Ethica Institute of Islamic Finance™

What is meant by an artificial contract?

Artificial contracts include the following: Hazal/Unserious Transacting When it is clear that two parties are not serious about actually entering into a contract, such a contract, if executed, comes under the classification of Hazal. For instance, a sales transaction mentioned as a joke. Taljeeah/Secret Understanding A Taljeeah is when parties agree to conduct a contract ostensibly in a permissible manner but actually derive impermissible benefits. There are 3 kinds of secret understanding: a) The parties do not wish to conduct a contract right from the start execute it anyway. b) The parties agree a secret price. c) The parties agree that one or both parties are involved in the contract for ostensive purposes but are not the real parties. Sukar/Transacting When Intoxicated A contract executed in a state of intoxication is considered an artificial contract. Khataa/Transacting In Error A contract executed as a mistake or on the basis of an error is also referred to as an artificial contract. For instance, if a party mistakenly quotes an inappropriately small price for an asset.

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