Understanding Islamic Finance - Doha Academy of Tertiary Studies

Islamic Law of Contracts and Business Transactions 121• Lack of any value-relevant information (Gharar or Jahl). If the contract lacks any suchinformation for any of the parties that may lead to dispute, the contract is Fāsid. The lackof information affecting the validity of contracts can be of the following types:— Relating to the subject matter, e.g. indeterminate object in a sale contract or unidentified/notsufficiently defined asset in an Ijarah contract. In Ijarah Mosufah bilZimmah, 37 which is permissible, the asset might not be exactly identified but shouldbe sufficiently described as to leave no ambiguity regarding the use or usufruct to betaken.— Lack of information about consideration, e.g. one definite price is not settled or theprice is kept subject to change at the discretion of any or both of the parties.— Lack of information about the time of performance in sale, lease and other bindingcontracts. A partnership contract is not invalidated due to indeterminacy of the period,because a partnership is a nonbinding contract in its origin.— Lack of information about the guarantee, surety or the pledge. It is necessary that inthe case of a credit, the security, guarantee or the pledge must be identified and madeknown to the creditor.• Defect due to any invalid condition not being collateral to the contract or not admitted bythe commercial usage or which gives benefit to one of the parties at the cost of another.Invalid and defective conditions may make a transaction voidable. 38 The following typesof conditions may be deemed to be invalid or not permissible:— When it is against the purpose of the contract, such as stipulating that the buyer willnot sell the asset he is purchasing or he will not rent it out, or stipulating in a marriagecontract that the husband will not establish a matrimonial relationship with his wife.— When it is expressly prohibited by the Sharī´ah, like selling an article on the conditionthat the purchaser will sell something else to the buyer or lend him some moneyor make him a gift. Such conditions are prohibited because Islamic law expresslyprohibits the combination of (i) two mutually inconsistent contracts and (ii) a loanand a sale. A genuine credit sale of any commodity is one transaction and, therefore,perfectly permissible in Islamic law.— When it is against the commercial usage, such as a condition by the purchaser of cornthat the seller will grind it, or a condition by a buyer of a piece of cloth that the sellerwill sew it.— When it is advantageous to one party at the cost of the other party. For example,where the seller reserves for himself an advantage from the sale, such as the conditionthat he shall reside in the house sold for a period of two months after the sale, or hewill lend him some money. 39It is pertinent to note here that these irregular conditions affect only compensatory contracts,such as contracts of sale, hiring, etc., and do not affect gratuitous contracts, such as37 In Ijarah Mosufah bil Zimmah, the lessor undertakes to provide a well-defined service or benefit without identifying anyparticular units of asset rendering the related service. For example, an Islamic bank may require a transporter to pick up and dropits officers from their houses to the office on air-conditioned vans of a defined nature. In this case, any particular van is not hired,neither will the destruction of any van terminate the lease contract; the lessor has to arrange the vans as per the agreement.38 There are three types of conditions according to Hanafis: valid, defective and invalid; see Zuhayli, 2003, 1, pp. 123–131.39 Mansoori, 2005, pp. 157–163.