Introduction to

Contracts
Nature and Sources of Contracts
Nature of Contracts
 Contracts: A Private Law Institution

• Contracts are a legal tool used by persons to conduct transactions

• They are a kind of time capsule which incorporates obligations and duties
as agreed to at one precise moment in time
• They are enforced by the State
• They are considered as a private law institution as contracts are made
between individuals NOT between the State and individuals (public law)
 The Two Parts of a Contract

Formation Execution
of the of the
contract contract
Sources of Contracts
 Sources of the Contract
Federal Law (5) 1985 • Main source

Sharia Law • Guiding principles

• Mandatory laws
Other UAE laws • Special contracts laws

Parties’ agreement • Essential elements

Federal Law (5) 1985 and Sharia Law
 Fundamentals of the UAE Federal Law (5) of 1985
Article (1) (Federal Law (5) 1985) provides that the UAE civil law is the only
law which applies to civil matters and its letter must be applied where the
text is clear.
Where there are gaps in the law, the judge can fill those gaps by applying
Sharia law. This will take the form of the Maleki and Hanbali Schools and
where these do not offer an answer then the Shafe’i and Hanifi schools are
to be used. If the judge still finds no applicable rule then customary law,
whether specific to one Emirate if the case pertains to that Emirate or
general to the UAE, will apply.
According to Article (2) (Federal Law (5) 1985), rules and fundamental
principles of Islamic law must be used to interpret the Federal Law.
Islamic Law
Hierarchy
 Islamic Law Hierarchy
• The Qur’an is the primary source of the Shari’a with about 500 verses which set out laws (out of the 6000 verses of the Qur'an),
among them, 70 verses are on civil law, 10 on finance law and 25 on international law.
• The Sunnah refers to the Prophet’s decisions and normative behaviour which were transmitted orally. It incorporates customs
which existed before Islam.
• The third source is the ijma (doctrinal consensus) which is a common religious conviction. In practice, no universal consensus
came into being; instead, there are different doctrinal currents. Personal adherence rather than territory determines which
tradition applies to every individual. In the 7th century, Islam went through a schism due to two different approaches to the
succession of the Prophet. The orthodox or Sunni school, felt the successor of the Prophet could be designated among his
companions, whereas the Shi’ites, or ‘legitimists’ of Islam believed the successor had to be one of his descendants. The Sunnites
founded up to one hundred law schools from the 7th century onwards. However, since the 11th century, only four have survived:
two (Maliki and Hanafi) belong to the “first generation” (second part of the 8th century) and two (Shafi’i and Hanbali) to the
“second generation” (first part of the 9th century). These were universities but because of their importance as a primary source of
law, they may almost be considered as constitutional units; i.e. fundamental doctrines of law.
• The fourth source can be said to be qiyas and ijtihad, reasoning from any of the previous three sources. Qiyas means analogical
reasoning. This is the orthodox way of reasoning used by Sunni schools. Ijtihad means ‘creative effort’ and encompasses all the
types of reasoning of the Aristotelian tradition which we find in Western laws. But ijtihad has not always (and arguably is not
anymore) a source of law.
Other UAE Laws Applicable to
Contracts
 Public Policy Laws

Public policy laws play an important role in all legal systems. Article (3) UAE
Federal Law (5) 1985 explains that public policy comprises rules which relate
to personal status matters such as marriage but also to the fundamentals of
the functioning of the UAE State as well as general issues like freedom of
trade. Public policy must also be true to the fundamental rules of the Islamic
Sharia.
 Rules Applicable to Certain Types of Contracts

In Article (128) (Federal Law (5) 1985) we find general rules on the
classification of contracts: nominate or innominate as well as a general
provision which makes it clear that specific contracts (such as employment
for example) can be regulated separately from this Federal Law.
Contract Clauses
 Clauses of the Agreement of the Parties are
Themselves the Law of the Contract

ARTICLE 1.1 (Freedom of contract) Unidroit Principles (2016)

• The parties are free to enter into a contract and to determine its content.
This principle also lies at the heart of UAE law but, as in the Unidroit Principles, it has exceptions
such as provided in Article (248) UAE Federal Law (5) 1985 which states that for “adhesion”
contracts, the judge may modify terms which are unfair to one party.
Other Concepts of Contract Law
Elements of a Contract
 Elements of a Contract: in the Law
Article (125) UAE Federal Law (5) 1985 defines the contract as the meeting of an offer
with an acceptance based on a meeting of minds as to the object of their
transaction to result in a binding contract.
According to Article (129) UAE Federal law (5) 1985, the elements needed to make a
contract are:
1. a “Meeting of minds” of the parties to the contract on the essential elements of the
contract;
2. a possible, specific or certain object;
3. A licit cause.
 Elements of the Contract: Summary

• 1. Offer and acceptance

• 2. Meeting of the minds on the essential elements of the
agreement
• 3. In consideration of the object of the contract which must
be licit, possible and certain
 Elements of the Contract: Graph

Meeting of Licit,
Offer and the minds possible,
CONTRACT
acceptance essential certain
elements object
 Essential Elements of the Agreement: UAE and Swiss law
Article (141) (Federal Law (5) 1985) provides that a contract is not formed unless parties have
agreed on the essential elements of their transaction and on the elements they have considered to
be essential. Further, where they have agreed on these essential elements but have reserved minor
points of their agreement to be managed later, a contract is nevertheless formed. If they then have
a dispute on these minor points, it will be up to the judge to determine how to decide what these
terms should be taking into account the circumstances of the parties’ agreement.
This rule is strikingly similar to that contained in the Swiss Civil Code:
Art. 2 A. Conclusion of the contrat / I. Agreement between the parties / 2. Secondary elements set
aside
• 1If the parties are in agreements with the main elements, the contract is considered to be formed
even if secondary elements have been set aside.
• 2Where the parties have not agreed on secondary elements, the judge determines those
elements by taking into consideration the nature of the transaction.
 The Object of the Contract

According to Articles (126) and (127) (Federal Law (5) 1985) the object of a
contract can be property, a right to the property such as usufruct, a service.
However, the object of the contract must not constitute a criminal offence
or a violation of public policy or morals.
General Principles Governing
Contracts
 Good Faith

Article (246) UAE Federal Law (5) 1985 contains a rule which makes acting in good faith in
contract a legal requirement.
ARTICLE 1.7 (Good faith and fair dealing) Unidroit Principles (2016)
• (1) Each party must act in accordance with good faith and fair dealing in international
trade.
• (2) The parties may not exclude or limit this duty.
 Freedom of Making Contracts

• ARTICLE 1.1 (Freedom of contract) Unidroit Principles (2016)

• The parties are free to enter into a contract and to determine its content.
As we saw above this principle also lies at the heart of UAE law but it has exceptions such as
provided in Article (248) UAE Federal Law (5) 1985 which states that for “adhesion” contracts,
the judge may modify terms which are unfair to one party.
 Pacta Sunt Servanda
ARTICLE 1.3 (Binding character of contract) Unidroit Principles (2016)
• A contract validly entered into is binding upon the parties. It can only be modified or terminated in
accordance with its terms or by agreement or as otherwise provided in these Principles.
Pacta sunt servanda also lies at the heart of UAE law but, again, it finds an exception in Article (249) UAE
Federal Law (5) 1985 where exceptional and unpredictable circumstances which are out of the parties’
control that make the contract excessively difficult to perform for one party will be “corrected’ by a judge.
ARTICLE 6.2.2 (Definition of hardship) Unidroit Principles (2016) provides an identical principle:
There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either
because the cost of a party’s performance has increased or because the value of the performance a party
receives has diminished, and (a) the events occur or become known to the disadvantaged party after the
conclusion of the contract; (b) the events could not reasonably have been taken into account by the
disadvantaged party at the time of the conclusion of the contract; (c) the events are beyond the control of
the disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party.
 No Form Required

Article (132) UAE Federal Law (5) 1985 makes it clear that contracts can be
made orally, through behavior or performance or in writing. No specific form
is necessary.
An identical rule is found in ARTICLE 1.2 (No form required) Unidroit Principles
(2016)
• Nothing in these Principles requires a contract, statement or any other act
to be made in or evidenced by a particular form. It may be proved by any
means, including witnesses.
 Law Applicable to International Contracts

Article (19) UAE Federal Law (5) 1985 provides that international contracts
are governed by the law of the parties’ residence if they live in the same
country or the law of the country where the contract is made. Article (142)
UAE Federal Law (5) 1985 deems that, between parties who made a
contract from two different countries, the place the contract is made is
where the acceptance reached the offeror.
 Unidroit principles used in these slides

• the texts from the UNIDROIT Principles of International Commercial Contracts 2016
are “Reproduced by kind permission of the International Institute for the Unification of
Private Law (UNIDROIT).
• the complete text of the UNIDROIT Principles of International Commercial Contracts
2016 is composed of both black-letter rules and accompanying Comments. The full
text is available in book form directly from UNIDROIT and is also available on the
UNIDROIT website at https://www.unidroit.org/instruments/commercial-
contracts/unidroit-principles-2016. For select case law and bibliography relating to
the Principles, see www.unilex.info.”