This document provides an overview of Islamic law of contracts. It begins by explaining that understanding contracts is essential to comprehending Islamic economics and riba-free banking. Any agreement between two consenting parties is called an 'aqd. The document then discusses contracts in the pre-Islamic era and how Islam impacted contracts, prohibiting things like interest, gambling, and time-bound marriage. It defines key terms like undertaking, unilateral promise, and bilateral promise. It also explains the legal status of promises and examples of bilateral promises like supply agreements. Overall, the document serves as an introduction to key concepts and terminology regarding Islamic law of contracts.

1. In TheNameof Allah TheMerciful,In TheNameof Allah TheMerciful,
TheCompassionateTheCompassionate
1

2. )
O you who havebelieved! fulfill [all] contracts
2
IslamIc law of contract
‫اا‬ ‫ااااا‬‫اا‬ ‫ااااا‬
‫اااا‬ ‫ا‬‫ا‬‫اااا‬‫اااا‬ ‫ا‬‫ا‬‫اااا‬
PGD PROGRAM COURSEPGD PROGRAM COURSE
Center for Islamic EconomicCenter for Islamic Economic

3. Introduction-Objective of this CourseIntroduction-Objective of this Course
3
 Law of contract is the gateway leading to
understanding Islamic economics & Riba-free
banking.
 Any contract in between two parties by mutual consent
is called ‘Aqd’
 It is more important to understand law of contract in
order to reach judicial categorization of any

4. Contract in pre Islamic eraContract in pre Islamic era
4
 It is the basic need for human being to indulge in
mutual contracts & transactions to meet there needs
& necessities, therefore we have found the contract
with its all types in pre Islamic era.
 Financial contracts: e.g. Lending, Borrowing
 Trading Contracts: e.g. Sale/purchase, Leasing,
Manufacturing
 Guarantee contracts: e.g. Mortgage, personal
guarantee
 Marriage contract

5. Impact of Islam on ContractsImpact of Islam on Contracts
5
)Impressions & Effects()Pre Islamic era()Marriage(
)Charity()Donations(
)by nature()by process()Sale/Purchase()Leasing(
)Prohibited()Interest()Gambling()Time bound Marriage(

6. Some Important terminologiesSome Important terminologies
6
Before discussion on Contract, we must need to
know three terminologies regarding Aqd.
{Undertaking}
{Unilateral Promise}
{Bi-Lateral Promise}

7. 7
)To Undertake(
 To undertake to do an act upon oneself, whether with
self intention or on demand by other.
)Jurisprudence()Examples(
(Endowment) 1:
)Ownership(
 WAQF is an endowment made by a Muslim to religious
, educational, or charitable cause on individual or
institutional basis.
UndertakingUndertaking

8. 8
UndertakingUndertaking
)To absolve ResponsibilityTo absolve Responsibility) 2:

(Two kinds of IBRA) :
1)Debtor()Creditor()Creditor has right to reclaim in
this situation(
2
 (Creditor has no right to reclaim after debtor’s
acceptance of IBRA )

9. 9
UndertakingUndertaking
3. NazrNazr ()
To make any deed () obligatory upon oneself
General/ Specific (/)
Unconditional /Conditional (/)
Iltizaam of any thing other than deed is Promise.
Difference between Nazr and Yameen

10. Unilateral PromiseUnilateral Promise (Wa’d)(Wa’d)
10
 One party binds itself to perform a function for another
and gives him assurance for something, It morally
binds him to fulfill it’s promise.
:
)34.(
And fulfill [every] commitment. Indeed, the commitment is ever [that about which one
will be] questioned.(Al Isra, 34)

11. Unilateral PromiseUnilateral Promise (Wa’d)(Wa’d)
11
:
‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬: ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬ ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫نن‬ ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬ ‫نن‬‫ن‬‫ن‬‫ن‬ ‫ن‬‫ن‬‫ن‬‫ن‬
‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬ ‫ن‬‫ن‬‫ننن‬ ‫نن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫نن‬ ‫ن‬‫ن‬‫نن‬‫ن‬‫ن‬‫ن‬
‫نن‬‫ن‬‫ن‬‫ن‬: ‫ن‬‫ن‬‫ن‬‫ن‬‫نن‬‫ن‬ ‫ن‬‫ن‬‫ن‬‫ن‬‫نن‬‫ن‬‫ن‬‫ن‬‫نن‬ ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬ " : ‫ن‬‫ن‬‫نن‬‫ن‬
‫نن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫نن‬‫ن‬‫نن‬‫ن‬ ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬ ‫نن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫نن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬ ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬
” ‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫ن‬‫)ننننن‬2682(
 Allah's Messenger () said, "The signs of a hypocrite are three: (1) whenever he
speaks, he tells a lie, (2) whenever he is entrusted, he proves to be dishonest,

12. Unilateral PromiseUnilateral Promise (Wa’d)(Wa’d)
12
 Is fulfillment of promise mandatory in principle ()?
1. Under Hanafi, Shafai, Hambli jurisprudence, fulfillment is ‫ننننن‬ in
principle. In case intention of promissor at the time of promise is to violate
it, this will fall under the category of Nifaq as mentioned in Hadith.
2. As per some Tabi’een, some Maliki & some Shafai Scholar’s point of view,
fulfillment of promise is mandatory (‫)نننن‬ in principle (and through
litigation).
3. According to majority of Maliki scholars if other party has borne any financial
liability due to unilateral promise, promissor will be liable to fulfill the
promise in principle (and through litigation).

13. Legal StatusLegal Status
13
:
 Can Promissee force Promissor to fulfill his promise
through litigations?
1:
 Normally no, according to majority of Scholars in
Hanfi, Shafai and Hambli School of thoughts.
2:
 As per some Maliki & Shafai Scholar’s point of view,
Promissee can force Promissor to fulfill promise
through litigation.

14. Unilateral Promise {Wa’ d}Unilateral Promise {Wa’ d}
3:
)Financial liability(
 According to majority of Maliki scholars if
other party has borne any financial liability
due to unilateral promise, promissee will
be able to force promissor to fulfill promise
through litigation.
14

15. Unilateral Promise {Wa’ d}Unilateral Promise {Wa’ d}
4
 In case of conditional promise, it will create legal
obligation as per some Hanafi scholars, (related
with only Kafalah & Nazr)
5
 As per Neo-Hanafi opinion, promise may be
legally fulfilled at the time of necessity.
15

16. Unilateral PromiseUnilateral Promise {Wa’ d}
 As per Shariah Standards the last one has been
adapted in financial transactions nowadays[in
case of necessity].
 Legal binding of Promise fulfillment means at
minimum to compensate actual expense occurred
due to promise in case litigation is not possible.
16

17. Bi-Lateral PromiseBi-Lateral Promise {Muwa’aada}
)Bi-Lateral Promise(
)Islamic Fiqh Academy()Resolution()Contract(
(Resolution of Islamic Fiqh Academy. session 5)
1/94(
 Mufti Taqi Usmani db has the opinion that Bi-Lateral
promise is allowed because it creates no financial liability
upon both parties nor immediate effect or function. (Fiqh
albuyu.1/94)
17

18. 18
Supply Agreements
The agreement under which Supplier undertakes to
supply specific goods on routine basis for a specified
period, to buyer against compensation on credit or
partially cash basis.
Purpose is to align business activities as per
planning
Binding in principle during the agreed period
Under Supply Agreements, Bi-Lateral Promise is
binding by law
 Examples: Food/Raw material supply for
Examples of Bi-Lateral PromiseExamples of Bi-Lateral Promise {Muwa’aada}

19. 19
 If relevant conditions are met, such agreements
may be considered as Salam or Istisna’.
 However, if Salam/Istisna is not possible, they are
considered as executed on the basis of Bi-
Lateral Promise.
 Otherwise, they will have to be Future Sales
Contracts that are invalid. Sometimes, goods are
not in ownership of seller or do not even exist at
the time of agreement.
Examples of Bi-Lateral PromiseExamples of Bi-Lateral Promise {Muwa’aada}

20. 20
Letter of Credit based on Prior Agreement
(Bi-Lateral Promise)
A written undertaking from importer’s bank to pay a
beneficiary (exporter’s bank) against the delivery of
a specified set of documents (Bill of Lading).
It is usually opened by importer’s bank before an
agreement b/w importer and exporter.
The agreement cannot be considered as a sale
contract. Otherwise, it will be sale of debt/sale of
non-existent or not-owned goods.
The agreement, a Bi-lateral Promise is binding by
Examples of Bi-Lateral PromiseExamples of Bi-Lateral Promise {Muwa’aada}

21. 21
Agreement to Sale
Where the transfer of property in the goods is to take
place at a future time or subject to some condition,
thereafter to be fulfilled, it is called an Agreement to
Sale.
An Agreement to sale becomes a Sale when the
time elapses or the conditions are fulfilled subject to
which the property in the goods is to be tranferred.
Examples of Bi-Lateral PromiseExamples of Bi-Lateral Promise {Muwa’aada}

22. 22
Different Aspects
Future Sale/ Conditional Sale --- Invalid
Bi-Lateral Promise --- Valid due to businesses’
actual necessity
 As property is not transfer under this agreement
Sale will be executed not automatic, but by
Offer/Acceptance in writing or through actions
Violation of the agreement will cause compensation
of actual loss only
Examples of Bi-Lateral PromiseExamples of Bi-Lateral Promise {Muwa’aada}

23. Definition of ContractDefinition of Contract
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/)Subject Matter or Usufruct()Offer & Acceptance(

(Transfer of property
)valid matrimonial relationship(

24. Promise, Contract and Future SalePromise, Contract and Future Sale
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Offer/
Acceptance
Back out
Option
Delivery of any
Counter Value
Contract
Execution
Legal
Status in
terms of
Shariah
Promise
(Uni/Bi)
No Yes Not at time of
promise
Not today Normally,
not
binding
Contract Yes No Yes Today Binding
Future
Sale/
Contract
Yes No Not at time of
execute
Today Not
Binding
due to
invalidity

25. Contract, Agreement and MOU – Conventional LawContract, Agreement and MOU – Conventional Law
25
 A contract is a specific type of agreement that ,
by its terms and elements, is legally binding and
enforceable in a court of law.
 Memorandum Of Understanding (MOU) is
a formal agreement between two/more parties in
order to establish official partnerships. MOUs
are not binding by law but they carry a degree of
seriousness and mutual respect, stronger than a
normal agreement. Often, MOUs are the first
steps towards a legal contract.
 An agreement is any understanding or
arrangement reached between two or more

26. Promise and Negotiation – Conventional LawPromise and Negotiation – Conventional Law
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 Promise
A firm agreement to perform an act, refrain from
acting or make a payment or delivery
 Negotiation
The deliberation, discussion, or conference upon
the terms of a proposed agreement; the act of
settling or arranging the terms and conditions of
a bar-gain, sale, or other business transaction.

27. Contract In Conventional LawContract In Conventional Law
27
Conventional Law has different interpretations w.r.t
following:
 If a party agrees to do/not to do something for
other party, it is Proposal.
 If other party accepts a proposal, proposal
becomes Promise
 If a promise is with any considertation, it is an
agreement
 If an agreement is enforceable by law, it is a
contract.

28. Deference between Contract & Promise in ConsequencesDeference between Contract & Promise in Consequences
If Accepted by
Counter Party
Rights of
Counter
Party
generated at
the time of
promise/
contract
Conditions
for
Promissor
/Offering
Party in
Contract
Impact on
ownership
of Counter
Party
Debt
creation
Promise
(Uni/Bi)
of a
Contract
Though acceptance is
not required, Liability
of Promissor is
Execution of a contract
in future. However,
this promise is not
‘payable’
Fulfillment of
promise.
However no
receivable is
generated for
counter party
Goods are not
required to be
owned by
Promissor
No impact No debt
Contract
of Sale
Liability of Offering
Party is payment or
deliver which is
payable
Receivable for
counter party is
Payment/deliver
y from Offering
Party
Goods are
required to be
owned by
Offering Party
in Contract
Ownership (of
sale proceeds/
goods) will be
transferred to
counter party
Debt as
per
generated
liability