Research Handbooks in Business and Management series
Edited by Abbas J. Ali
Chapter 6: Uncertainty or ‘gharar’ in contracts under the Islamic ethical code
Contracts are legally binding agreements infiltrating almost all aspects of life, without which functioning would be much more difficult (Jenkins, 2011). Contracts require certain essential elements, including: (a) an offer, (b) an acceptance and (c) consideration. Both parties are expected to commit to the fulfillment of the contract within an agreed time or event frame. Occasionally some contracts leave certain issues to be determined later, opening the door for possible disagreements and legal disputes. Such conditions might render the contract void because of uncertainty. According to Adams (2008), ‘Uncertainty in contract language arises principally from six sources – ambiguity, undue generality, inconsistency, redundancy, conflict, and vagueness. The first five are pernicious, whereas the last – vagueness – is an essential drafting tool, when used with restraint.’ A distinction is thus made between vagueness and ambiguity (Barnett, 2010; Leonhard, 2009). A vague term used in a contract refers to lack of precision, whereas an ambiguous one, often pernicious, may have multiple meanings. While vagueness can be tolerated and even expected, ambiguity is something to be avoided, as it can eventually lead to multiple interpretations and disputes. If parties were to spell out their agreement in great detail, this would necessitate substantial negotiation time, which could damage the whole business deal (Leonhard, 2009). In addition, sometimes parties want to keep their options open (Beatty and Samuelson, 2015). However, in most disputes, courts assess whether the dispute emanates from vagueness of terms that was necessary or preferable when the contract was agreed upon, or from inherent ambiguity (Barnett, 2010).
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