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Chapter six

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Classification of contract

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Chapter six

  1. 1. CHAPTER SIX JABATAN PERDAGANGAN POLITEKNIK SEBERANG PERAI
  2. 2. Meaning of contract (Sighah), the elements of contract, different kinds of contract forms, the condition necessary for the form, the classifications of contract according to its nature such as the Unilateral contract, Bilateral contract, Quasi contract and the classification of contract according to Legal Consequences.
  3. 3. 6.1 Identify types of contract according to their nature 6.1.1 Describe nature of the contract a. al aqd Infiradi (Unilateral contract) b. al Aqd al Thuna’i (Bilateral contract) c. Shibh al-Aqd (Quasi Contract) 6.1.2 Classify the contract according to Legal Consequences a. Sahih (Valid Contract) b. Fasid (Invalid or Deficient Contract) c. Batil (Void Contract) d. Lazim (Binding Contract) e. Nafidh (Enforceable Contract) f. Mawquf (Withheld Contract)
  4. 4. CLASIFICATION BASED ON NATURE OF CONTRACT Classification of contracts according to the nature of the contract in conceptually divided into 3 main categories;  Unilateral contract  Bilateral contract  Quasi contract
  5. 5. UNILATERAL CONTRACT (AL AQD INFIRADI) A unilateral contract is a form of promise made by one party with an intention and expectation that the other party to the contract would accept it. This contract is gratuitous in character and does not require the consent of the recipient. In other words, a unilateral promise binds only the person who make it until it is accepted by others, and once it is accepted, both party are equally bound by the contract. Unilateral contract comprises transaction in favour of the recipient such as gift (hibah), rebate on offset of a debt (ibra’), will (wasiyyat), qardh hassan and etc.
  6. 6. A unilateral contracts is approved by the Jamhur Fuqaha amongst them are Maliki, Shafii, and Hanbali, based on the event between Yusuf and his brother as proven by the al-Quran; “They said: ‘ We miss the great beaker of the king: for him who produces it, is (the reward of) a camel load; I will be bound by it.” (12:72) The idea of a unilateral contract is opposed by the Hanafi School of Law, because it revolves around the element of al-Gharar (Excessive uncertainty). Example: a person approaches a real estate agent and ask him to find a house for him for which he will pay him one month’s rent as commission. The agent finds a house as required which the offeror agrees to rent. The agent is entitled to his commission. The key here is that promise by offeror to anyone from the general public to undertake a task and the promise is made to an identified person.
  7. 7. BILATERAL CONTRACT (AL AQD AL THUNA’I) A bilateral contract requires at least two parties in which one party should make a proposal (offer) and the other should accept. The intention of both parties must coincide and the declaration must relate to the same subject matter. The object of the contract must be able to produce a legal and beneficial result for both the contracting parties The main idea of a bilateral contract in Islamic law is that it establishes a legal relationship, arising from the mutual consent of the willingness of at least two parties in dealing with each other, in respect of certain right and obligation thereof.
  8. 8. The minds of both parties must coincide (agree); that is, their declaration must relate to the same subject matter. The object of the contract must be able to produce a legal and beneficial result for both the contracting parties. The dominant idea of bilateral contract in Islamic law is that it establishes a legal relationship, arising from the mutual consent of the minds of at least two parties in dealing with each other, in respect of certain rights and obligations thereof. For example, when A sells or disposes an object to B, the former consents to pass on his proprietary rights therein to the latter, who consents to take the property with whatever obligations might be incidental thereto, such as the liability to past taxes if the subject matter of the transaction is land, or to take care of and to feed if the thing sold or disposed is an animal, and to pay the price in the case of a sale.
  9. 9. Example: Azrul sells his car to Badrul for RM60000 on cash basis. In this case, Azrul consents to sell his car to Badrul, who consents to buy the car with an obligation to pay the price in cash. The differentiation between bilateral and unilateral contracts depend on what the offeree must do to accept the offer and to bind the offeror to a contract. If to bind the offeror, the offeree must only promise to perform, the contract is a unilateral contract. Hence the bilateral contract is a promise for a promise. The contract come to existence the moment the promises are exchanged.
  10. 10. QUASI CONTRACT (SHIBH AL-AQD) A quasi contract by nature is not a contract. However, the implication gives rise to an obligation similar to that of the contract. A quasi contract is an obligation, which does not originate from a proper verbal agreement as in the law of contract or tort. A quasi contract has little or no affinity with a contract. As an illustration, an action to recover the money paid by mistake: if the innocent party mistakenly interprets the facts, pays to another party a sum of money which he does not really owe, the law being just, will require the wrong receiver of the money to restore it. However, this obligation not based upon consent. Therefore, in a quasi contract, the obligation is enforceable using the shariah principle, since it is a matter of restoring the rights of others. Islamic laws sanction this because an appropriation can only be recognised if something is exacted through a proper transaction with mutual consent.
  11. 11. Classification based on legal consequences Valid Contract (sahih) Invalid Contract (fasid) Void Contract (batil) Binding Contract (lazim) Enforceable Contract (nafidh) Witheld Contract (mawquf)
  12. 12. Valid contract (sahih) A valid contract in shariah as a contract in which its essence and attributes are according to the shariah and which subsequently has a legal effect of enforceability. In other words, a valid contract binds the contracting parties equally. There are two scale devised to evaluate the degree of a valid contract. In a broader sense, a valid contract, enforceable by the shariah, is presumed if its origin and attributes (Asl and Wasf) are in accordance with shariah. The nature of a valid contract is that there must be contracting parties who have legal capacity and express their agreement in terms of a sound Ijab (offer) and Qabul (acceptance) on a particular subject matter recognized by the shariah. In addition, for a contract to be valid there must be an exchange of valuable consideration with a sincere intention, required from both parties, to create a legal relation.
  13. 13. For a contract to be valid, the three condition should be met: All elements required by law must be complete. The additional condition must be fulfilled The purpose of the contract and its subject matter must be in compliance with shariah principles.
  14. 14. Invalid or Deficient contract (fasid) A fasid contract is an agreement, which is lawful in its substance but unlawful in its description. The substance of an agreement refers to proposal (ijab), acceptance (qabul), and the subject matter (mahal al aqad). The description of an agreement refers to characteristics of a contract, e.g. the price of the subject matter. If an agreement of a sale for a definite article is concluded by proposal and acceptance but the price is not settled, the agreement would be Fasid, although it is enforceable (mun’aqad) as far as its substance is concerned.
  15. 15. Void contract (batil) A void contract is an agreement in which both its substance and descriptions are not in compliance with shariah. A void agreement is illegal in its origin and attributes. In other words, the necessary elements and necessary conditions are against the Islamic law. Islamic jurists have unanimous opinion that anything which is forbidden by shariah, is not tradable and hence, cannot become the consideration or object of a contract. Example: a contract will be void if A and B agree on a liqour deal.
  16. 16. An agreement in which both its substance and description are unlawful in the sight of shariah. For example contracts of sale of fish in the sea or birds in the sky are uncertain and, therefore the contract is batil on the ground of Gharar. Another example of a batil contract is the agreement of sale concluded by a lunatic or a minor or a prodigal. Such a contract is void because it does not fulfill the requirement substance of an agreement, in which the offer and acceptance must be done by a sane, major or sound minded person. Similarly an agreement to sell a dead body or alcohol is not lawful, for it involves the exchange of mal for something having no legal value (ghayr mutaqawwim).
  17. 17. Binding contract (lazim) Is a sound contract without any defect either in it substance or descriptions. It is classified into two: Irrecoverable Contract & Revocable Contract
  18. 18. A BINDING CONTRACT is a sound contract without ant defect either in its substance or description. The Majallah distinguishes between a Lazim (binding) and Ghayr Lazim (non-binding) contract in Articles 114-15 respectively. Thus a Bai’Lazim is a Bai’ Nafidh (enforceable) without any option. But a Ghayr Lazim is a contract in which an option is found.
  19. 19. IRREVOCABLE CONTRACTS: irrevocable lazim contract are those where the parties shall not have any right to revoke at any stage of the contract if such contract is concluded by mutual consent of the contracting parties. Example: contract of marriage or any other bilateral contract. In the contract of a marriage, there is no revocation by either party once it is concluded, except by a talaq pronounced by the husband.
  20. 20. REVOCABLE CONTRACTS: under revocable contract, the right to rescind can be exercised by either party without the consent of the other party. There are two reasons due to which a contract becomes non-binding; 1)The nature of the contract allows independence to both parties like agency (wakalah), partnership (sharikah) and etc. 2) With an option that was stipulated in the contract that prevent it from becoming binding.
  21. 21. Enforceable Contract (Nafidh) Nafidh is an agreement, which does not involve any right of the third party. This contract should not admit delay and must give rise to its effect immediately. It is of two types: lazim (binding) and ghair lazim (non-binding). The lazim is a contract of sale that has no options (to rescind) for any of the parties. The ghair lazim is a contract of sale that may have at least one option for any of the parties.
  22. 22. Withheld Contract (mawquf) A mawquf contract is an agreement in which the substance and the description are lawful, but is concluded with the consent of a party who does not own the subject matter of the contract. The mawquf contract as a sale is dependent on the right of another like the contract of fuduli. Fuduli means the catalyst or someone who make the disposition of property without the consent of its owner or without the sanction of shariah. Thus the legal consequences of a mawquf contract is pending until it is ratified by the owner on behalf of whom the fuduli concludes the contract.
  23. 23. contract is an agreement in which the substance and the description are lawful, but is concluded with the consent of a party who does not own can be affected unless the goods are in existence at the time of sale with a condition that goods are defined and the date of delivery is fixed. As example, RM 10,000 paid in advance for a car to be delivered on a certain date. Bai Istisna: This is a kind of sale where a commodity is transacted before it comes into existence. In other words to order a producer to produce a specific commodity for the purchaser. The rules to be observed are that the price is fixed with the consent of the parties and that the necessary specification of the commodity is fully settled between them.
  24. 24. جزاكم الله خير الجزاء THANK YOU

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