Harmonisation of Contracts Act 1950 and the Shariah

• Main Authors: Nik Mahmod, Nik Ahmad Kamal, Abdul Ghani Azmi, Ida Madieha, Mohd. Sulaiman, Aiman @ Nariman, Engku Ali, Engku Rabiah Adawiah, Daud, Mahyuddin, Abd Ghadas, Zuhairah Ariff
• Format: Monograph
• Language: English
• Published: 2016
• Subjects: K Law (General)
• Online Access: http://irep.iium.edu.my/52131/3/Pengharmonian%20Akta%20Kontrak%201950%20dan%20Prinsip-Prinsip%20Shariah%20%28english%29.pdf; http://irep.iium.edu.my/52131/

The Contracts Act 1950 is an ancient piece of legislation that originated from the English common law. Historical records have shown that the introduction of English law through the First, Second and Third Charters of Justice have imported the English law into Malaya. The official introduction of English common law in Malaya was through the application of the Civil Law Ordinance 1938. Contract law was left undisturbed by the English parliament and only when it was brought into India was there legislative effort to codify the law. English contract law has been developed greatly by common law courts to uphold the sanctity of agreements made between men of full age and competent understanding. Contracts are enforced by English courts if they are concluded with free will and consent of contracting parties – the same position which is applicable in today’s modern transactions (Alsagoff, 2003, Chapter 1). Majority Muslim scholars were unanimous to hold the validity of contracts entered when all of its essential elements were fulfilled. Furthermore, a contract must be free from any defect and any elements contrary to the Shariah. A contract is considered valid when it satisfies all terms and conditions to form a valid contract under the Shariah. In general, invalidity of a contract could happen depending on its pillars, condition, and character. Hanafi scholars differentiates invalid contracts into two namely batil and fasid contracts. Batil contract is a type of contract, which is defective in its condition and pillars. On the contrary, fasid contract has perfect conditions and pillars but has character, which was not in line with the Shariah (Al-Zuhayli, 2003). To enable a contract to be considered valid in law, it has to satisfy legal requirements including formation of contract, offer and acceptance and performance. All of these legal requirements must be made according to prescribed time free from any conditions not in line with the Shariah (Kharofa, 2007). Due to the rapid development in contract laws around the world, certain provisions in the Contracts Act 1950 seem to appear outdated. Some provisions in the Contracts Act 1950 belong in the old common law regime are still in force where they have failed to assist contracting parties to unite in contract with mutual consent. The present English contract law has moved away from its old traditions to provide better protection to both contracting parties. This paper intends to make comparison between Contracts Act 1950 and the Shariah principles. This discussion begins to examine issues on consensus ad idem as the main factor to determine mutual consent among contracting parties. Mutual consent is an important element in a valid contract, any contract made under coercion, fraud, misrepresentation, undue influence, and mistake may render them void or voidable. Other emerging issues in relation to mutual consent are on uncertainty (gharar), which will be discussed in turn. This discussion analyses on the provisions of Contracts Act 1950 concerning contingency and indemnity contracts that appear inconsistent with Shariah principles. The paper will then propose necessary improvements to the relevant provisions of the Contracts Act 1950 to ensure harmonization with the Shariah principles.