Contracts in Trading

It is the most important and the most common of all the contracts, because 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 Hanafi definition: It is the exchange of a specific wealth with another wealth

The Shaafi’ee definition: It is the exchange of a wealth with another wealth for the purpose of ownership

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’aan, the Sunnah, and the consensus of scholars. some of the proofs in the Qur’aan are: ‘whereas Allah has permitted trading and forbidden ribaa (usury, interest).’ (2:175), “But take witnesses whenever you make a commercial contract.’ (2:282), “Except it be trade amongst you by mutual consent.’ (4:29), ‘There is no sin on you if you seek the Bounty of your Lord (during Hajj by trading’ (2:198)

The proofs in the Sunnah are numerous; we will name only a few:

‘The best of earning is that of a man who works with his own hands, and a blessed trade,’ (Ahmad, al-Hakim)

‘Trading is by mutual consent’ (ibn Majah, al-Bayhaqi). Also trade was very common before the advent of Islam and the prophet (Sallallaahu Alayhi Wasallam) approved of it later on and said, ‘The honest trustworthy merchant will be with the prophets, the siddiqeen (the very honest), and the martyrs on the hereafter.’ (Tirmidhi)

As for the consensus: the whole Ummah, since the time of the prophet (Sallallaahu Alayhi Wasallam) 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 ash-Shaafi’ee 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 (Sallallaahu Alayhi Wasallam).’ Its permissibility is stated in the Qur’aan, ‘Allah has permitted trading,’ (2:175), ‘Except it be a trade amongst you by mutual consent.’ (4:29)

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.

Man by instinct seeks to fructify his 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:

The formulation (the offer and the acceptance)
The contractors
The object of the contract (the price and the assessed good)

Dr. Houcine M Chouat and Dr Abdul-Haq Hemmish

Related Reading:

• Defective Contracts