Understanding Islamic Finance - Doha Academy of Tertiary Studies

Islamic Law of Contracts and Business Transactions 127A condition which is not of advantage to either party is regarded as superfluous andcannot be enforced. A condition which is repugnant to a contract or transfer of ownershipbut is of advantage to one of the parties will make the transaction debauched if made aninseparable part of it. 52A void condition is any condition which directly infringes any rule of the Sharī´ah, orinflicts harm on one of the two contracting parties or derogates from completion of thecontract. We can therefore conclude our discussion on the subject of conditions in contractsby stating that a condition or stipulation which is not against the main purpose of the contractis a valid condition. Similarly, a condition which has become a normal practice in the marketis not void provided it is not against any explicit injunctions of the Holy Qur’ān or Sunnah.For example, a condition that the seller will provide five years’ guarantee and one year’sfree service is not void, neither is the availability of a warranty against defective goods aproblem. Similarly, conditions may be imposed in a sale regarding the service or repair ofany manufactured item sold to a buyer. The parties can give each other an option to cancela transaction during a given period after the conclusion of that transaction.5.10 SUMMARYAll commercial transactions must be governed by the respective rules and norms of Islamicethics, as enunciated by the Sharī´ah. The Islamic system disapproves of any exploitation orinjustice on the part of any of the parties involved. To achieve this objective, the Sharī´ahhas advised some prohibitions and recommended some ethics. Detailed study of the rulesand norms reveals that Islamic finance is, in essence, an ethical system and ethics need tobe an inseparable part of the system.What is not prohibited is permissible. Therefore, all contracts are valid unless they violatethe text of the Holy Qur’ān or Sunnah of the holy Prophet (pbuh), or are in conflict with theobjectives of the Sharī´ah.A property is either a specific existent object (‘Ayn), e.g. a house, or an object definedgenerically or abstractly by an obligation (Dayn). One can subdivide sale according to thetypes of Mabi‘ being exchanged. The mode of Murabaha can be used in trading of ‘Aynand merchandise and not in credit documents or Dayn.The prohibition of sale of a debt for a debt affects when obligations (to perform or topay) are delayed, and when such obligations may be bought, sold or otherwise transferred.In a transaction, any of the two counter values can be postponed, i.e. payment of the price,or delivery of the commodity. While the former is a credit sale or Bai‘ Mu’ajjal, the latterrefers to a future sale wherein the goods sold are to be supplied later against prepaid price(Salam).Any contracts must be made as explicit as possible in order to avoid Gharar and injusticeto any of the parties. A clause in the contract allowing a change in liability beyond the controlof the liable party would be unjust, e.g. the client in Murabaha agrees that the bank canchange his liability whenever the latter likes, or the client agrees to automatic compensationfor the bank in case of his failure to meet the liability.Commercial contracts have to be concluded at a price that is agreed mutually withoutuncertainty or hazard (Gharar) with regard to the subject matter and the counter value or52 Vogel and Hayes, 1998, p. 101; Al-Atasi, 1403 AH, Majallah, Article 189.