In this last article on Shariah compliant contracts, we shall examine the internal and external factors leading to making a contract invalid or void (Shariah term is ‘Batil’).
Let us discuss the internal factors first which relate to the elements of the contract, such as unlawfulness or non-existence of the subject matter and the absence of contractual capacity.
Unlawful object
It is a condition for the validity of a contract that the subject matter of the contract be legal and lawful. It means that the object should be a thing in which transactions are permissible in Shariah.
Any item which is not permitted under Shariah or is declared as Haram cannot be a valid subject matter of a sale contract, such as wine, pork, weapons, etc. The rule is that anything which is likely to lead to the decay of health and finally death is not pure and hence cannot be traded.
The legitimacy of the object further requires that the purpose of the contract and its underlying usage should be recognized by Shariah. It should not be divergent to the objectives of Shariah. Therefore, a contract to run a betting shop is void because the purpose of the shop is opposed to the preservation of capital and amounts to devouring other persons’ wealth wrongfully by the winner of the bet.
The legality of the object also means that the act or services connected to the act, the subject matter of the contract, must not be harmful to society, such as growing grapes with the purpose of extracting wine, or developing tobacco for smokers of cigarettes – both leading to the deterioration of the health of end users, finally leading to their painful death. Another example is selling guns to an extremely angry person – you do not have to be an Einstein to realize the ultimate use of the gun.
Another thought-provoking aspect is that if the object is unable to fulfill the intended aim, the contract shall be void. For example, fruits or vegetables or any other perishable item cannot be made the object of a pledge contract since the purpose of a pledge is to retain the pledged property for a certain period of time and to sell it for the satisfaction of a debt or claim; perishable items cannot be held beyond a very limited time period, at times merely hours.
The absence of contractual capacity
As mentioned earlier, it is a requirement for a valid contract that the contracting parties are competent to conclude a contract or, in other words, they hold perfect capacity. This means that they should be an adultsane and not prevented by Shariah from entering into a transaction.
Thus, a completed contract will be deemed void if it is revealed subsequently that at the time of entering into the contract, the counterparty was an insane person, or a minor without consent by the guardian, or a declared bankrupt person whose debt exceeded his/her earnings at the time of entering into the contract, or an unauthorized agent whose action has not been subsequently ratified by the principal. In such a situation, the seller has the right to revoke the contract and seek the return of the traded object.
The non-existence of the subject matter
The non-existence of the subject matter is generally considered a cause for the invalidity of an executed contract. As discussed in the earlier articles, Shariah principles do not allow a person to sell something which he/she does not own and possess. That is the reason for the prohibition of the forward contract in Shariah since the seller does not own and possess the object at the time of entering into the forward contract.
However, it is perfectly alright if a non-existent object is made the subject matter of a donation or will. It is to be noted that the declaration of donation or will is not a bilateral contract but a one-sided act. For example, there is no Shariah issue if someone declares that he/she will donate next year’s crops that shall be produced in his/her field.
Now let us have a look at the external factors which lead to a contract becoming void. These relate to the peripheral attributes, such as the presence of interest (Riba) or uncertainty (Gharar) or a precedent condition. An example is the deferred sale and purchase of Shariah compliant goods but with an interest clause in case of delay in the payment of the purchase price by the buyer, or uncertainty as to the quality or when the price shall be paid.
Scholars have the view that such a contract is not void but irregular and the removal of the interest clause or uncertainty or condition shall make the contract regular. However, the contract shall be considered void if these external factors are not addressed until the maturity date of the contract.
Sohail Zubairi is the projects advisor with the Dubai Islamic Economy Development Centre. He can be contacted at [email protected].
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions of the Dubai Islamic Economy Development Centre, nor the official policy or position of the government of the UAE or any of its entities. The purpose of this article is not to hurt any religious sentiments either consciously or even unwittingly.
Next Week: Start of a new subject on the introduction of sale contracts in Shariah.