PRINCIPLES OF ISLAMIC CONTRACT LAW
This section aims at describing the ‘aqd (‘binding act’ or, in a narrow sense, ‘contract’; pl. ‘uqud) in the cultural context of Islamic justice.
The ‘aqd aims at ‘establishing the right (ḥaqq) in its [due/right/just] place (makan)’ as part of the divine creation of the reality: its fundamental objective is not the expression of human freedom, but to guarantee something real (ḥaqq) to the parties, as established by God’s will. Consequently,
- on the one side, the dogmatic construction of the contract is shaped around the object, and not the subjects;
- on the other side, the establishment of the right (ḥaqq) in its due place implies the search for an equilibrium in the counter-values, which is at the same time quantitative (prohibition of ‘increase’, ribaa) and qualitative (prohibitions of ‘uncertainty’, gharar, and ‘gambling’, maysir).
THE NOTION OF ‘AQD, CONTRACT
In Islamic law, the term ‘aqd, ‘contract’ (pl. ‘uqud), deriving from the root ‘-Q-D (whose correspondent verb ‘aqada means ‘to tie’ or ‘to bind’) refers not only bilateral contracts, but it is employed to describe any manifestation of will binding its author to a new distribution of rights (ḥuquq). Thus, in classical manuals the term ‘aqd is not only used for synallagmatic transactions (mu‘awaḍat), but it also describes unilateral offers (bequests, guarantees), liberal acts (tabarru‘at; e.g. donation), mere juristic acts (manumission, repudiation, will) and any kind of obligations (towards God, in the marriage, in political treaties…).
Differently from the Western tradition, at any rate, the ‘aqd finds its pivotal element not in the expression of will (the contractual freedom finds fundamental restrictions in Islamic law), but in the consideration of an empirical object as concrete subject matter: its fundamental purpose, as voluntary relationship, is to maintain the equilibrium of legal titles (ḥuquq al-‘aqd), as linked to existing / real properties.
Accordingly, the concept of ḥaqq (‘real’, ‘true’, ‘just’, ‘right’) always denotes the beneficiary of a property right in something, a profit, a bundle of goods, a piece of real estate… From an Islamic perspective, since the correct distribution of goods is guaranteed by God, legal entitlements (ḥuquq) are not a product of human wills (a power conferred to the person), but ‘concrete’ entities, whose ‘place’ is compliant with the divine will: they are, in other terms, entitlement to concrete property (mal). As Smirnov points out, “what is meant is not ensuring the freedom of the subjects of rights, but ensuring something real for the person”.
Dogmatically speaking, in summary, the ‘aqd is a divine creation, not an expression of human freedom: it is, in other terms, an empirical phenomenon created by God which is ‘performed’ by His human agents on the subject matter. Consequently, even if the parties are free to determine inside the contract the distribution of legal entitlements (ḥuquq al-‘aqd), the contractual effect (ḥukm al-‘aqd) and the conditions of enforceability are already established at Law, and linked to the concreteness of the object.
THE CENTRALITY OF THE SUBJECT MATTER
The remarkable objectivism that animates fiqh represents the central hermeneutical tool for an appropriate interpretation of Islamic contract law.
This objectivism, in fact, models the ‘aqd as means of correct distribution of economic wealth, where, like in a scale,
“a right [ḥaqq] is a sort of substance that has a constant volume, of which some parts may happen to be not where they belong, not in the due place; and justice means the necessity of returning them to where they should be” (Smirnov).
In this way, the enforceability of the contract requires a constant reference to something existent and certain, either as a specific thing (‘ayn) or in the dhimma of the debtor (dayn). When the equilibrium of the scale is guaranteed by the actual presence of correlate counter-values (synallagmatic contract, mu‘awaḍat), the transfer of properties is instantaneous. Vice-versa, liberal acts (tabarru‘at), such as donation (hiba) or unilateral promise (wa’d), require the taking of possession (qabḍ) for a binding effect: since in fact a correspondent counter-value doesn’t exist, the unilateral declaration isn’t sufficient to bind the declarant and a factual rei traditio is required.
In both cases, the attention of the fuqaha’ falls on the object: the very root of Islamic ‘aqd is not the exchange of promises or obligations (as, respectively, in common law and civil law), but the consensual exchange of properties as established at Law.
As Chehata remarks,
“the decisive element of the legal relation lies in the object. The object takes place between the two persons who enter into the relationship through it. This relationship, of which the object is the specific term, is constituent of the right. The title that founds the right of the subject is the reason which establishes a link of belonging between him and the object. Once this relationship have been concretely realised, a state of adjustment and of equilibrium has to rule: everything in its [due] place.
The subject ruled by Law is certainly obliged towards the other party but his obligation has no other object than the thing or the act which are due. He is less tied to the other party than obliged towards an objective performance.
The presence of an object between the contracting parties is the feature of the contractual relationship. It gives to the contract its objective nature: through it the concrete realization of the effects of the contract establishes not only an equilibrium among the persons, but it creates a “state of things” [settlement of entitlement], a social state properly said”.
The centrality of the subject matter for a valid (ṣaḥiḥ) ‘aqd in the previous metaphor of the scale may explain the need for an equivalence of the counter-values deriving from the prohibitions of ‘increase’, ‘addition’ (ribaa), ‘uncertainty’ (gharar) and ‘gambling’ (maysir) as the reason of enforceability for synallagmatic contracts:
“Islamic law finds the binding force of a contract in the notion of equivalence of performances. Therefore, contracts containing reciprocal obligations are the only ones which are wholly irrevocable. The gift is essentially revocable. The same applies to the loan of a movable or an immovable, partnership, bailment and gratuitous agency.
It is this notion of mutuality which explains the Islamic theory of interest. Interest of any kind, at any rate whatever, whether for a loan or in any other circumstance is prohibited by definition”.
THE PROHIBITION OF RIBAA
Thus, the prohibition of ‘unlawful addition’ (riba) rejects any unbalanced distribution of entitlements depending either on actual inequality (tafaḍul) or on delay (nasa’, nasi’a, naẓira). In immediate exchanges, the quantitative values have to be identical and the transfer of possession instantaneous, in order to avoid ribaa ’l-faḍl (ribaa of excess); in the same way, any unjustified delay in the exchange is forbidden as ribaa ’l- nasi’a, ribaa of delay. In the context of credit transactions, the fuqaha’ also prohibit the ribaa al-jahiliyya (pre-Islamic ribaa), occurring when the creditor offers the debtor at the maturity date two alternatives: to settle his debt (dayn) or to increase it by double (see Q. III:130).
Following the model of the equivalence of the counter-values, El-Gamal demonstrates that the ban of ribaa is not based on the avoidance of exploitation of poor debtors, as commonly argued, neither it corresponds to the well-known prohibitions of ‘usury’ or ‘interest’, as historically shaped within the Western legal tradition. Against the mistaken and rhetorical association of ribaa with interest, El-Gamal underlines the existence of forms of (implied) interest which are not the forbidden ribaa (e.g. the mark-up clause in the contract of murabaḥa; the fixed rate of return as rent in the lease, ijara); at the same time, the ribaa ’l-faḍl, not involving any temporal element of deferment, cannot be assimilated tout court to the Western interest / usury.
On the contrary, for a correct understanding of the prohibition of ribaa, he refers to the economic analysis by the Maliki Ibn Rushd (Averroës):
“what is intended by the prohibition of ribaa is the excessive inequity it entails. In this regard, equity in certain transactions is achieved through equality. Since the attainment of equality in exchange of items of different kinds is difficult, we use their value in monetary terms. Thus, equity may be ensured through proportionality of value for goods that are not measured by weight and volume. Thus, the ratio of exchanged quantities will be determined by the ratio of the values of the different types of goods traded”.
To sum up, the prohibition of ribaa entails an excessive injustice in the exchange, which may be prevented thanks to the quantitative equilibrium of the two sides of the transaction. The metaphor of the scale illustrates this concept in the maintenance of a ‘symmetric relation’, an equality, where any increase or decrease implies injustice and inefficiencies.
An equilibrium in the counter-values that is confirmed, in classical scholarship, by the Ḥanafi al-Kasani (d. 587/1191):
“Equality… is the aim of the contracting parties (al-musawat… maṭlub al-‘aqidayn)… The entirety of the sold object is to be considered equivalent to the entirety of the price (kull al-mabi‘ yu‘tabar muqabalan bi-kull al-thaman), and the entirety of the price equivalent to the entirety of the sold object. Any increment (ziyada), whether in price or in the object which has no corresponding equivalent, would be an additional value without compensation…, and this is the meaning of ribaa”
and confirmed by contemporary scholar Saleh:
“Ribaa, in its Shari’ah context, can be defined, as generally agreed, as an unlawful gain derived from the quantitative inequality of the counter-values in any transaction purporting to effect the exchange of two or more species (anwa‘, sing. naw‘), which belong to the same genus (jins) and are governed by the same efficient cause (‘illa, pl. ‘ilal). Deferred completion of the exchange of such species, or even of species which belong to different genera but are governed by the same ‘illa, is also ribaa, whether or not the deferment is accompanied by an increase in any one of the exchanged counter-values”.
THE PROHIBITIONS OF GHARAR AND MAYSIR
The same logic of equilibrium of tangible assets underpins the prohibitions of ‘uncertainty’ (gharar) and ‘gambling’ (maysir/qimar).
A defective ḥaqq structure, in fact, may also depend (A) from the undetermined content of the pans of the scale, due to the ignorance (jahala) on any material aspect of the transaction or the non-existence (‘adam) of the object (gharar), or (B) from the consensual agreement on gambling or on an aleatory contract (maysir):
“Literally meaning fraud (al-khid‘a), gharar in transactions has often been used in the sense of risk, uncertainty and hazard. […] Gharar… includes both ignorance over the material attributes of the subject matter and also uncertainty over its availability and existence. Al-Sarakhsi has thus stated that gharar in a contract or transaction exists when its consequence are hidden and unknown to the contracting parties (al-gharar ma yakunu mastur al ‘aqibah)”.
Once again, the doctrines of gharar (lack of knowledge, uncertainty, danger of loss) and maysir (gambling) have to be interpreted within the doctrinal centrality of the object in Islamic fiqh.
With regard to gharar, the lack of sufficient knowledge on the object deprives the contract of the necessary certainty of its subject matter. Thus, according to Saleh, “all sorts of transactions where the subject-matter, the price or both, are not determined and fixed in advance [lack of disclosure], are under a suspicion of gharar according to Shari‘ah standards”.
After the examination of the explanatory examples and definitions reported by the traditions of each School, he concludes that
“observance of the following three rules should, in principle, avert gharar in any given transaction:
(a) there should be no want of knowledge (jahl) regarding the existence of the exchanged counter-values;
(b) there should be no want of knowledge (jahl) regarding the characteristics of the exchanged counter-values or the identification of their species or knowledge of their quantities or of the date of future performance, if any;
(c) control of the parties over the exchanged counter-values should be effective”.
The level of abstraction and uncertainty becomes even higher in the case of aleatory transactions (prohibition of maysir/qimar), which are functionally directed to a random distribution of property, with a likely disequilibrium in the final setting of entitlements.
Determining the rise of doubts on the factual existence and on the distribution of the properties, i.e. on the material existence of the object, contracts affected by gharar or maysir are deemed void, inexistent, null (bāṭil), the economic operation becomes a mere ‘trading in risk’ as an unbundled commodity, while the risk in Islamic law is always a quality of the object, either ‘ayn or dayn, and not a commodity per se.
In conclusion, whereas the prohibition of ribā may be interpreted in relation to the quantitative equilibrium of the counter-values (at present, ribā ’l-faḍl; or for a delay, ribā ’l- nasī’a); those of gharar and maysir seems to be linked to a qualitative disequilibrium due to the lack of disclosure, a want of knowledge of the object.