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Islamic Contract

The Arabic word Aqd (contract) means a tie or a knot binding two parties together. The contract is a declaration of offer and acceptance. Islamic contracts derive its strength from the Qur'an and Sunnah.

The Qur'an mentions at many places rules regarding contracts. There are no less than forty injunctions regarding commercial contracts dealing with sale and hire and fiduciary contracts.

For a contract to be valid the parties involved must be fully satisfied with the contents of the contract and there should be mutual agreement.

From an Islamic legal perspective, contract is divided into two main categories:

    Unilateral- It is gratuitous in nature and does not require the consent of recipient. Example- Gift ( hadiah), off-set of debt, will ( wasiyat), Endowment (waqf), Loan(qard).

    Bilateral- It covers the remaining transaction in Islamic law which can be further divided into different classification according to the very purpose and reason d'etre of the deal and agreement. The classifications are:

    i. Contracts of exchange. (uqud al-mu'awadat)- includes all kinds of Sale contract.

    ii. Contracts of security.( uqud al-tawthiqat)

    iii. Contracts of partnership. ( shirkah)

    iv. Contract of safe custody. ( wadiah)

    v. Contracts pertaining to the utilization of usufruct. ( uqud al-manfa'ah)

    vi. Contracts pertaining to do a work. (eg. Wakala and Jualah)

The above classifications are not the only forms of contract, various new forms may develop as and when need arise. The only thing to be taken care of is that no prohibited content should be there in the contract.

The various types of contract permitted in Shariah are:

    a. Definitive contract: Here the offer and acceptance are both clearly defined and the contract is validly concluded.

    b. Binding contract: such contract once concluded cannot be revoked except by mutual consent of the two parties.

    c. Facultative Contract: such contract can be revoked by either party or in some case by a particular party only.

    d. Correct Contract: any contract that is valid according to Shariah is called a correct contract.

    e. Contract of Exchange: it is where the parties to the contract interchange money and goods/service simultaneously.

    f. Contracts of Gratuities: this is a contract of donation or for benevolence lending.

    g. Specific Contracts: these are pre designed contracts offered by the Shariah for direct implementation. A number of specific contracts can be joined together to form a hybrid contract for situations in the modern scenario.

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