An brief introduction to the contract law in Islam, specifically with respect to the conditions and pillars of a basic sale contract.

1. Introduction to Contract Law in Islam Junaid Mirzajunaid@islamicfinanceboard.com

2. Outline Definition Pillars Conditions 2

3. Constracts / Instruments in Islamic Finance

4. Definition of a Contract Islamic Law Liguistic: ‘aqd – tying tightly, as in tying a rope Legal: an engagement and agreement between two parties in a legally accepted, impactful and binding manner Common Law an agreement between competent parties, upon a consideration sufficient in law, to do or not to do a particular thing Civil Law an agreement which commits a person or a group of persons to give something, do something, or refrain from something to another person or group of persons 4

5. Definition of a Contract of Sale … the exchange of an owned commodity for another in a specified manner or the exchange of an owned commodity for another in a beneficial and special manner, excluding unbeneficial exchanges (e.g., exchanging one coin for a similar one) or that which is of no use (e.g., dust, dead animals) … the exchange of an owned commodity for another with the exchange of ownership 5

6. Pillars of a Sale Contract Hanafis Ijaab – positive proposal Qabool – acceptance Other jurists Parties – buyer and seller Object / Subject – what commodity / service Price – at what consideration Language of the contract – ijaab and qabool 6

7. Conditions of a Sale Contract The Contractor Sane and able to run his own affairs Legal age is not as important as ability to run affairs If ability of a child is in question, sale is valid only in case of purely beneficial dealings Multiplicity of contractors (i.e., a single legal proxy cannot conclude on behalf of both parties) Exceptions include a father, a legal guardian, or a judge in a court case 7

8. Conditions of a Sale Contract The Contract The offer and acceptance must correspond to each other The Place The acceptance is made in the same ‘session’ as the offer 8

9. Conditions of a Sale Contract The Object The object of sale must exist (i.e., cannot sell non-existent objects or objects that may cease to exist) The object of sale must be good (i.e., must be beneficial in nature) The object of sale must be privately owned and in possession of the seller The object of sale must be deliverable at the conclusion of the sale 9

10. Other Conditions The object of sale and the price are known beyond dispute The object is made known to the buyer by physical examination or ample description The price must not change after the contract has been executed The sale is not temporary (i.e., not timed) The sale is beneficial There are no conditions that may make the contract ‘corrupt’ The seller has the absolute authority to sell the object The contract is executed under mutual consent (i.e., no coercion) 10

11. Questions? 11