Contemporary Contract Law and Possible Islamic Prospective

Contemporary Contract Law and Possible Islamic Prospective

Contemporary Contract Law and Possible Islamic Prospective

Dr. Shahabuddin Ansari


History of human civilization proffers that the development and growth of socio-economic edifice of the society has ever remained dependent on trade and commerce. The main device of progress has always been trading; despite the fact that the agriculture was the main source of employment and livelihood of the people, in general. Barter, exchange, sale and hire were some modes prevailing in a simple society to serve the necessary needs of the people, Adat, usage, custom and conventions had been sources of trading behavioural norms. We are aware that human life in general and business life in particular are difficult to continue in the absence of regulatory measures. To protect the property rights and obligations underlying various commercial transactions a well defined and explanatory body of rules and regulation always remains the primary need of the society. In an anarchic society devoid of peace and harmony; business, manufacturing, marketing and trading become a matter of survival of the mighty and fittest. In commercial world law prevents ruthless people from doing detrimental and harmful trading activities. The mercantile law, or for that matter commercial law provides wider protective shed to the existing commercial rights of the mercantile community. In this short paper we intend to explore the vagaries of contract law of Islam as it was propounded. It would also be probed as to whether the Islamic law of contract is capable to serve the needs of trade and commerce in the complex society. This work is also devoted to undertake a comparative study of mercantile notions prevalent under contemporary contract law and as contained in Islamic system. It would also be our endeavour to discover the merits of Islamic law relating to contractual rights and obligation for enforcing it in a non-religious and pluralistic society having different notions of law relating to trading and professing well established theoretical framework.


The law of contract does not give so many rights and duties which it is destined to protect and enforce. On the other hand, it contains principles and rules to regulate the rights and obligations created by contracting parties for themselves. Explicit perception is that parties to contract are the makers of the law meant to protect the rights and duties under the contract. The parties are capable to frame such rules as they desire for the subject matter of their agreement. And the function of the law is to take cognizance of their will full decision subject to the prohibitions imposed legally.

 Islamic law of contract is properly popularly understood as a divine law and the rules and regulations are devised by the Shariat. Parties to the contract have limited options. They are supposed to follow the guidelines prescribed by Shariat in the field of trading and contractual sphere pertaining to commercial transactions.

Broadly speaking the law of Islam relating to contract and contemporary contract law are not in conflict with each other. Though, the contract law under Islam is being expounded before the advent of feudal order and industrial revolution, it contains remarkably modern features of legal norms and devices, helpful in flourishing the trade activities.

Some of the common features of formulation of contract under both systems of mercantile law are listed under-

(i)  Offer:-  under Indian Contract Act it is prescribed that proposal be made by one party to the other. it is a willingness of the proposer which signifies by him to do or to abstain from doing anything. The proposal is made with a view to obtain the ascent of the promisee for such an act or abstinence.

(ii) Acceptance:-  The promisee or the person to whom the proposal is made gives his assent to such proposal, it is termed as acceptance. The acceptance must be absolute and unqualified.

Both, the proposal and acceptance must be communicated, to the respective person. Before the communication of proposal and acceptance is completed against each other, those can be recalled and revoked. This brings an important aspect to limelight that there must be two parties one is promisor and another is a promisee.

Though both systems of law of contract, that is to say, Islamic and common law commanded that the offer or proposal be definite but Islamic law also take cognizance of invitation to offer as a definite offer. While the modern law contrarily does not accept it as a definite offer. This legal norm is reckoned with the transaction by conduct and technically called Ta-aali. If the price of displayed article is indicated, the probable purchaser can take it after making payment of the indicated price. It is deemed that offer and acceptance may also be completed by way of conduct. In this type of conduct manifestation of the intention is must. Under Sharia, common law and contemporary law of contract silence may not constitute valid acceptance. External manifestation of the intention to accept the offer is a condition precedent to convert of offer in to promise.

Consideration:-The essential ingredient of a valid and binding contract under Sharia is termed as "Wajib-ul-ada-Muaoza". The Scholar of common law named it "quid pro quo", something in return. It is also called "recompense" meaning thereby "price of a promise". Indian Contract Act contains a comprehensive definition of the consideration. In modern law of contract, the consideration is an essential ingredient for validity of contract except in case of, it is in writing, registration is obtained, and it is meant for love and affection. The agreement for the payment of time-barred debt is held valid without consideration. Here, Islamic point of view and modern law on this aspect seem to be on same wave length.

Capacity and Competency:- Next element of valid contract under Sharia law and contemporary contract law is that the parties of the contract must have capacity to enter into valid contract. The capability to transact business in Islamic parlance is measured by two aspects, namely, prudence and adulthood. This is known as Ahliyat. In law of Islam, a person can validly enter into a contract after having attained physical and intellectual maturity. It amounts to the attainment of age of majority to enjoy full capacity. The age of majority in Sharia law is 15 years whereas under Indian Contract Act it is described as an age for majority as contained in Indian Majority Act which prescribes it as 18 years. In case of prudence both systems have similar provisions relating to the capacity of a person. The effect of these provisions on the formation of an agreement is that to make a lawful contract, the provisions of law must be adhered.

Consent:- To create contractual relations between parties of the agreement, there must be "meeting of mind", that is to say, both parties must agree to the same thing in same sense, meaning thereby, the will of the parties must meet. It implies manifestation of mutual assent. this consent must be free from all defects and deficiencies. Similar to common law, vitiating factors under Shiria law prevent prevent the formation of a valid contract. This technically called "Tarazi". The parties to the contract must be "Khud-Mukhtar"  like common law, the Sharia is opposed to the inducement for promise on the grounds of fraud, coercion, misrepresentation undue influence and/or mistake. It is presumed by law that every person is capable to enter into a contract. If somebody takes plea that there is flaw in the consent and claims exemption from liabilities on this ground, he must strictly prove search deficiency in the consent.

Subject matter of contract:  Indian Contract Act provides that object and consideration must be legal. Under Section 23 it enumerates various situations wherein object and consideration is not legal. Similarly, Shariat law made it an essential element that the subject matter of an agreement must be Shariat compliant in every aspect, including legality, purpose, morality and public policy. Moreover the subject matter (Mahal-al-aqd) embodies several things such as (i) It should be lawful, (ii) It must be in existence, (iii) It should be deliverable and (iv) precise determination. The Sharia attaches some exception to this rule . This includes bay-salam (payment and/ or delivery may be postponed), bay-al-istisna (manufacturing and building contract) Ijara  (hire contracts), musaqat (contract of irrigation) and bay Nisya (sold goods), are delivered and payment is deferred for a future date). However the ‘deliverability' emphasizes that the object must be able to be delivered at the time of agreement does the agreement. Thus, the agreement for birds flying in the air and fishes in the water are prohibited to be sold. Furthermore the contract should be able to determine precisely the object's essence like quality, quantity, value and measurement. Islamic law requires that subject matter must be of commercial value based on morality. It should be Shariat compliant. It must be executable, doable and tradable in accordance with edicts of Shariat.


It is ordained in the Quran - "O the believers! Perform your contract", (5:1). The performance of an agreement is done by the parties to the contract on their volition. One party can discharge his obligation willingly. The contracting parties can perform the contract by themselves, and if performance does not depend on the personal skills, it may be done by their legal representative. The contract can be performed at the place, time, day and on request as agreed upon by the parties. In this connection there is a little difference between legal notions of prevailing contract law and Islamic mercantile jurisprudence. On doctrine of frustration and impossibility of performance, the Islamic law is silent while contemporary law of contract contains minute details relating to this aspect.


There are various kinds of contract enumerated under contemporary contract law and Shariat. Some are common in both systems. Some typical contractual transactions are given below:

Sahih: This is a lawful contract wherein legal relations have been created through strict observance of the rules laid down under the Indian Contract Act and Shariat.  This type of contract is enforceable at law. All requisites and requirements needed for the formation of an agreement are being complied with.

Faasid Agreements: These are known as "voidable agreement": in such agreement the flaw in the consent is present. The agreements entered into through vitiated consent are called voidable. The Indian law of contract envisages that any agreement constituted after obtaining the consent of the party employing fraud, misrepresentation, coercion and influence is enforceable at the instance of aggrieved party. In Islamic parlance, such agreements have been explained at length but impact of impairment of free consent had not been examined. These are simply, forbidden and can be set-a-side /or declared void /or dissolved through the intervention of the Qazi.

Baatil Agreement: These are called void agreements. Such agreement seems to be non- existent and having no legal effects and consequently are not binding. Agreements constituted against public policy are unenforceable, like wagering agreement. The agreement entered into by minor and person of unsound mind are void ab-initio. Similar is the position in case of agreement made under mistake of fact.

Islamic Shariat strictly enjoined upon contracting parties to follow and observed rules relating to haraam and halaal. Islamic law of contract deems certain contractual transaction as baatil like wagering, gambling, intoxicants, games of chance, usurious transactions, interest of loans, etc. These transactions are strictly prohibited by the Sharia. Agreements dealing with these practices are not binding and supposed to be unenforceable from the beginning. Some concrete illustrations of such agreements include maysir (wagering and contingent agreement), gharar (speculative transaction and agreement obtained through deception and dupe), munabazah (agreement for unascertained transaction), mulaasamah (agreement to purchase by touch), hasaat (ascertained by throwing a concrete),  and rishwat (bribe).


Contemporary contract laws, (common law, continental law and Indian law) recognised the existence of standard form of contract. These are called mass contracts, also. Such contracts are pre-drafted uniform documents which must be accepted by all who would deal with large organisations. In such type of documents conditions are fixed by one party in advance and open to acceptance by another. There is no option such a pre-drafted document are not open to discussion. One is to adhere or "decline the transaction in toto". "Well organised commercial" establishments like insurance, railways, hotels, amusement centres, laundries issue pre-drafted receipt which contains exemption clauses under which these organisation restrict their liability in case of breach of contract. Islamic Shariat do not recognise and deal with such type of adhesive contracts. Though these have become significant and essential transaction of modern, commercial world, the Islamic law of contract do not lay down any rules relating to their agreements.

Indian Contract Act and common law embody and legalize certain relations resembling with those created by contract. And many rules relating to cognizance and enforcement of these relations are laid down though no legal contract exists. These obligation are known as Quasi- Contracts, assumed contracts or constructive contracts. Truly speaking it is not contract at all. It is an extra contract obligation which law create. It is a duty imposed by law and not a promise. It is fictitiously deemed contractual relations. Under section 68 to 71 of Indian Contract Act, such obligations have been legislated.

Islamic system of commercial law doesn't provide rules for admittance of such extra contract obligatory relations and does not keep them at par with consensual promise.


Assignment of contractual right has not been dealt with under contract law of India. But some rules have been evolved by judiciary in respect of assignment of contract. Judicial attitude seems to be that an obligation and liability under a contract cannot be assigned without the consent of other party. However, the right and benefits under a contract may be assigned and the assignee can demand performance against other contracting party.

Such contractual arrangement does not find place under Islamic law. The Sharia seems to be in agreement with the contemporary contract law in cases of waiver, novation, merger and accord and satisfaction. The Sharia recognises some rules relating to ratification and restitution of modern law of contract. Islamic system of trade and commerce does not subscribe to the theory of laissez faire. It bestows upon contracting parties a limited liberty to enter into contract. The conduct of contracting parties must not violate the rules of Sharia. The liberty of freedom is being curbed and curtailed to avoid contractual relations repugnant with Shariya. Other salient doctrines pertaining to commercial agreement like Quantum maruit., prevention of unjust enrichment, privity of contract, uberimae fidie, etc., have been identified and acknowledged by Islamic law of contract.


Islamic Shariat- as a way of life- encompasses all aspects of human life and livelihood. Somewhere rules are absolutely clear, at another place these are relative and flexible to meet ever changing scenario of human civilization.  Islamic contractual Corpus of law keeps focus on the welfare of society and provides regulating norms relating to trade and Commerce. The mercantile law, which is a parent law of contract law, is existed in Islamic society from the beginning. Contemporary contract law resembles with Islamic law in many aspects and differ in some other aspect, particularly in the field of transaction declared strictly prohibited. A dispassionate study makes it clear that Islamic law of contract, especially law governing the transaction of sale is a rational and pragmatic. It lays stress on the performance and enforceability of promises. This is the key base of the growth and progress of commercial life. However, in the modern age of globalisation and marketing, the possibility of adoption of Islamic perspective is not ripened because of propaganda against Islam. In a commercially organised society alongwith highly developed media network, the public opinion plays key role in the development of law applicable universally.

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Islamic law has exercised its influence in legal systems of most Muslim countries. More recently a notable and growing group of Muslim immigrants and societies has advocated to gradual introduction of their law in the West and other non-Muslim

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