What causes invalidity of a contract

In-Depth Analysis

In this 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'). Internal factors — elements within the contract itself: Unlawful object: It is a condition for the validity of a contract that the subject matter of the contract be legal and lawful. 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 absence of contractual capacity: It is a requirement for a valid contract that the contracting parties are competent to conclude a contract — they should be adults and not prevented by Shariah from entering into a transaction. 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. 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. However, it is perfectly alright if a non-existent object is made the subject matter of a donation or will. External factors — peripheral conditions attached to the contract: 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.