Principles of Islamic Contract Law

Author(s): Noor Mohammed

Source: Journal of Law and Religion , 1988, Vol. 6, No. 1 (1988), pp. 115-130
Published by: Cambridge University Press

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 PRINCIPLES OF ISLAMIC CONTRACT LAW

Noor Mohammed *

Heightened awareness in the United States about Islam and Mus-

lims presents an opportunity to explore issues in Islamic Law, and
particularly to examine the concepts that underlie Islamic law. This
study is an effort to present briefly the controlling principles of Is-
lamic Contract Law. In view of the monumental growth of trade be-
tween the Western and the Muslim worlds and projected increase in
the coming century, the subject should continue to be of particular
interest.
The doctrinal basis of Islamic law is the point of departure for
this study. A brief historical sketch reveals the doctrinally-based
components that have evolved into Islamic law.' Islamic belief begins
with Prophet Muhammad, the Messenger of God (Allah). The
Prophet's mission was to establish an order in this world based on
divine revelations made to him by God (Allah). These divine revela-
tions are recorded in the Quran, the sole scripture of the Muslims.
The spiritual and secular practices of the Prophet came to be known
as Sunna. These two sources constitute the main guidelines for spiri-
tual as well as temporal Muslim conduct in this life as a preparation
for the hereafter, and are called Sharia. The word Sharia means the
highway to good life. Over a period of time two additional sources of
Sharia came into existence. They are: 1) Qiyas, or analogical reason-
ing, and 2) Ijma, or consensus of the Islamic community on a point of
law. According to Sharia, sovereignty vests in God (Allah), requiring
the state to act within the limits of divine law, or Sharia. This sover-
eignty is recognized by incorporation of Sharia into the Islamic legal
system and community. In this sense Sharia is the constitutional law
of a Muslim society.2
This umbrella of Sharia in Islamic society covers the entire spec-
trum of Islamic life and ethical values in both temporal and spiritual
activity. Sharia addresses itself to spiritual (Ibadat) matters as well as
to the temporal (Muamlatt) transactions. In the field of spiritual

* Professor of Law, University of Baltimore School of Law, Baltimore, Maryland.

LL.M., 1961, Minnesota; LL.M., 1962; J.S.D., 1968, Yale; et al.
1. Readers unfamiliar with Islam will find useful a chapter by the author entitled In
Introduction to Islamic Law, V MODERN LEGAL SYSTEMS CYCLOPEDIA 681-92 (Redden ed.
1985).
2. F. RAHMAN, ISLAM 100 (1979).

115

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116 JOURNAL OF LAW & RELIGION [Vol. 6

(Ibadat) life, the control of Sharia is unfettered. But its role

ral transactions (Muamlatt) is less pervasive, but still vital
Like other legal systems, Sharia classifies human condu
three categories. These are: 1) Mandatory 2) Prohibited a
mitted. The last category is further subdivided by Sh
a) Praiseworthy b) Repulsive and c) Permitted.3
Sharia becomes of importance when temporal transac
caught within its prohibitions or come under its disapprova
Sharia requires the accomplishment of a number of collect
by Muslims. These can be summarized as "enjoining the
forbidding the evil": "ya amroona bil-maruf wa ya-naho
munkar"4

SHARIA & CONTRACT

The initial source of Islamic contract law is apparent through th

Quranic revelation in these words:
0 ye who believe!
Fulfil (all) obligations.5
This Quranic verse is the basis of the sanctity of a wide variety o
obligations. The arabic word 'uqud' covers the entire field of obliga-
tions, including those that are spiritual, social, political, and commer
cial. In the spiritual realm 'uqud' deals with the individual's
obligation to Allah; in social relations the term refers to relations in-
cluding the contract of marriage; in the political arena it encompasses
treaty obligations, and similarly, in the field of commerce, it covers
the whole spectrum of obligations of parties in regard to their respec-
tive undertakings. Hence the generic word 'uqud' forms the founda-
tion of contract and attendant liabilities.6
This short background of Sharia as the root principle of Islamic
law must be kept in mind for an analysis and understanding of Is-
lamic contract law. In contrast to Islamic law, the Western common
law of contract, which developed during the eighteenth and nine-
teenth centuries, grew out of the economic and legal theories of the
period in which it was formulated. In its nascency it was formulated

3. Badr, Islamic Law: Its Reaction to Other Legal Systems, 26 AMERICAN JOURNAL OF
COMPARATIVE LAW 183 at 189.
4. Al-Quran, S 9:71.
5. Id., SV.1.
6. A.Y. ALI, THE HOLY QURAN (1946), note 682. See also S.H. AMIN, REMEDIES FOR
BREACH OF CONTRACT IN ISLAMIC & IRANIAN LAW 11-12 (1984); ABDUR RAHMAN I. DOI,
SHARIAH THE ISLAMIC LAW 355-56 (1984).

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115] ISLAMIC CONTRACT PRINCIPLES 117

by natural law theories and later by laissez faire economic

Both these theories have undergone considerable revision over
Islamic contract law, by contrast, started taking its shape
seventh century. It is fair to assume that at this time in hum
tory commerce was limited to market overt and that goods con
of surplus farm products or handicrafts. The Islamic law of co
reflects and addresses the transactional reality of this period. T
glo-Saxon common law of contracts was reshaped in the wake
industrial revolution of the eighteenth century. The Muslim w
general did not experience the challenges of the Industrial Rev
But in recent years the sudden oil-based prosperity of some I
lands has put the Islamic law of contract in full gear. We fin
through its history its responses are reminiscent of the comm
tradition. Hence its growth should also be responsive to ch
needs and times, as has been the common law.8

THE TWIN DOCTRINES OF SHARIA AND CONTRACT

It has been recorded that in the immediate pre-Islamic era life in

Mecca was decadent and this decadence was reflected in trade prac-
tices as well. The Prophet was himself a merchant before he em-
barked upon his career as the Messenger of God (Allah). Mecca was
a trade center and reforming trade practice was a natural focus of his
attention. To redress the unconscionable and abusive commercial
practice of pre-Islamic times, he insisted that transactions be required
to comply with the evolving principles of Sharia.9
Two cardinal Sharia doctrines have held sway in the develop-
ment of Islamic contract law through history. These are: 1) riba
2) gharar. Looking at these doctrines and their juristic interpretations
enables us to understand the past and to project the future of Islamic
law of contract.

DOCTRINE OF RIBA IN ISLAM

Muhammad's monotheism was linked with a humanism that had

as its goal, social and economic justice.'° The Prophet seemed to in-
sist: One God-one humanity. The objective of economic and social

7. P.S. ATIYAH, THE LAW OF CONTRACT 1-19 (1961). See also H.C. HAVINGHURST,
THE NATURE OF PRIVATE CONTRACT (1961).
8. Makdisi, Legal History of Islamic Law & English Common Law; Origins & Metamor-
phosis, 34 CLEV. ST. L. REV. 3-18 (1985-86).
9. F. RAHMAN, ISLAM 14 (1979).
10. Supra note 9, at 13. See also SAHIH AL-BUKHARI, XXXIV-Sales, chapters 24-26.

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118 JOURNAL OF LAW & RELIGION [Vol. 6

justice presupposes the existence of oppressive economic practices.

The Quran in one of the earliest revelations insists that "God hath
permitted trade and forbidden usury."" The Arabic word in the
Quran referring to the prohibited act is riba which roughly translates
to "usury." Yusuf Ali in his commentary explains that riba is any
increase sought through illegal means, such as usury, bribery, profi-
teering, and fraudulent trading.12 It includes economic selfishness
and many kinds of sharp practices, including those that are individ-
ual, national and international in character. Irving in his remarkable
commentary on the Quran translates a verse on usury:
You who believe, do not live off usury which is compounded over
and over again. Heed God so that you may prosper: heed the fire
which has been prepared for disbelievers; obey God and the mes-
senger so you may find mercy.13
Through centuries of juristic interpretation the prohibition of
riba has maintained broad vitality except that different schools of in-
terpretation have continued to interpret it differently. A contempo-
rary commentator has brought together various strains of thought by
the leading jurists and explains the term riba in its Sharia context as
follows:
an unlawful gain derived from the quantitative inequality of the
countervalues in any transaction purporting to effect the exchange
of two or more species ... which belong to the same genus, and are

11. The Holy Quran S-ii, 274.

12. Supra note 6, A. Y.Ali., footnote 3552:
The term riba in the Arabic language connotes any increase or augmentation. In
Islamic legal jurisprudence, it is often defined as the increase which has no considera-
tion, as stipulated in loan transactions or in the exchange of goods of the same kind.
Riba was commonly practiced in pre-Islamic Arabia mainly in the form of extension
of loan repayment periods against the doubling of the principal amount of the loan.
This particular form was prohibited first by the Quran (Surat Al-i-'Imran, III, Verse
130) before the general prohibition of all riba was established (Surat the Cow, II,
Verses 278-281) and elaborated on in the Prophet's last address in his Farewell Pil-
grimage. Subsequent jurisprudence distinguished between the loans' riba (known
also as riba an-nassi'a and as the riba prohibited by the Koran) and the Sales' riba
which takes the form of either the spot sale of one of six items (gold, silver, wheat,
barley, dates and salt) against an item of its own kind but with an increase in amount
or value (riba al-Fadhl) or the exchange of any goods with goods of the same kind or
of another kind which serves the same purpose when the latter are delivered in the
future in an augmented quantity or value (riba an-nassa).
See also Ibrahim F.I. Shihata, Legal Aspects of Islamic Bank, Concluding Remarks in Interna-
tional Conference of Islamic Banking & Finance, 26 September 1986. Dr. Shihata is Vice-
President & General Counsel, World Bank, Washington, D.C. A copy of his remarks could be
obtained upon request.
13. T.B. IRVING, THE QURAN, THE FIRST AMERICAN VERSION, TRANSLATION & COM-
MENTARY 34 (1985).

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115] ISLAMIC CONTRACT PRINCIPLES 119

governed by the same efficient cause. Deferred completion of t

exchange of such species, or even of species which belong to dif
ent genera but are governed by the same (efficient cause)14 is
riba, whether or not the deferment is accompanied by an incre
in any one of the exchanged countervalues.15
Usurious transactions were classified by the jurists in
classes: (1) riba al-fadl, which produced unlawful excess in ex
of countervalues in a contemporaneous transaction and (2
nasi'a, which produced unlawful gain by deferring the comp
exchange of countervalues, with or without an increase in p
third category was also added by some scholars called riba al
or pre-Islamic riba exemplified by the lender asking the bor
maturity date if he will settle the debt or increase it. Inc
curred by charging interest on the debt initially accrued.16
Riba al-Jahilya relates to pre-Islamic riba also descri
usury. 7 But riba al-fadl and riba al-nasi'a apply to the e
(whether concurrent or deferred) of two precious metals (gol
ver) and four commodities (wheat, barley, dates and salt). Th
cation of the doctrine of riba to these articles is based on the
tradition. It was further extended by analogy (qiyas), to the
of these six articles if their present or future exchange could
smell or taint of riba.

It is not difficult to imagine that the seventh century economy

was not monetized and that trade mostly consisted of face-to-face ex-
change as a result of some negotiation called contract or barter. Is-
lamic law did not permit exchange of unequal values of the
enumerated articles and by analogy to a variety of their products.
These articles happened to be the basic necessities of life and were a
convenient means of exploitation. The promises for future perform-

14. "Efficient-cause" is possibly the nearest English translation for "illa."

15. N.A. SALEH, UNLAWFUL GAIN & LEGITIMATE PROFIT IN ISLAMIC LAW 12-13
(1986). A common "illa" should connect together two elements of analogy, namely the object
of the analogy and its subject, in order to produce the analogical reasoning. The following
example will throw more light on this method of legal reasoning: drinking wine (khamr) is
forbidden by Quranic injunctions; the drinking prohibition was extended to all kinds of alco-
holic drink (nabidh) apparently by a hadith but also by analogy because of the common "illa"
of wine and alcoholic drink, which is the capacity to produce intoxication.
16. Id. 13. The author gives what appears as a final breakdown of Riba:
riba: unlawful advantage by way of excess or deferment.
riba al-fadl: riba by way of excess of one of the exchanged countervalues.
riba al-nasi'a: riba by way of deferment of completion of an exchange.
riba al-jahiliyya: pre-Islamic riba.
mal ribawi: property susceptible of riba.
17. Id. 14.

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120 JOURNAL OF LAW & RELIGION [Vol. 6

ance were clearly forbidden if goods comprised the enumera

cles as the transactions were suspected to contain riba.18
Over the centuries the concept of riba has held a firm g
Islamic contract law, but its interpretation has continued to
under the changing economic setting. By the turn of the cen
leading Islamic scholars Abduh and Rida held the view that
Jahilya (pre-Islamic riba) was manifest riba and hence forb
made the transaction void.19 But riba al-fadl and riba al
under a rebuttable presumption of prohibition. In other w
extension of the time of payment on the maturity of a loa
tioned on an additional increase, was manifest riba and for
But it could be deemed lawful under extreme necessity. As t
fadl and riba al-nasi'a, they held that these be looked at with
and are not prohibited. Their thinking helped opening the
sale of unequal quantities of the enumerated articles or their
Contemporary thinkers have examined further the time-
Islamic Law of riba. Daoualibi, a noted commentator, holds
applied to unproductive loans borrowed in the Prophet's tim
needy for subsistence. But today people borrow money
money. Hence, Islam should make a distinction between pro
and unproductive riba (interest) and allow the former.20
Yet another process underway in Islamic societies is the
effort to abolish the role of interest in Islamic economy2'
devitalize riba.22 Several Islamic countries have mounted efforts in
this direction. Two in particular should be noted: Pakistan and Iran.
These countries are attempting to establish an interest-free Islamic
economy through Islamic banking.23

DOCTRINE OF GHARAR

Along with the doctrine of riba the other pervasive principle af-
fecting the validity of contract is gharar. The relevant verses in the
Quran dealing with the prohibition of gharar are Sura II verse 219

18. Id. 14-27, the author very ably collects the positions of all the different schools on the
issue of present or deferred exchange of goods.
19. Id. at 28.
20. Id. at 29.
21. S.N.H. NAQVI, ETHICS & ECONOMICS, AN ISLAMIC SYNTHESIS (1981).
22. M.N. Siddiqi, Muslim Economic Thinking, A Survey of Contemporary Literatu
(1981). See also by the same author, ISSUES IN ISLAMIC BANKING (1983); S.H. Homo
Islamic Banking (1985).
23. Z. Igbal & A. Mirakhor, International Monetary Fund, Islamic Banking (unpublis
and undated research paper).

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115] ISLAMIC CONTRACT PRINCIPLES 121

and Sura V verse 93 & 94.24 These verses refer to gamb

arabic word "maisir" literally means getting something too e
ting a profit without working for it, hence gambling. The i
hibition against gambling in the light of the Prophet's trad
cleansing commerce of unconscionable practices, gives a wid
ing to the principle. This expanded scope has been ably sum
this idea of protecting the weak against exploitation by the st
led to the elaboration of a rule of general application, comman
that any transaction should be devoid of uncertainty and spe
tion, and thus, according to learned men and legal scholars, c
only be secured by the contracting parties' having perfect kno
edge of the countervalues intended to be exchanged as a resu
their transaction, otherwise there is an unacceptable degr
gharar. Thus, what was intended to be a religious precept
transformed into a wordly rule which affects a great proporti
secular transactions.25

Thus, gharar prohibition applies to a whole range of com

activities involving speculative activities and aleatory contr
doctrine becomes applicable if the subject matter of contract
or both are not determined and fixed in advance.26 Thus, in
the doctrine strikes at the very root of common law exc
promises for future performance.
Muslim jurists continued to interpret the concept in the
commercial reality.27 In its early development the concept
plied to transactions where the goods were not in existence at
the parties were contracting for them. In other words futu
could not be made a subject of sale under the doctrine. But
ing jurist Ibn Qayyim explained the concept applied to uncer
availability of the subject matter and not merely to nonexi
the time of contract.
Later, lack of knowledge about the existence or nonexistence of
the subject matter, or concerning its quality, quantity, or date of per-
formance, was held to trigger gharar.28 One jurist came up with a list

24. A.Y. ALI, supra note 6, at 86, footnote 241. See also supra note 13, at 18 and 60.
25. Supra note 15, at 49.
26. Id. 50.
27. Id. 50.
28. Id. 51.

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122 JOURNAL OF LAW & RELIGION [Vol. 6

of ten cases which constituted as examples of gharar.29

Ibn Rushd30 gave a helpful formula for the application of gharar.
According to him material want of knowledge in either the subject
matter or in price can produce gharar. But if the subject matter could
be adequately described and price could be clearly fixed then it would
eliminate the speculative risk and hence, gharar would become
inapplicable.
Contemporary thinking on gharar in contracts has been summa-
rized as follows:31
(1) There should be no want of knowledge (jahl) regarding the
existence of the exchanged countervalues.
(2) There should be no want of knowledge (jahl) regarding the
characteristics of the exchanged countervalues or the identification of
their species or knowledge of their quantities or of the date of future
performance, if any.
(3) Control of the parties over the exchanged countervalues
should be effective.32
The ongoing refinement of the doctrine of gharar has continued
over time and has been narrowed down to the presence or absence of
uncertainty about future performance and not to the existence or non-
existence of the subject matter at the time of contract. It does not

29. Id. 51, Ibn Juzay's list is as follows:

(a) Difficulty in putting the buyer in possession of the subject-matter; such as the sale of
a stray animal or the young still unborn when the mother is not part of the sale.
(b) Want of knowledge (jahl) with regard to the price or the subject-matter, such as the
vendor saying to the potential buyer: "I sell you what is in my sleeve."
(c) Want of knowledge with regard to the characteristics of the price or of the subject-
matter, such as the vendor saying to the potential buyer: "I sell you a piece of cloth which is in
my home' " or the sale of an article without the buyer inspecting or the seller describing it.
(d) Want of knowledge with regard to the quantum of the price or the quantity of the
subject-matter, such as an offer to sell "at today's price" or "at the market price."
(e) Want of knowledge with regard to the date of future performance, such as an offer to
sell when a stated person enters the room or when a stated person dies.
(f) Two sales in one transaction, such as selling one article at two different prices, one
for cash and one for credit, or selling two different articles at one price, one for immediate
remittance and one for a deferred one.
(g) The sale of what is not expected to revive, such as the sale of a sick animal.
(h) Bay' al-hasah, which is a type of sale whose outcome is determined by the throwing
of a stone.
(i) Bay' munabadha, which is a sale performed by the vendor throwing a cloth at the
buyer and achieving the sale transaction without giving the buyer the opportunity for properly
examining the object of the sale.
(j) Bay' mulamasa, where the bargain is struck by touching the object of the sale with-
out examining it.
30. Id. 52.
31. Id. 53.
32. Id. 79-80.

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115] ISLAMIC CONTRACT PRINCIPLES 123

apply to business risk. But it applies to speculative or un

risk. If the nonexistent article or subject matter is certain
ered or performed at a future date the prohibition of gha
apply. The risk in such transactions is minimal and does
the prohibition imposed by gharar.33
It must be pointed out that the concept of riba has he
Muslim societies from inception. Since riba typically app
ferred transactions, any contract dealing with future perf
suspected to have the double taint of riba and gharar. Th
ness of these two concepts has been moderated under the
doctrine of necessity; however, they continue to be alive
a subject of debate for Muslim scholarship.
The stage is now set for us to look at the contract pr
developed in early Islamic society described by some comm
"nominate contracts."34 These nominate contracts co
following:35
(i) bay', or sale is transfer of the corpus for a consid
(ii) hiba, or gift, is the transfer of the corpus
consideration

(iii) Ijara, or hire, is the transfer of the usufruct for a

consideration

(iv) 'ariyya, loan, is the transfer of the usufruct without a

consideration.

We shall limit our inquiry to the contract of sale. We have al-

ready seen the pervasive hold of Sharia both in spiritual and secular
matters. In the realm of commerce the twin concepts of riba and
gharar were at work to confront the unconscionability and commer-
cial overreaching. These principles laid down what was a valid con-
tract of sale. Thus, contract required a concurrent36 sale (bay') and
exchange for a fixed price in cash or kind. The delivery of the goods
could not be postponed. It seems that transaction was akin to barter.
But it had the merit of preventing ribah (usurious price) and gharar
(speculative uncertainty). It has been ably commented37 that
although consensual, the Islamic contract is not promissory. It is not

33. Id. 52-78.

34. S.H. AMIN, REMEDIES FOR BREACH OF CONTRACT IN ISLAMIC LAW AND IR
LAW 11 (1984).
35. J.J. COULSON, COMMERCIAL LAW IN THE GULF STATES 11 (1984).
36. Id. 19-20.
37. Zysow, The Problem of Offer & Acceptance: A study of Implied in fact Contr
Islamic Law & the Common Law, 34 CLEVELAND ST. L. REV. 69 at 77.

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124 JOURNAL OF LAW & RELIGION [Vol. 6

formed by an exchange of promises but by an exchange of g

The prohibition of aleatory contracts in Islamic law confirm
tendency to confine transactions as much as possible to the h
now.

In its purity a completed exchange not in violation of riba prin

ple is a prototype contract envisaged by Sharia. But soon the neces
ties of life began asserting themselves. Thus we notice the
development of Bay' salam or the sale of subject matter not available
at the time the parties enter into the contract. According to the
Prophet's (hadith) statement, "whoever pays money in advance for
dates (to be delivered) later should pay it for known specified weight
and measure of the dates."38 It is obvious that the transaction departs
from the earlier Sharia principle of contemporaneous exchange, but it
developed as a modification of the Sharia by the Prophet and as such
it is firmly in place. In a typical salam transaction the buyer was
required to pay in advance in return for the promise of the seller that
the goods would be delivered at some future date. At the time of sale
these goods did not exist and hence, to avert gharar, a description of
the goods was required. Salam dealt with goods such as fruits or
crops. Along with salam came istisna, or contract of manufacture.
Istisna contract is a contract by a laborer or artisan to manufacture an
article for an agreed price. In istisna payment and delivery had to
await until the product was ready. This form of contract was subject
to a right of inspection. But once the goods were made the contract
could not be revoked. Istisna, like salam, was upheld during the time
of the Prophet and justified under the rule of necessity.39
The development of salam and istisna responded to the commer-
cial need of the time and is a short step away from the transactional
realities of our present age. This development brings us to the basic
questions: (1) How does the common law of contract formation fare
on the scale of Islamic law or Sharia? and, (2) Is Islamic law mallea-
ble enough to encompass changing contractual and business relation-
ships in the modern commercial world?

PRINCIPLES OF INTERPRETATION OF SHARIA

A brief mention of the development of the principles of Sharia

interpretation40 will help our study further. The first forty years of

38. Sahih-A1-Bukhari, Vol. 3, pp 243-250.

39. Supra note 15, at 61-62. See also supra note 35, at 21.
40. J.L. ESPOSITO, ISLAM & POLITICS 3-15 (1984).

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115] ISLAMIC CONTRACT PRINCIPLES 125

Islam, from 622 to 661 A.D., is regarded as the spiritually

of Islam. During this period from 622-632 A.D. the Pro
an Islamic City State in Medina in which Islam developed
political force. It also became the backdrop of Quranic re
the principles along with the Prophetic traditions on spirit
ular matters. These revelations and practices became th
and sources of further application and development of law
regimes of the first four Caliphs, from 632 to 661. These
are regarded by Muslims as rightly guided. After the fo
the Ummayyad Dynasty took over the leadership of I
Muawiyah, a dynamic statesman. But this dynasty depart
lamic ideals resulting in soul-searching by leading Mus
who launched an effort to study the Quran and the trad
Prophet to lay down a comprehensive text of Islamic Shar
lims to follow. After the fall of Ummayyad (661-750), th
Islamic leadership was taken over by Abbasid (750-950) w
newed vigor to this effort which began in the eighth cent
tinued through the tenth century. During the two centu
scholars set up schools of law at major Islamic centers an
Islamic law. Islamic law, unlike the common law, d
through scholarly writing and polemic and not through ju
sion. In the tenth century, Muslim scholarship came to a
that the Islamic law or Sharia was finalized as laid dow
writings. The task of the forthcoming generations was to
laws. This consensus also announced that further individual, in-
dependent reasoning or personal interpretations would not be neces-
sary or permissible. The doors of ijtihad (independent or personal
interpretation) were henceforth closed.
The ban on ijtihad may have served well in a medieval, static and
agrarian economy with relative political stability and prosperity. But
it was not to survive for long. We come across great Muslim42 schol-
arship pursuing ijtihad through the centuries to ensure that Islamic
law ideals of Sharia are applied to the changed socio-political and
economic circumstances. The question has arisen whether the Islamic
law of contract under Sharia covers the vast varieties of commercial
contracts of the present day and age or permits only the types of con-
tracts (nominate) noted earlier and practiced in early Muslim
societies.

41. Id. 15-19.

42. Id. 19-57.

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126 JOURNAL OF LAW & RELIGION [Vol. 6

We have seen above that Islamic law or Sharia develope

tematically through the efforts of Muslim jurists laying out d
texts explaining conduct which conforms to the Islamic ideal
effort they were guided by the doctrines of Sharia noted earli
The questions to be asked are: 1) Whether Islamic schol
would have remained mute in earlier periods had Muslim land
through Industrial Revolution? and 2) How should Islamic s
ship face the commercial reality of the marketplace of present
age? It can be argued that the scholars who gave the principles
Sharia if confronted with the present day commercial problem
have developed a timely theory of contract. Islamic jurists th
history followed the principle al-masalih al mursala. (Wherev
whenever the interest of the people exists, it should be consid
In his effort to outline a general theory of contract, Mus
argued that the theory of contract should be guided by the state o
time, public interest and overriding spirit of Islamic law or S
This makes Islamic law adaptable to transactional reality a
keeps it within the limit of Islamic ideals. It would free tran
from conforming to strict forms which have no relevance to
world trade and commerce.43

In Western legal thinking two concepts have played a role in

contract formation and have been applauded for their contribution in
facilitating contracts. These are: 1) the autonomy of the will and
2) freedom of contract. The first deals with the idea that everyone is
perfectly free to enter into a contract for the transfer of whatever one
wishes. The second means that one is perfectly free to enter into a
contract with whomsoever one wishes. Under Sharia the autonomy
of will is subject to the Islamic prohibitions against riba, gharar and
dealing in certain articles specifically forbidden in Quran, such as
wine and pork. Thus the concept of freedom of contract operates as it
does in common law except that autonomy of will is modified by the
requirement to comply with limits set by Islam. Within these limits
one is free to enter into a contract with whoever one wishes.

As to the enforceability of contracts in general, another well

known juridical principle to be considered is: Al-ibaha asalan fil-
ashya:4 "Lawfulness is a recognized principle in all things." Ex-

43. Musa, The Liberty of Individual in Contracts and Conditions According to Islamic
Law, 2 ISLAMIC QUARTERLY 70 (1955).
44. Doi, A.R.I., Shari 'ah, The Islamic Law 406 (1984).

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115] ISLAMIC CONTRACT PRINCIPLES 127

pressed in more Western fashion, this means that everyth

sumed to be lawful, unless it is definitely prohibited by l
According to Ibn Taymiya, a creative and liberalizi
thinker,
"If... demands ... made by men of good sense are introduced
into contracts, and if they are as suitable as they ought to be, they
are never in vain and are not directly wasted; for example, credit,
certain qualities in the commodities sold ....45
In developing a general theory of contract under Sharia, Musa
points out the traditional positions held by followers of Zahiris, a lit-
eralist school which would not permit any contract not mentioned in
the Quran and the Sunna, and by other schools of the middle ground
represented by Shafii and Maliki. Then he points to the liberal posi-
tion held by the Hanbali school further developed by Taymiya.
The Hanbali school's position has promoted the recognition of
transactional reality. As noted earlier, al-masalih al mursala, or the
principle of public interest of the people in the field of Muamlat trans-
action, has kept the Islamic law of contract responsive to the chang-
ing commercial reality. It is not limited to nominate contracts.46 As
Musa suggests, then, there is in existence an outline of theory of con-
tract under Islamic law. It is not based on Western principles of eco-
nomics but on those of Sharia. Under these principles we find that
trade or commerce has been blessed. But the parties to pursue the
trade must keep in mind certain prohibitions. Outside these prohibi-
tions, the transactions could be either:
1) Contemporaneous exchange of goods and payment of price,
called bay', or
2) Contemporaneous exchange of promises for performance at
some future date.

It is the absence of the second form of transactions or exchange

in the early and medieval Islamic scene which has generated disillu-
sioned and hasty comments. Despite the absence of the promises for
future performance under Islamic law, we note that this new reality
was not ignored. Majalla, the Ottoman civil code, included the Is-
lamic law of contract in the mid-nineteenth century. It defined "con-
tracts" as "the obligation and engagement of two parties with
reference to particular matter. It expresses the combination of offer
and acceptance. In the conclusion of the contract both the offer and

45. Supra note 43, at 263.

46. Id. 79-80, 251-263.

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128 JOURNAL OF LAW & RELIGION [Vol. 6

acceptance are inter-related in a legal manner, the result of w

seen in their mutual relationship."47
In recent times the definition of "contract" in the Egyptian
Code deserves mention: "A contract is created, subject to any
formalities that may be required by law for its conclusion, fro
moment that two persons have exchanged two concordant
intentions."48
Also of interest is the definition in the Iranian Civil Code (as
amended 1983) which states that a contract is "an agreement between
two or more persons concerning certain subjects to which they con-
sent."49 Offer and acceptance, therefore, can be expressed in any
form.
The government of Bahrain enacted the Contract Law in 1969.
In defining "contracts" it stated in section 12: "All agreements are
contracts if they are made by free consent of parties, competent to
contract, for a lawful consideration and with lawful object, and are
not hereby declared to be void."50

EXPRESS & IMPLIED CONTRACT51

Islamic contract law recognizes both express contracts as well as

what has been described in common law as contract by conduct. It
presupposes the making of an offer either orally or by writing or by
conduct. The acceptance of the offer creates the contract. The parties
entering into contract are also required to be competent.52

CONSIDERATION53

As in the common law there is a requirement of consideration

under Islamic law. Consideration has an analogous meaning and im-
plies what the parties give in exchange for or in performance of their
promise. The concept of consideration implies the bargain, or value
given in return for value received. But the consideration is required
to be lawful under Sharia. This would make exchange of forbidden
goods and services illegal and unenforceable. Examples of such ex-

47. S.H. AMIN, REMEDIES FOR BREACH OF CONTRACT IN ISLAMIC & IRANIAN LAW 12
(1984).
48. Id. 13.
49. Id. 13.
50. Govt. of Bahrain, The Contract Law 1969, Section 12 at p 4.
51. Supra note 44, at 356-57.
52. Id. 357-358.
53. Id. 356-57.

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115] ISLAMIC CONTRACT PRINCIPLES 129

changes are sale of alcohol, pork or lending money which

plication of riba.

CONCLUSION

Our study attempts to outline for the reader the underlying con-
cepts or doctrines governing the Islamic law of contract under Sharia.
One is heartened to find that its objectives are the same as those of the
common law or civil law, namely the enforcement of promises. But
Islamic Law prohibits contracts which Sharia disallows. Its evolution
has continued with the progress of Muslim societies in the field of
commerce and industry. It would be a vain exercise to look for a
doctrinal facsimile of the Western law of contract while studying Is-
lamic law. But the refinement and development of the law of Islamic
contract has kept pace to suit the transactional needs of the times.
Berman points out that the Western law of contract has
originated from moral theology going back to Christian and pre-
Christian eras.54 Its moorings were cut off from its past, however, in
the eighteenth and nineteenth centuries and were supplanted by the
secular theories of autonomy of will and considerations of social util-
ity. Berman's remarkable study helps us to understand the founda-
tional kinship between Islamic and Western laws of contract. As
Berman has commented elsewhere: "society moves inevitably into the
future. But it does so by walking backwards, so to speak, with its eyes
on the past."5 In the field of Muammlat transactions Islamic law
will continue moving onward while keeping in view the historic
themes of Islamic morality.
It is safe to say that the overriding principles of Sharia will con-
tinue to guide the general direction of Islamic contract law. The doc-
trines of riba and gharar discussed earlier have continued to draw
lively debate in Islamic societies and will continue to be asserted if a
matter in dispute happens to come before the Sharia Courts. Both
Saudi Arabia and Iran have Sharia Courts which abide by these sub-
stantive principles. It is possible to suggest that a Sharia Court in
adjudicating a contract dispute which also has an element of riba in it
will limit the enforcement of the contract. It will grant recovery due
on the contract except for the amount of recovery ascribed to riba.
Similarly the contracts of gharar would not be enforced by the Sharia

54. Berman, The Religious Sources of General Contract Law. A Historical Perspective, 4 J.
LAW & RELIG. 103-124.
55. H.J. BERMAN, LAW & REVOLUTION 41 (1983).

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130 JOURNAL OF LAW & RELIGION [Vol. 6

Courts. But if the parties resolve their disput

rum, the Sharia Courts will not interfere wi
settlement.

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