A contract, known as ‘aqd’ in Arabic, signifies ‘to tie,’ ‘to knot,’ or ‘to join.’ Legally, it binds all parties involved, expressing their intentions, establishing rights and liabilities, and clearly defining the transaction or business's nature, parties, processes, means, and duration.

Essential Elements of a Valid Contract

For a contract to be considered valid under Islamic law, certain conditions must be met. A valid contract relies on six essential elements:

• the offeror and offeree;
• offer and acceptance; and
• the subject matter and consideration.

Contracting Parties: In a contract, there are at least two essential parties: the offeror, who makes the offer, and the offeree, to whom the offer is made. Both parties must possess the legal capacity to engage in a contract. This capacity is determined by two key factors under Islamic law: prudence and puberty, as indicated in the Quran 5:4: “Prove orphans till they reach the marriageable age; then if you find them of sound judgment, deliver over unto them their fortune”. It emphasizes sound judgment at the marriageable age for managing one's fortune. Legal capacity entails reaching puberty and achieving maturity, with maturity defined by jurists as the ability to manage wealth responsibly from a worldly perspective. An individual lacking maturity is not permitted to handle their wealth independently. Consequently, those without legal capacity are ineligible to enter into contracts independently.

Statement of contract: A statement of contract comprises the offer and acceptance. An 'offer' is a declaration of intent by one party to invite another to agree to a proposal, while 'acceptance' is the act of agreeing to the proposal, aligning with the details stated in the offer. This can be made orally, in writing, or through conduct. Islamic contract law acknowledges both express contracts and those formed through conduct, known as 'contract by conduct.' In some instances, acceptance can be implied from a party's silence. The offer and acceptance should be clear, with words and terminology conforming to the customary language used by the parties to signify a specific type of contract. Confirming the acceptance of an offer is essential; it must be explicit and unequivocal. 

Subject matter of contract: The subject matter of a contract can either be a tangible thing, or a usufruct, or work. Under Islamic law, the validity of a contract hinges on several key principles regarding its subject matter and consideration, all of which must align with the Sharia. Firstly, the subject matter must be lawful, implying it is permissible to trade and not forbidden by Islamic law or harmful to public order or morality. This lawfulness extends to the item's legal value, encompassing its nature and the underlying reasons for the transaction. The item must be legally owned or authorized by the contracting parties, indicating that ownership lies with the seller at the contract's inception. Additionally, both parties need to have a clear understanding of the subject matter, which can be achieved through direct observation or a detailed description if the item is commonly recognized. The subject matter should also be deliverable upon the contract's conclusion and, if tangible, typically present at the time of the contract unless it's a service or utility, where its future provision is sufficient. The issues of existence presuppose that the object of a contract must be in existence at the time of contract. Thus, it is illegal, for example, to sell a fetus. Delivery, on the other hand, indicates that the object must be capable of certain delivery. Delivery must be assured, ruling out the sale of elusive items like escaped animals. The classical jurists therefore prohibit the sale of a camel which has fled, a bird in the air, or a fish in water. Notably, exceptions for specific contracts like Salam and Istisna allow for certain flexibilities. Lastly, the contract's object must be precisely defined in terms of its essence, quantity, and value to ensure transparency and prevent disputes.

In Islamic law, the consideration of price is not limited to monetary forms but can also be in the form of another commodity. To avoid uncertainty, which is prohibited in Islam, the price must be established and known at the time of the contract. It cannot be set at a later date based on market fluctuations nor left to be determined by a third party. In the case of a money-exchange contract (sarf), compliance with the prohibition of riba (usury) is essential to ensure the contract's validity. The delivery of the price can be immediate or deferred to a future date.