( The Contract of Sale (al-Bay

Introduction On the legality of bay we may refer to the Quranic verse in 2:275: But Allah has permitted trade and forbidden usury. The Prophet p.b.u.h. is also reported to have said: Sale is constituted by mutual consent. In another hadith it is stated: The best earning is where a person earns through his own efforts and all sale transactions that are free fron deception and cheating. Definition

Bay Literally means

mubadalah or exchange and applies to both sale and purchase.

Technically, bay refers to an exchange of one property for another, one of which is called the object, and the other the price. Sale can also be defined as a transfer of ownership of property for a consideration or compensation. Distinguishing the things from the price What is particularized in a contract of sale is the thing sold, and what is not particularized is the price, unless the word sale is distinctly applied to it. Things are of three kinds:

1.
2.

Some properties are always the price. The first class comprises dirham (silver coins) and dinar (gold coin) and by analogy includes all the currencies. Others are always the thing sold. This group comprises non-homogenous properties which are always the thing sold. Their sale is not lawful unless they are specified. There are properties that are sometimes price and sometimes the subject of sale. This comprises all things that are measured, weighed, or numbered. When opposed to price, they are considered the subjects of sale or things sold. When opposed to other homogenous properties if one of them is specified and the other indeterminate, which is only described, then the article which is specified, is the thing sold and the other is the price.

3.

Rules

regarding 1.

the

subject-matter

and

the

price

and

the

consequences

of

difference between the two: The subject-matter must be present. The price may not be.

19

2. 3. 4. 5.

In salam, the price should be given immediately while the subject-matter will According to the Hanafiis when the type of currency is not specified, the sale Iqalh is not possible when the subject-matter which is already possessed by Destruction of the subject-matter of contract before delivery makes the

be delivered later. is voidable while the sale is void if the subject-matter is not specified. the buyer is destroyed. While the destruction of price does not make iqalh impossible. contract void. Destruction of price does not. Effects of Sale Contract The effect of a sale contract is to transfer the ownership of the property from the seller to the buyer and the ownership of money from the buyer to the seller. Sale allows both the parties to use their acquired properties in any way they like within the limits of law. Conditions of sale contract

1. 2.
3.

Conditions necessary for concluding sale. Conditions for the execution of sale. Conditions to render sale valid. Conditions to make sale binding. Conditions necessary to conclude sale a. That related to the contracting parties The party should have capacity. There should be more than one party to the contract. There is no contract

4. 1.

when the same person acts as a buyer and a seller. Except when a father, guardian or a judge when either selling their own property to a minor, or purchasing a miner's property from him or a person is messenger between both parties.

b.

Conditions related to the expression The acceptance must be made to correspond with the proposal. If there is

any variance between offer and acceptance there is no contract; except only the cases where the purchaser makes an offer for a certain price and the seller accepts for less than the price offered or when a seller makes an offer for a certain price and the purchaser accepts for more than the price mentioned, and the increase is accepted by the seller at the meeting.
20

 c.

Unity of session. Conditions related to both the things exchanged Both things should be properties. The thing sold as distinguished from the price, should be in existence at the Deliverability. The object of sale should be capable of delivery or the seller Specification. The object of sale should be known to the purchaser by sight or

time of the sale. Exceptions are made with regard to Salam and Istisna contracts. should be capable to deliver the object of sale. description. If it is sold only by prescription the buyer has the option to cancel the contract after seeing the object. The price should be known to both parties.

2. a.

Conditions for the execution of sale The object of sale should be owned by the seller. A sale entered into

by an unauthorized- Fadhooli- depends on the approval of the owner according to Hanafiis and Malikis. The sale, however, is void according to the Shafiis, and Hanbalis who do not recognize unauthorized agency-Fadhooli. .

b.

That none other than the seller has any right in the thing sold. The

existence of any such right prevents the sale from being operative until the impediment is removed. For instance, when a thing sold is already pledged or rented. To the Hanafiis the contract is Mowqoof which can only be executed after permission is given by the pledge or the tenant. However, to the majority the sale is void and cannot be concluded.

3.

Conditions necessary for the validity of sale Condition necessary for concluding a sale are also general conditions of validity. A sale should not be limited in respect of time. For example, a sale for a year. Both the thing sold and the price should be known and specified. It is not allowed,

for instance, to sell a car which is not defined or to sell a car for the current price and the current price is not defined. This constitutes uncertainty or gharar that may lead to dispute between the parties.

a. b.

A sale should be free from coercion-ikrah-, misrepresentation, and fraud. A sale should be free from vitiating or invalidating conditions. These are

conditions which are not in harmony with the contract, or within the usual scope of such transactions, or depend on events which are imaginative or the time of

21

occurrence of which cannot be predicted with any degree of certainty. (See infra for void conditions) invalid. In sales on credit, the terms of payment should be known, otherwise it is

4.

Condition necessary to render a sale binding

In the absence of options a contract of sale is made obligatory. Conditions that may be put by the parties The parties may add conditions that are harmonious with the nature of a contract. For instance, a seller may require of the buyer a down payment in return for a stated delay in the payment of the price of the goods. Another example of such conditions is taken from the practice of the Prophet p.b.u.h. The Prophet bought a horse from Jabir bin Abdullah on the condition that the seller would give him the horse on his arrival at Madinah. According to the Hanafi, Shafii, and Maliki schools of law conditions put by the parties can either be valid or void. Valid conditions are then sub-divided into three categories. The first group includes those conditions which confirm the effects of sale. For instance, a condition in a contract of sale stipulating that the object of sale be delivered by the buyer is valid. This condition in no way modifies the contract of sale. Similarly, a coat, pants, or a shirt may be worn before the price is fully paid. The seller may insist that he shall keep the sold item until total payment is made. These conditions impose no additional obligations on either of the contracting parties. The second category refers to those conditions the particular effects of which agree with the purpose of the contract of sale. For example the seller may require pledge, or a guarantor if the buyer who wants to pay the price later The third category includes those conditions which are customarily accepted. For example the purchaser may require certain services of little importance that according to customs a seller may provide while concluding a contract of sale. These may include delivery of the sold items, or stipulating a guarantee period during which the purchaser may demand repairing of the sold item. The Hanafis have accepted the latter condition on the basis of Istihsan while the Shafiis and Malikis have accepted the condition as a matter of principle. They argue that the purchaser has the right to enjoy the use of the sold item. Void Conditions The Shariah prohibits all those conditions that may favour one of the parties at the expense

22

of another or conditions that may lead to usury. The Shariah, also prohibits that a sale contract may comprise two agreements one of which is a condition for the other. For example, a person is not allowed to sell an item on the condition that the purchaser sells him something else to replace it, or buys some other article, or rents him the article sold, or lend him either its price or some other sum, or when a loan is given on the condition that the borrower should buy a certain item from the lender. Such conditions are null and void whether they are imposed by the seller or by the buyer. Two sales in one sale When a contract is made, it should not be cancelled in favor of another contract. However when a contract is not concluded it is allowed to make offers or acceptance. When a property is sold to one person and then to the second person the second sale is invalid because the property is no longer in the hands of the owner, he cannot sell it. Similarly, if a man buys goods for either RM100 in cash or RM150 on credit, one of the two prices is imposed on the buyer. This is not permissible, because if he postpones paying the RM100, he would buy the goods for RM150. Sale considered with reference to the thing sold is of four types

1.Sale of things for things or barter trade where a determinate article is sold for another
determinate article. 2. Sale of obligations for obligations where homogeneous properties are exchanged for homogeneous properties for example, in sarf contract where a price or money is sold for another price. 3. Sale of obligation for things which is salam where a price is given for a determinate thing.

4. Sale of things for obligations which is ordinary type of sale where a determinate
article is sold for a price. Price Determination -al-Tasir The principle is that the market is to be free. The price should be determined among other things by the forces of supply and demand. When people complained that the prices of certain items were high and requested the Prophet p.b.u.h. to fix the prices, he replied: Allah is the one who fixes price, who withholds, who gives lavishly, and who provides, and I hope that when I meet Him, none of you would have a claim against me for any injustice with regard to blood or property. Hadith. Thus, unnecessary interference in the freedom of individuals and markets is injustice.

23

However due to some artificial rising of prices such as hoarding and manipulation of prices the public interest takes precedence over the interest of individuals. The state for example, may control the prices of certain essential items. Similarly, dealers in a certain commodity can be compelled to sell their merchandise, which are needed by the people at a reasonable price. Interference in the market may also be necessitated by monopolies.

Prohibited Sales
1. Bay al Hasat (ilqa al-hajar) It was a type of transaction that was conducted by throwing stones. According to this transaction, which was practiced during pre-Islamic times the vendor and the purchaser would agree that a pebble thrown to the air would decide which of the commodities, would be sold. If the pebble for example, would fall on a certain cloth, sheep, or camel, the purchaser would have to buy that particular cloth, sheep, or camel. This type of transaction involved uncertainty. 2. Bay al-Mulamash Refers to a sale where a piece of cloth already folded, would be sold and bought merely by touching. The parties would also renounce their right of option in advance. There was no formal offer and acceptance and mutual consent. A man would touch a garment but was not allowed to unfold or examine it. 3. Bay al Munabadhah It refers to a sale by throwing. The parties would mutually exchange their goods without any preliminary examination. It was a sale concluded by throwing a cloth, an article or a pebble from one to another to signify the sale without any examination or mutual consent. One person would throw a garment to another, and the other would also throw a garment without either making any inspection. Each of them would say, This is for that. 4. Bay al-Muwasafah It referred to a sale of goods, which had not been possessed or inspected. The goods would only be described and its delivery would be made later.

24

5.

Bay al-Muzabanah Muzabanah refers to a sale of exchange where fruits the weight, size and number of which

were not known were sold in bulk for a definite weight, measure, or number of some other fruits. For example an exchange of unknown amount of green dates for a definite measure of ripe dates. 6. Bay al-Mukhadarah The farmer in pre-Islamic times would sell their fruits and green vegetables or grain before they started to ripe. The practice would give rise to a lot of disputes, quarrels and feuds because of fluctuations in the quantity and quality of these commodities or other losses that may happen. The Prophet (S.A.W) is reported to have prohibited such a sale. Do not purchase fruits till their quality is evident. 7. Bay al-Haml It refers to a sale of fetus or the sale of an animal to be brought forth later from the fetus of an animal. The contract implied that a she-camel would give birth and then the offspring would grow up and became pregnant. Further, one would pay the price of a she-camel which was not yet born but which would be born from the immediate offspring of an extant she-camel. The Prophet pbuh is reported to have prohibited such a contract. 8. Concealing the Defects and Cheating Concealing defects of the sold item and cheating were common widespread practices among the traders in pre-Islamic Arabia. The Prophet p.b.u.h. prohibited these practices and commanded that the seller should disclose the defects of his property. The Prophet is reported to have said: Surely, whoever deceives (in business) is not one of us. The Prophet also prohibited giving short measures which was widely practiced among the people of Madinah in pre-Islamic times. 9. Sale of Things which is not Owned The sale of things that were not owned or possessed by the seller was prohibited. It was a common practice among the Arabs in pre-Islamic period to sell goods which they did not own or possess. The Prophet p.b.u.h. instructed people that resale of foodstuffs should only be done after the seller had already possessed them. The Prophet is reported to have said: He who buys foodstuffs should not sell it until he has taken possession of it.

25

10. Najash or Fraudulent Overbidding

Najash refers to an increase in price by a 3rd party who is not actually buying, but wants to encourage others to of:fer a higher price. It refers to someones biding for an item in excess of its price without having any intention of actually buying it, but merely in order to induce others to bid still higher. Usually it is pre-arranged for the purpose of deceiving others. Najash is prohibited. One of you should not make offer over his brothers transaction Hadith

11. Talqi al- Rukban Or a Sale by a city dweller to a desert dweller

Talaqi al-Rukban means meeting a seller on his way to the town and buying from him the commodity before the seller has ever a chance to reach the market and to know the actual price. A city dweller is knowledgeable about the real market price, which a desert dweller is likely to be ignorant of. It was a common practice in pre-Islamic time that merchants from the cities would go to the outskirts to meet desert dwellers coming into the city to sell their products and to buy commodities that they need. They would take advantage of the ignorance of the desert-dwellers. The prophet pbuh prohibited people from going out of town to buy merchandise, which was on its way to the marketplace. The seller may not know the current price of his merchandise and may be defrauded. Access to free and unbiased information should not be blocked. The hadith of the Prophet p.b.u.h. states: He who deceives us is not part of us. Contentious contract 1. Bay al-Urbun (Earnest money)

According to this contract a man would buy certain goods or rent an animal by first giving a certain amount to the seller, on the condition that if he (the buyer) actually bought the goods or rented the animal, then the advance money would go towards payment of the goods or rent of the animal. However, if the goods were not purchased or the animal was not rented, then the seller would forfeit the advanced money. Thus Urbun is a contract where the purchaser is given an option. If he buys the earnest money would become part of the price, if he doesnt he will lose his money. The duration of option is not limited. The majority considers Urbun as prohibited invalid contract. To Hanifiis, it is voidable. To the others, it is void. To the Hanbalis, however, there is no problem with the contract.

26

2.

Bay al-Dain Dain means debt and bay al-dain means the sale of debt. It happens when a person who

has a receivable debt sells it at a discount. The traditional Muslim jurists are unanimous that Bay al-Dain with discount to a third person is not allowed. However, it may be sold to the debtor himself for a lower price. If a debt is sold at its par value to a third person, the transaction may fall under Hawalah. Some scholars argue that debt can be sold in a case where it is created through the sale of a commodity. They distinguish between the two types of debt one created through a loan while the other created through the sale of a commodity. They contend that baial-dain is permissible where the debt is created through the sale of a commodity. In this case, they say, the debt represents the sold commodity and its sale may be taken as the sale of a commodity. The opponents make a counter argument. They say that once the commodity is sold, its ownership is passed on to the purchaser and it is no longer owned by the seller. What the seller owns is nothing other than money. Therefore, if he sells the debt, it is no more than the sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity. Those who oppose the sale of debt also argue that the prohibition of bai al-dain is a logical consequence of the prohibition of riba or interest. A debt receivable in monetary terms corresponds to money, and every transaction where money is exchanged for the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to riba and can never be allowed in Shariah. The Syariah Advisory Council of the Security Commission, however, contends that securitized debts are different from currencies and therefore cannot be classified under ribawi goods. Thet, therefore, argue that the transaction is not bound by the conditions for exchanging ribawi goods. Those who oppose the sale of debt also argue that the seller may not be able to deliver the debt to the buyer. They, therefore, argue that there is an element of gharar that results from the absence of qabad. i.e. the possible inability of the seller to deliver it. Furthermore, the Hanafis also do not include Dain which is a type of claim or a right in the definition of properties mal.

27

The Syariah Advisory Council of the Security Commission after analyzing the opinions in the various figh schools argue that the main reason why past Muslim jurists disallowed Bay al-Dain Centred on the ability of the seller to deliver the items sold. The Council argue that this may arise in the absence of supervision and control. It was of the opinion that in the Malaysian context, the debt securities instruments developed according to the principle of bai dayn are regulated by Bank Negara Malaysia and the commission to safeguard the rights of the parties involved in the contract. The Council contended that the conditions set by the Maliki mazhab and the fears of risks by the Hanafi mazhab can be overcome by regulation and surveillance. The council concluded that bai dayn can be used if there is a regulatory system that protects the buyers maslahah in an economic system.

3.

Bay al-Inah If the parties have the intention to enter into an agreement and all the conditions regarding

offer and acceptance, competence of the parties and the subject matter are met, the contract is valid. Otherwise it is not valid. The question that could be raised here is whether the fulfillment of these conditions and the existence of consent are sufficient ground for the validity of a contract or we have to look behind intention to the motive and investigate whether the motive was lawful or not. Does the existence of unlawful motive behind a lawful contract make a contract invalid? Is the intention to transfer the ownership sufficient to form a contract or we have to look behind and ask what was the motive behind the intention? Can motive determine the validity of a contract? To the Shafiis and Hanafis, motive is something hidden and is left to God. They say that the Shariah requires that the parties enter into a contract by mutual consent and that all the pillars and conditions of the contract should be fulfilled. They argue that motive depends on the will of the parties. While the consent is of a general nature applicable to all persons, the motive is personal and changes from person to person. They, therefore, look at the intention of the parties in concluding a contract and not at their motives. To them the motives of the parties do not affect the validity of a contract, as long as all other conditions are fulfilled. Hanafii and Shafii schools have classified Bay al-Inah as contractually correct agreements which could be considered abominable and in some cases may amount to Haram. The Malikis and Hanbaliis, on the other hand, have prohibited them emphatically.

28

The following are examples of Bay alInah: 1. B is a borrower while L is a lender and the rate of interest is fixed at 20 %. B sells a certain item to L for RM 100.B gets the money and L the article. L then sells the same item to B for RM 120.Thus B gets RM 100 and the item while L gets a claim against B for RM 120.

2.

B is a borrower L is a lender and T is a 3rd party. L sells to the borrower B an article for a price on credit for RM 120. B takes the item and sells it to the 3 rd person T for a lesser sum RM 100 in cash. T sells it to the lender L for the same RM 100 price for which he has purchased it from B. T takes the price from L and gives it to B. L gets his article and B gets RM 100 in cash. He however has to pay RM 100 to L as the price for the item.

3. B asks L to lend him RM 100. L does not want to lend him money. Instead, L would sell to B an item for RM 120. The item however can be sold in the market for RM 100. B buys the article from L for RM 120 and sells that in the market form RM 100. Thus B gets the cash but he has to pay L RM 120 as the price for the item. According to Ibn Qayim Al-Jauziyah example No 3 is the least bad. Imam Ahmad ibn Hanbal according to one view is said, to have allowed it if the borrower is under dire necessity. About the two other types Ibn Qayim remarks that the sale is fictitious and unreal.

29