Understanding Islamic Finance - Doha Academy of Tertiary Studies

Islamic Law of Contracts and Business Transactions 119the possible lapse of interest of either party, which may affect his consent when the timeset therein comes. If someone buys something by ‘Aqd Mudhaf (effective from future) andhis circumstances change or the market changes bringing its price down at the time set forfulfilment of contract, he will undoubtedly be averse to its fulfilment and will regret enteringinto it. Indeed the object may itself change and the two parties may dispute over it”. It ispertinent to note that Ibn al-Qayyim and Ibn Taymiyah do not subscribe to the majorityviewpoint. They maintain that ‘Aqd Mudhaf is permissible, without distinction between asale contract and a leasing contract. 35To avoid any juristic issue, contemporary scholars suggest arranging a unilateral promisefor regular contracts in the future.Mawquf (Suspended) ContractsThe following may be causes for suspending the effects of a valid contract:1. Defective capacity of any of the parties, e.g. a transaction by a minor which has thelikelihood of both benefit and harm is valid subject to ratification, which may be accordedby the guardian after the transaction and before the minor attains puberty, or by theminor himself after puberty if the guardian did not object before his attaining puberty.The status of such a contract is that if ratification is granted, it acts retrospectively fromthe date of the contract, but if ratification is refused, the contract becomes void.2. Lack of proper authority, i.e. the person acting as agent does not have proper authorityover the principal – the contract by a Fuduli (a person who is neither guardian nor agent,or if he is an agent, he transgresses the limits prescribed by the principal). It is alsosubject to ratification as in case 1 above.3. The right of any third party. If the owner sells a property mortgaged by someone, it willbe subject to ratification by the mortgagee. If a house owned by A is mortgaged witha bank, A cannot sell it, and if he enters into a contract to sell it, it will be a Mawqufcontract. The bank would demand that his debt be paid first. It is important to observe thatbefore ratification, the buyer has the right to revoke the contract but the mortgagor/sellerhas no right to revoke the contract of sale made by him.Binding (Lāzim) and nonbinding ContractsContracts which are Sahih and Nafiz can be divided into Lāzim (binding) and Ghair Lāzim(nonbinding) contracts. A Lāzim contract is one in which none of the parties has the unilateralright to revoke (without the consent of the other) unless an option (Khiyar-al-Shart) hasbeen granted to a party by virtue of which the right to revoke can be exercised. A contractis Ghair Lāzim if any of the parties has a right to revoke it without the consent of the other.There are two reasons why a contract might be nonbinding or revocable:1. The nature of the contract. Some contracts are nonbinding by nature; both parties areallowed to revoke independently. Examples of such contracts are Wakalah (agency),Kafalah (suretyship), Shirkah (partnership), Wadi‘ah (deposits or Amānah), and ‘Āriyah(commodity given for use without any compensation or rent). These contracts are terminableby any of the parties. But if the parties mutually agree that none of them will35 For further details, see Mansoori, 2005, pp. 181–185.