In Islamic financial mua’amalat, valid (sahih) and effective (nafizh) contracts can be classified as binding (lazim) and nonbinding (ghair lazim) contracts. Binding contracts are shari’a compliant-contracts in which none of the parties has the unilateral right to rescind the contract without the consent of the other party unless the contract is embedded with khiyar al-shart (optional condition).

Nonbinding contracts, on the other hand, are those in which any of the parties has the right to revoke it unilaterally (without the consent of the other party). Contracts of a specific nature might be nonbinding or revocable, i.e., both parties to the contract are allowed to revoke it unilaterally. Examples of such contracts are kafalah (suretyship), wakalah (agency), wadia’ah (amanah deposits), sharikah (partnership), among others. These contracts can be terminated by either party without the consent of the other. However, if the parties bilaterally agree that neither has the right to terminate the contract on a unilateral basis then the contract will be binding and neither party can revoke it. For example, an Islamic bank can stipulate a condition in the contract to the effect that holders of investment accounts are not permitted to withdraw their funds prior to a specific maturity date. As such, the contract of deposit becomes binding during a predefined period of time.

If the parties to a contract stipulate a condition such as khiyar al-shart (optional condition) that renders the contract nonbinding during a specific period of time (say, 3 days), then the party with this option can exercise it and revoke the contract without the other party’s consent only within this period. Thereafter, the contract becomes binding and has its legal consequences in full effect.