Contracts In Trading

Amongst the various types of contracts, the most important and the most common one is the contract for trading. Due to the fact that it is needed and used by most people, therefore it is important to give special attention to the rules of Shari'ah concerning it.

Definition of the Trade Contract

The Shafi'i definition: It is the exchange of a wealth with another wealth for the purpose of ownership.

The Hanafi definition: It is the exchange of a specific wealth with another wealth.

The Maliki definition: It is an exchange contract that excludes services and temporary benefits.

All these definitions means that there should necessarily be an exchange of wealth for the purpose of ownership, that buying and selling include only what is defined as wealth in the Shari'ah, and also that there should necessarily be a transfer of ownership, and that this transfer should not be temporary but definitive.

It's Legitimacy

Trade is a legitimate transaction according to the Shari'ah, and the proofs of its legitimacy are in the Qur’an, the Sunnah, and the Consensus of Scholars.

Some of the proofs in the Qur'an are:

"Whereas Allah has permitted trading and forbidden ribaa (usury, interest)." (Surah Al-Baqarah: Ayat 175)

"But take witnesses whenever you make a commercial contract." (Surah Al-Baqarah: Ayat 282)

"Except it be traded amongst you by mutual consent." (An-Nisaa: Ayat 29)

"There is no sin on you if you seek the Bounty of your Lord (during Hajj by trading." (Surah Al-Baqarah: Ayat 198)

The proofs in the Sunnah are numerous; below, a few are described:

"The best of earning is that of a man who works with his own hands, and a blessed trade." (Ahmad, Hakim)

"Trading is by mutual consent." (Ibn Majah, Bayhaqi)

Also trade was very common before the advent of Islam, and the Prophet SAW approved of it later on and said:

"The honest trustworthy merchant will be with the prophets, the siddiqeen (the very honest), and the martyrs in the Hereafter." (Tirmidhi)

As for the consensus: the whole Ummah, since the time of the Prophet Muhammad SAW has agreed that trade is allowed and is a necessity for humankind, therefore, Allah Ta'ala, has made it allowable to lift up the hardship on them.

It's Rule

In principle, trade is permissible, as Imam Shafi'i RA said:

"All trades are in principle permissible if the mutual consent of the contractors is achieved, except what has been prohibited by the Messenger of Allah SAW."

Its permissibility is stated in the Qur’an:

"Allah has permitted trading." (Surah Al-Baqarah: Ayat 175)

"Except it be a trade amongst you by mutual consent." (Surah An-Nisaa: Ayat 29)

Wisdom Behind It

People are in need of various goods, and since they cannot produce all the goods they need by themselves, it is necessary that they exchange goods between themselves, and this exchange does not occur unless there is mutual consent. This mutual consent is the trade contract.

Likewise, a person may have the money but needs the goods, or vice versa. The transfer of possession of the goods or of the money cannot take place except with a trade contract.
Insaan by instinct seeks to fructify his / her wealth and to achieve more financial gain; trade, not ribaa, is the sound way to achieve this goal.

Elements of the Trade Contract

As in any financial contract the trade contract must have certain basic elements which must satisfy certain conditions for it to be valid according to the Shari'ah.

These elements are:

1. The formulation (the offer and the acceptance)

2. The contractors (the person making the offer, and the person making the acceptance)

3. The object of the contract (the price and the assessed item/items)