Islamic Finance: Sharia requires parties entering a contract to have 'perfect capacity'

We will take our discussion on contract under Islamic law further by discussing the capacity of the contracting parties.

In Sharia, the word capacity or 'Ahliyyah' represents a person's competence to enter into obligations as well as carry out their execution under a contract. This includes financial contracts.

In other words, capacity can also be defined as the competence of contracting parties to acquire respective rights and liabilities.

Sharia accords rights to a party appropriate to his capacity to exercise them and at the same time imposes liabilities on a person commensurate with his ability to fulfil them. This is because Sharia wants the aim of any valid contract to be the achievement of performance by way of its satisfactory execution.

On the other hand, it is realised in Sharia that all people cannot be equal in acquiring rights and incurring liabilities, such as minors, insane persons, the terminally ill, among others.

For a contract between two persons to be regarded as valid under Sharia, it is necessary that they hold 'perfect capacity'. By perfect capacity, Sharia means that they should be above 15 years of age and possess a sound mind.

How would you judge the above criterion in a person? The Quran defines this in a clear manner through the following verse: "And put the orphans to trial (of their intelligence) until they reach the age of marriage (adulthood); then if you find in them sound judgment, deliver to them their property."

Although the verse is addressed to the guardian of an orphan, it also gives us a guideline to ascertain 'perfect capacity' in a person, which is essential for entering a contract. There are circumstances when this 'perfect capacity' can be temporarily lost. Such circumstances and their interpretation are listed below:

State of intoxication

Islamic jurists accept that a person may not be held responsible for his obligations under a contract if he can prove that he was placed under the influence for the purpose of entering the contract, which he would not have entered had he not been intoxicated.

However, they view that in case of voluntary intoxication, he will be held responsible since it is considered an offence under Sharia to consume such beverages. As such, he cannot be excused from punishment in case of non-fulfilment of his obligation in terms of a contract entered into by him while he was drunk. This is aimed to work as a deterrent.

State of coercion

In Sharia, coercion or duress means to force a person to perform an act which he dislikes and which he would not want to perform under normal circumstances. Coercion could be in the shape of bodily harm, threat to life, confinement, blackmail, or other such unethical steps.

As coercion eliminates genuine intention and the free will from a person of 'perfect capacity', jurists believe that such a person should not be held legally responsible for his obligations under a 'coerced' contract. If such a contract is executed, the coercer will be held responsible for the damages towards the coerced party.

Jurists have made it clear that a court verdict against a defaulter forcing him to sell his assets to pay the debt will not be considered coercion. This is because the verdict is for a just cause and is binding on him since he had signed a contract with his creditor of his own free will.
Furthermore, the court verdict is to protect the interests of the creditor who is a victim.

The writer is a senior manager with Dubai Islamic Bank