FORMATION OF CONTRACT
Prof. Dr. Zainal Azam
Abd. Rahman
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MUTUAL CONSENT: AS SHARIAH
JUSTIFICATION FOR LAWFULNESS OF
TRANSACTION/TRADE
From the Quran
 Surah al-Nisa’: (4:29)
 Prohibition on taking
over/consuming other
people properties without
Shariah justification (the
batil/illegitimate way)
 Mutual consent as
Shariah justification
 Ways to establish mutual
consent-valid contracting
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From the Sunnah
 There shall be no valid
sale except with mutual
consent
 Sale will only become
valid with mutual consent
 The Sunnah explains
further the basic rule as
provided in the Quran
THE NEED FOR TRUE/REAL
CONSENT
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Willingness and consent (rida): any difference?
Internal willingness (substance) or
External expression (form)
Form over substance or otherwise?
What is the intention of the parties?
The debate among the Muslim jurists ( fuqaha’)
Ways to express full consent must be explored
Special contracts that require special formalities
Contemporary issues
INTERNAL WILL NEEDS EXTERNAL
EXPRESSION TO CREATE BINDING
CONTRACTUAL RELATIONS
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As a general rule, internal willingness alone is not enough to create contractual
binding relations between parties or give rise to Shariah implications
Exceptions: under some situations niyah can determine external implicationswhether the intention/motive is legitimate or not is relevant or niyah alone will
have implication?
Internal desire/will need to be expressed clearly to be
considered/accepted/reciprocated by the other party
However external form will not be enough unless in conformity with internal
intent/will according to the majority of Muslim jurists
Imam Shafie held that appropriate external forms/words used can be taken to
indicate internal intent unless otherwise proven
Court decisions rely on external evidence as a general rule
Examples debated by Muslim jurists
WHEN WHAT IS EXTERNALLY EXPRESSED
CONFLICTS WITH INTERNAL WILL OF THE
PARTIES
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Internal willingness/will needs to be confirmed by
external expression
The Hanafi: Rida and ikhtiyar are two different things
The Majority : the two are the same
The issue of joking, acting in a play, slip of tongue
The issue of conspiracy by the contracting parties to
achieve some purposes-valid or otherwise
The issue of bai’ al-taljiah
Opinions of the jurists
PARTIES TO A CONTRACT: MUST
THEY BE MULTI-PARTY
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Both parties must have full legal capacity to create binding agreement
or aqd
Can only one party create an enforceable contract/undertaking?
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Special conducts/tasarruf (whether consent from the intended party is
needed/)
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The guardian
The Wasiyy
The agent/wakil
The judge/court
Vow/nadhr
Waiver, ibra’, write off, provision, giving discount
Waqf, will
Kafalah
Jualah
WAYS TO EXPRESS INTENT AND
CONSENT: THE SIGHAH
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The best is by way of verbal expression
By sending messenger/wakil
By writing
By sign language
By conduct
Modern communication and Islamic contracts (fax,
telex, e-mail, trading platform, sms)
Contemporary issues ( Digital signature, egovernment)
THE SIGHAH MUST:
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Be able to show firm intention to enter into the contract
Be in the form where an offer is fully matched by an acceptance
in the respective details
Be in the form where the offer is connected to acceptance
without interruption
– No revocation of the offer
– No indication that that any of the parties is no longer
interested
– The contract formation session has not ended
– Proper communication between the parties
THE MAKING OF AN OFFER:IJAB
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Ijab (offer) according to Hanafi perspective is the first statement by either party
Ijab according to the Jumhur must come from the party who will transfer
ownership
The need for specific tenses to convey firmness of intention to enter into
contract?
Offer is normally made to specific person
Must be distinguished from: mere promise (wa’ad), declaration or other
indications not intended to create ‘aqd
Firm, conditional and for future?
Contemporary Issues
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Subject to contract acceptance
Letter of intent
Memorandum of understanding
Offer letter V Agreement
Master agreement V individual agreement
Preamble of agreement
Offer to subscribe shares/sukuk
Tafahum jaanibi
EXAMPLE:SPECIAL WAY OF
CONTRACTING SALE
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By way of al-muzaayadah: auction where
highest bidder takes the goods/assets
By way of al-munaqasah: tender where the
contract will go to the lowest offer
By way of bai’ al-mustarsil: where buyer
leaves it to the seller to fix the price based on
trust
AL-JUÁLAH: OFFER TO THE
WORLD (offer of reward)
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The majority holds it to be valid
Conditions that need to be fulfilled
The Hanafi approach and their
argumentation- it is a defective ijarah
Contemporary use of this form of contracting
Ju’alah and Istisna’
REVOCATION OF OFFER
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Offeror is entitled to revoke an offer before
acceptance, why?
Offeror’s right shall have priority over potential right
of the offeree
Hence no need to communicate revocation to the
offeree
Hence acceptance made after revocation is not valid
Exception: offers that can not be revoked
EXPIRY OF AN OFFER
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By rejection of offeree be it implied or
expressed
By revocation of the offer by the offeree
Expiry of the session without acceptance
Death, insanity, parties losing conciousness
Destruction of the subject-matter
THE MAKING OF ACCEPTANCE:
QABUL
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Modes of acceptance
Expressed and implied acceptance
Must offer be immediately accepted?
Occasion of contract and acceptance
Must acceptance be communicated to the
offeror or be witnessed?
Contemporary issues
CONDITIONS FOR VALIDITY OF
ACCEPTANCE
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Acceptance must be firm
Acceptance must be in line with the terms of the offer or better/more
favorable
Made in a connected session/during the occasion of the contracting
process
There has been no revocation of the offer by the offeror
There has been no indication of rejection before acceptance is made
Whether acceptance must be made immediately after the offer?
– Yes it must but parties have khiyar al-majlis
– No, but acceptance must be made before the expiry of the session
of contracting
WHAT HAPPENS AFTER
ACCEPTANCE: 1. KHIYAR AL-MAJLIS
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Authority for khiyar al-majlis (option to set aside
contract that has just been formed) from the Sunnah
Right to revoke recently formed contract before the
end of the majlis al-aqd
Majlis as the place where the parties are
contracting?
Majlis as a continuing session without interruption?
When the majlis is said to end/expire?
WHAT HAPPENS AFTER
ACCEPTANCE:2. KHIYAR AL-SHART
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The authority for validity of khiyar al-shart from the Sunnah
The operation of khiyar al-shart (option to terminate during the
cooling off period)
Why khiyar al-shart is allowed?
Period allowed for khiyar al-shart, and the need to specify the
period
Contracts that can be lawfully unilaterally or mutually
terminated can not be tied to khiyar al-shart like ‘iarah, wadiah,
hibah, wasiyyah, mudarabah, wakalah
Contracts where delay of both counter-values are not allowed
can not be tied up with khiyar al-shart like sarf
Risk of ownership during the cooling off period: discourse by
Muslim jurists
FACTORS THAT NEGATE OR
AFFECT FULL CONSENT
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Mistake
Fraud/taghrir/tadlis
ghubn (short changing the other party by over-charging)
Duress/ikrah
Breach of trust
Insanity
Weakness of mental ability/retarded
Sickness
Not being prudent
Intoxicated