nonetheless, there are few verse which reveal a relatively advances stage of commercial contracts, such as sale and hire, charges in rem of personal guarantee as security fiduciary contracts such as deposit and the like. The whole idea of having a contract is to satisfy the consent of both parties to a contract and it seems, not only in Islamic legal system but also in other legal system, contract is the best available means to reflect the intention an accordingly the consent of the parties. To this effect, the Quran has already prescribed on the believers "not to devour your assets among yourself in vanity, except in trading by your consent". In addition, the Prophet (PBUH) is reported to have said that "The property of a Muslim is not licit for others to enjoy unless by his consent".
In any case, until the 19th century, no definition of contract is to be found in the treatises of Islamic law. This is because Islamic law never developed a general theory of contract. Instead, the overwhelming majority of Muslim jurist have focused on the contract of sale which they regarded as the model for all sorts of contracts. However, the Islamic Civil Law Codification which took place in the 19th century, namely both the Majallah al-Ahkam al-'Adliyyah and Murshid al-Hayran (the 1891 Egyptian version of the Ottoman's Majallah), started to give a precise definition to a contract. The Majallah, for instance, describes contract as a little contracting parties obligating themselves with regards a given matter and binding themselves together with the same as result of connecting an offer with an acceptance. Also according to the Majallah, "contracting is the connection of an offer with an acceptance in a lawful manner which marks its effect on the subject of the connection.
3.0  Essential Elements of a Valid Contract
For a valid contract to take place in Islamic law, certain conditions are to be met. From the foregoing definition of the contract, it appears that a valid contract bases itself on six elements, namely the offeror and offeree; offer and acceptance; and the subject matter and the consideration. As for the parties to a contract, they must be legally competent to enter into a contract. The competence to transact is Islamic law is measured largely by two aspects, namely prudence and puberty as revealed in the Quran 5:4, "Prove orphans till they reach the marriageable age; then if you find them if sound judgment, deliver over unto them their fortune". With reference to an expression of both offer and acceptance, Islamic law of contract recognizes both express contracts as well as what has been described as contract by conduct. It presupposes the making of an offer either orally by writing or by conduct. In certain cases, acceptance may also be implied from a party silence. However, Islamic law is distinct from other legal systems that it insists on the session of contract (majlis al-'aqd) in the sense that both the offer and acceptance are to be jointly connected in one single session without any gap in time or place. Therefore, the session occurs in any natural place where the parties meet to form their agreement. The session therefore creates the essential unity of the time and place necessary for the dual declarations of intention and consent.
Based on the above prescription which is agreeable to all schools of law, it may be said that certain interruptions during the session such as stopping to pray, or discussing other subjects, changing positions or attitudes, or even falling asleep are held to terminate the majlis and therefore the offer. Also under this principle of law, the acceptance should be immediate. However, before the offeree gives his acceptance, the offeror may withdraw his offer. Again, another provision of law which is attached to Islamic law is the notion of khiyar al-majlis i.e. right to revoke the concluded offer and acceptance, provided both the parties are still available in the session of the contract left the session, the right to do so ceases to exit. As there are various interpretations surrounding the exact meaning of majlis or session of contract, the present writer, based on certain arguments, is more inclined to appeal to customary practice of any society to decide on the separation from the session of contract.
Pertaining to both offer and acceptance, classical Islamic law seemed to insist on the notion of contracts inter presenters in the sense that the contracting parties should hear other's declaration which is, it is respectfully submitted, devoid of legal relevance. The writer's opinion is that contracts inter absentees by means of representatives or modern communication systems such as the telephone, telex, fax, e-mail, letter are equally valid provided they are performed in one single session of contract.
As for the subject matter of contract, both the item and consideration, Islamic law stresses on the following matters, i.e., lawfulness, existence, deliverability and precise determination. Lawfulness requires that the object must be lawful, that is something which is permissible to trade. It must be of legal value that is, its subject matter (mahall) and the underlying cause (sabab) must be lawfull; and it must not be proscribed by Islamic law, nor a nuisance to public order or morality. Also inherent in the lawfulness of the object is the condition that the object must be legally owned (or authorized) by the parties to a contract. The issues of existence presuppose that the object of a contract must be in existence at the time of contract. Thus, it is illegal for example to sell fetus. Delivery, on the other hand, indicates that the object must be capable of certain delivery. The classical jurists therefore, prohibit the sale of a camel which has fled a bird in the air or a fish in water. Finally, the object of a contract must be determined precisely as to its essence, its quantity and its value.
As for the consideration of price, Islamic law does not restrict it to a monetary price, but it may be in the form of another commodity. The Islamic prohibition against uncertainty requires that the price must be in existence and determined at the time of the contract and cannot be fixed at a later date with reference to the market price, nor can it be left subject to determination by a third party. In contract of money-exchange (sarf), the rule of riba must be adhered to render the contract valid. May be spot or in the future.
The capability of the parties to contracts is of prime importance for the validity of the contract. In Islamic law, no person can validly conclude a legal transaction without first having attained physical and intellectual maturity that being the equivalent of majority to enjoy full capacity, a person, whether male or female, should attain physical puberty (bulugh) and enjoy sound judgment known also as prudence (rushd) in his or her judgment. The Shafi'i school of law adds a third requisite for majority and that is sound judgment in regard to religion.
Puberty is attained for boys and girls with (a) the appearance of coarse hair around the sexual parts of the body al though this sign is not given any significance by the Hanafis with (b) vouluntary or incoluntary emission of the seminal fluid or with (c) the attainment of a given age except for Malik himself (not his school), who do not consider age as indicative of puberty. Other signs of puberty particular to girls are menstruation and pregnancy. As mentioned above, for the majority of scholars prudence (rushd) equates to sound judgment in financial matter. As for the argument of the Shafi'is, this is weak simply because an impious Muslim might well be of sound judgment with regard to business matters. In brief, a person is deemed of age and enjoys full capacity.
However, between infancy and majority a minor will normally reach the age of discernment or age of reason (sinn al-tamyiz) admittedly being six or seven Hanafis and Malikis give value to some transaction performed by a discerning minor; the authorize the discerning minor to conclude contracts fully beneficial, such as acceptance of gifts of bequests without his guardian's authorization. He is forbidden to conclude fully detrimental contracts such as granting loans or guarantees, whereas contracts which could end up by being either beneficial of detrimental, are subject to the guardian's ratification. Under Hanbali teaching a minor, whether discerning or not, cannot enter any kind of financial transactions but the contracts are valid with the approval of the guardian. Shafi'i have disapproved the contracts of a minor out rightly.
Apart from this general requirement of the legal capacity to enter into any kind of contract, Islamic law also imposes certain legal interdictions in the interest of third parties. The third party may confirm or annul the disposition of a person who is interdicted from disposing of his property. Therefore, the insolvent (al-muflis) is interdicted from disposing of his property by the judge in the interest of his creditors. Also, a person ill with death sickness is interdicted in the interests of person's heirs or creditors.