Islamic Commercial Law
(Fiqh Muamalat)
Topic 4
The Contract of Sale
An Introduction
Islam allows parties the freedom to exchange,
sell and purchase their properties and services,
Butany contract shall be free from:
₋Unfair ways of exchange.
⁓Unfair treatments include: usury,
gambling, ambiguities, exploitation,
fraud, false measurement, bribery, theft,
etc.
An Introduction
Fairness of contracts is:
₋ The foundation of wealth redistribution justly and properly,
Quranic Verse 4:29, conditions exchange
contracts:
₋ Trade based exchange ()تجارة,
₋ Mutual consent ()تراض
An Introduction
The word “Sale” means “exchange” which deals with
“sale and purchase”,
However, according to fiqh defition (legal), “sale”
means “as an exchange of a property for another, one of
which is called the object, and the other the price”
It is “an acquisition of ownership over a property in
return for a consideration or compensation (iwad)”.
Simply, sale covers all activities of exchange, from day-
to-day sales to the sale of shares in the stock markets
internationally,
Sale in Revelation
Quran: “but Allah has permitted trade and
forbidden usury”
Hadith:“The best earning is where a person
earns through his own efforts and all sale
transactions that are free from deception and
cheating”.
Hadith: “Sale is constituted by mutual
consent”
The Pillars of a Sale Contract
• There are Three Pillars of a Sale
Contract:
–The Express of contract; offer & acceptance,
–The Contracting parties,
–The Subject Matter
The Pillars of a Sale Contract
•Expression of Sale Contract:
– The transfer of ownership through
trading should be performed by will and
the mutual consent of both parties
involved. Conditions of sale expression:
○ Clarity
○ Conformity
○ Continuity
The Pillars of a Sale Contract
• Contracting Parties:
– The contract shall take place between two
parties. One person cannot act as seller and
buyer (except for the guardian transactions),
– For contracting parties:
○ Both of them shall have legal capacity,
○ Legal capacity is the ability to distinguish b/w
harmful & non-harmful acts, profitable & non-
profitable transactions,
• For Hanafi, legal capacity age is 18 for
male, & 17 for female,
• For other fiqh schools, legal capacity age
is 15 for both male and female.
The Pillars of a Sale Contract
Subject Matter:
The term subject matter is applied to
anything that is exchanged in the contract,
It includes both the commodity and the
consideration as contractual consideration
of one party is the consideration for
contractual obligation of another party,
These are conditions of subject matter:
Existence (now or later),
Deliverable and well knwon
Legal (legitimacy)
Specified price
The Pillars of a Sale Contract
Subject Matter:
Before
the sale of any subject matter is
executed, the following issues are
necessary also:
The subject matter shall be fully
owned by the seller,
Free from any third-party rights,
The Pillars of a Sale Contract
Contract validity of the subject matter:
Fulltransfer of the ownership (unlimited
time sale),
Free from coercion, mistake or fraud,
Free from any ambiguity (e.g. clarity of
credit terms, etc.)
Other necessary issues to consider:
Special requirements of one party,
Sale contract in two agreements,
Concealing an item’s defects or
cheating,
Prohibited Sale and Practices
There are several sale
transactions that contain
prohibited elements of sale.
See the following slide
Price Determination
In a Hadith, the Prophet-saw, indicates that
prices are determined by forces that are
beyond human control,
The basic principle of the hadith is that the
state should not interfere in the process of
price determination.
Price determination by the state or any
other interference that disturbs the normal
market conditions and equilibrium is
harmful.
Price Determination
However, according to the Muslim scholars, if
market equilibrium be disturbed by hoarding,
meeting the seller on his way to the market,
monopolies, underselling, speculation, and
collusion among otherwise competitive firms,
then the state interference is required in
order to stop others from interferences and to
restore the balance in the market.
During the prophetic era, and the following
caliphates, the muhtasib was responsible for
market supervision and irregularities
Two Sales in One Sale
Two sales in one sale is meant that a
person sells a certain item to a
purchaser for an X cash price and a Y
deferred price,
So,if the price is left without agreeing
one of them, then the sale is void.
Stopping a Seller (Talaqi al-Rukban )
• Originally, it means to meet a seller who is on his way
to a market and buy his merchandise before his arrival
at the market, profiting from the market ignorance of
the seller.
• In the modern time, it is used for any contract that was
carried when one party has more information about
the market than the other party,
• Normally, contracting parties have no equal
information of the market, but what is prohibited is
the exploitation of once lack of information for
profiteering,
Contentious Sales
• It refers to the controversial sales on which
various Fiqh schools and jurists have different
opinions of their permissibility or prohibition,
•It is include:
–Earnest money (bay’ Al-Urbun),
–The Sale of debt (bay’ Al-deyn),
–Repurchase Sale (bay’ Al-Einah),
–Tripartite Sale (bay’ Al-Tawarruq)
Contentious Sales
•Earnest money (bay’ Al-Urbun),
– Itis a kind of advance/down payment,
– Majority of Muslim Jurists argue that Earnest Money is
ambiguous with gharar (based on the Hadith)
– They argue that if sale is not executed, earnest money is
taken without proper compensation. So, it is prohibited,
– However, Hambali Jurists see its permissibility due to the
weakness of the Hadith narrators, and with the support of
other Hadith that permits it,
– Wahba Zuhaili argues for its permissibility on the ground
of customs. It is also permitted by Islamic Jurisprudence
Council in their 8th session in Brunei in 1414 H.
Contentious Sales
•The Sale of debt (bay’ Al-deyn),
–It refers to a creditor who sells his/her
receivable debt to a third party at a discount.
–If such transaction is executed in a discount, it
is not allowed in Islam,
–However, if the debt is sold at its par value, it
is allowed, and the contract will be based on
“debt transfer contract” not debt sale.
–See the grounds of its prohibition at p. 21-22.
Contentious Sales
•Repurchase Sale (bay’ Al-Einah),
–Itis to repurchase goods you sold to a client with a
lower price, from the same client,
–Majority of Muslim jurists prohibit it due to
motive and bad intention behind the contract.
–Muslim Jurist are divided into two views:
○ Maliki & Hambali jurists view that “the purpose
of the sale is based on a bad intention and wrong
purpose, where the goal behind the contract is to
get cash not sale transaction”
Contentious Sales
•Repurchase Sale (bay’ Al-Einah),
○They also argue that since the ultimate purpose is
to generate instant cash (by the client), and the
seller (usually bank) charges markup without real
economic transaction, then this sale is void and
prohibited.
Contentious Sales
•Repurchase Sale (bay’ Al-Einah),
○However, on the other hand, Shafici & Hanafi
jurists view that the contractual relationship of
the contracting parties is necessary, and if the
contract fulfils the required contractual terms,
then we should not look beyond the
contractual terms,
○They argue if the contract fulfils the sale
contract pillars and technically correct, then it
is permissible.
Contentious Sales
•Tripartite Sale (bay’ Al-Tawarruq)
–It is a sale contract similar to repurchase sale
contract, but the goods are sold to a third-party.
–In both repurchase sale and tripartite sale
contracts, the intention behind the sale is not to
purchase goods but to get instant cash,
–So, any sale contract which the intention is
different from the real transaction is
questionable Islamically.
Contentious Sales
•Tripartite Sale (bay’ Al-Tawarruq)
– Some Muslim Jurists view that it is abominable but not
prohibited,
– Thus, it is only permitted for a person has no other
options to get cash and in necessity for that cash,
– According to Int’l Council of Fiqh Academy (under
OIC), the current practices of Tawarruq by Islamic
banks, which called an organized tawarruq, is not
permitted.
– The needs that may necessitate tawarruq include
marriage, medical treatment and any other urgent need.
END
