Principles of Trading in Islam (Part. 2)

Types of Contract and It’s various law consequences

Among the principle that shall be recognized by every businessman or businessman-to-be, is to recognize various types of contracts, and it’s law consequence. This is important to know and always be considered, since based on my own experience, by mastering these contracts and each of it’s consequence, we’ll be easier to understand various sharia law regarding these contracts. [Division of these contracts is extracted from several references as follow: Qawaidh Ibn Rajab Al Hambaly 1/375, principle no.52, & 2/418, principle no. 105, Al Muwafaqat by As Syathiby 3/199, As Syarhul Mumti’ by Sheikh Ibn Uthaymeen 8/278, 9/120, 127-129, Ad Dirasyat As Syar’iyah li Ahammil uqud Al Maliyyah Al Mustahdatsah, by Dr. Muhammad Musthofa As Syinqity 1/73-89]

DIVISION OF CONTRACTS IN TERMS OF GOALS

If we notice the goals or aims of various of contracts occurred between two or more people, we’ll be able to divide the contracts into three types:

First: The contract that was made to gain profits, thus every one who performed the contract will always be aware that his partner in contract continuously trying to get profits from their contract.

This contract usually contains a bargaining process, thus each partner involved in it wont be surprised or feel sorry if one day he finds out that his partner is able to get profits from their contract.

Real example of this type of contract is selling and buying (trading), renting, trading partnership, tillage of land (contract of musaaqah), etc.

Basically, Islamic law justify this type of contract.

Second: The contract that is aimed to give credits, aids, services, or assistance to other people. Or, in another word, the non-profit contracts.

Usually, people who sign for this type of contract usually in the need of help or afflicted by problems. Thus, they aren’t willing to let other people make use of their troubled position, to gain profits from the aids they gave.

Real examples of this type of contract are: debt contracts, deposits, loans, charities, gifts, marriage, etc.

Due to it’s basic aim, The sharia doesn’t allow for anyone to gain profits from it.

يَمْحَقُ اللّهُ الْرِّبَا وَيُرْبِي الصَّدَقَاتِ وَاللّهُ لاَ يُحِبُّ كُلَّ كَفَّارٍ أَثِيمٍ

“Allah deprives interest of all blessing, whereas He blesses charity with growth. Allah loves none who is ungrateful and persists in sin.” (Qs. Al-Baqarah/The Cow: 276)

In this verse, Allah the Exalted threaten the usurer and after that mention the rewards of the charity giver. This is a clear sign for us that usury is against charity. This fact is strengthen by the following verses:

يَا أَيُّهَا الَّذِينَ آمَنُواْ اتَّقُواْ اللّهَ وَذَرُواْ مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ . فَإِن لَّمْ تَفْعَلُواْ فَأْذَنُواْ بِحَرْبٍ مِّنَ اللّهِ وَرَسُولِهِ وَإِن تُبْتُمْ فَلَكُمْ رُؤُوسُ أَمْوَالِكُمْ لاَ تَظْلِمُونَ وَلاَ تُظْلَمُونَ . وَإِن كَانَ ذُو عُسْرَةٍ فَنَظِرَةٌ إِلَى مَيْسَرَةٍ وَأَن تَصَدَّقُواْ خَيْرٌ لَّكُمْ إِن كُنتُمْ تَعْلَمُونَ

“Believers! Have fear of Allah and give up all outstanding interest if you do truly believe. But if you fail to do so, then be warned of war from Allah and His Messenger. If you repent even now, you have the right of the return of your capital; neither will you do wrong nor will you be wronged. But if the debtor is in straitened circumstance, let him have respite until the time of ease; and whatever you remit by way of charity is better for you, if only you know.” (Qs. Al-Baqarah/The Cow: 278-280)

Thus, it is mentioned in a famous principle in jurisprudence that:

كل قرض جر نفعا فهو ربا

“Every debt that yields profits, is a usury.” (See: Al Muhazzab by As Syairazy 1/304, Al Mughny by Ibn Qudamah 4/211&213, As Syarhul Mumti’ 9/108-109, etc)

Third: The contract that serves as a guarantee for the payable rights. Hence, this contract usually performed together with debt contract, and it is not permitted for the creditor to take advantage from the guaranteed goods. If the creditor got profits or advantage from it, he is considered to commit usury, as explained in the principle above.

Furthermore, property and it’s usage belong to the owner, and no one is allowed to use it without permission and willingness of that owner.

لا يحل مال امرئ مسلم إلا بطيب نفس منه. رواه أحمد والدارقطني والبيهقي، وصححه الحافظ والألباني

“Properties of a muslim is unlawful but by his willingness.” (Narrated by Ahmad, Ad Daraquthny, Al Baihaqy ; classed sahih by Al Hafizh Ibnu Hajar and Al Albani)

What excluded from the general scope of this law is, if the profit is required at the time of trading or renting or similar contracts to it [2], by owed payments. (See: Majmu’ Fatwa Al Lajnah Ad Daimah 14/176-177, fatwa no: 20244)

For example, A sold a car to B with a price of IDR 50.000.000,- and the settlement was due after a year, with a house as the guarantee. If, during the signing of selling contract A required to be able to settle in the house for a year until the due date, and B agreed with the requirement, then A was rightful to use that mortgaged house of B. Because, by this practice, basically, A has sold his car for IDR 50.000.000,- plus the renting fee of the house for a year.

But if the contract has already been signed, A wouldn’t be allowed to use the house, with or without permission from B, since by using the house, A would get profits from the credit he gave and this is a form of usury, as mentioned by the principle above.

Examples of such contracts are: mortgaging (ar rahn), warranty (kafalah), testimony, etc.

Advantages of knowing the division of contracts in terms of it’s goals

By understanding this type of division, we’ll be able to understand the reason and wisdom beneath the prohibition of usury, as well as to understand the wisdom beneath distinction between usury and selling and buying contract.

الَّذِينَ يَأْكُلُونَ الرِّبَا لاَ يَقُومُونَ إِلاَّ كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ذَلِكَ بِأَنَّهُمْ قَالُواْ إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا وَأَحَلَّ اللّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا

“As for those who devour interest, they behave as the one whom Satan has confounded with his touch. Seized in this state they say: “Buying and selling is but a kind of interest,” even though Allah has made buying and selling lawful, and interest unlawful. Hence, he who receives this admonition from his Lord, and then gives up (dealing in interest), may keep his previous gains, and it will be for Allah to judge him. As for those who revert to it, they are the people of the Fire, and in it shall they abide.” (Qs. Al Baqarah/The Cow: 275)

One or several of the benefits of knowing the division of contracts in terms of it’s goals will be seen when a feud happened due to defects in objects of a contract. Because such defect will strongly influence the process of the first type-contract. But it’s existence will have no influence on the second and third type of contracts.

DIVISION OF CONTRACTS IN TERM OF IT’S CONSEQUENCES

Contracts and agreement occurred between men, in terms of the basic attribute of the contract, could be classified into two big groups.

First: Contract that binds both parties

The meaning of “bind” here is that if a contract has been finished by fulfilling all of it’s requirements, the consequence of such contract should be obeyed and no one might cancelled it without the willingness of the second party, unless there is a defect in goods that became the object of contract.

Among the examples of such contracts are selling and buying contract, marriage, etc.

Second, Contract that binds only one party, thus the first party is not deserved to cancel the contract without permission and willingness of the second party, but the second party is rightful to cancel the contract whenever he likes.

Among the examples of these contracts is: Mortgaging contract. In such contract, the creditor deserves to return the mortgaged goods he received whenever he likes, while the debtor who is also the owner of the mortgaged goods do not have any right to cancel the contract without permission from the creditor.

Third: The non-binding contract

That is a contract where each of the party involved is rightful to cancel the contract whenever suits him even without permission of the second party, and without any defects in the object of that contract.

Among the examples of this type of contract are: contract of trading partnership, profit sharing system, deposit, loans, will, etc.

Benefits of knowing the division if contracts in terms of it’s consequence

By knowing this division, we’ll be able to understand the law of various controversies occurred in society due to a dispute about who’s responsible of the damages happened in the goods that become the object of a contract.

Among the benefits of knowing the division of contracts from this perspective is that: we’ll understand the law of canceling the already-signed contract, because at the first type of contract, it is not allowed for anyone from both parties who have signed the contracts to cancel it unless by the permission of the second party.

While at the second type of contract, for the bounded party, it is not rightful to break or cancel the contract without any permission of the second party, but the second party deserves to cancel it whenever it likes even though without permission of the first party.

And at the third type of contract, both parties deserve to cancel the contract, without permission from the other party.

There are still many kind of divisions of contract in various terms, but I think that the most important to know are the previously discussed divisions.

PROFIT IN ISLAMIC SHARIA

Along with the surge of influences come from the mindset of the disbelievers who have no faith in Allah and the Last Day, most of muslim experts in economy also become narrow minded in viewing the meaning of profits.

Most of them obediently follow the theories and doctrines of their enemy. This attitude could be seen inside two big doctrines:

  • That there is only one profit, that is the material profits or or advantages that lead to it.
  • Every fund that we manage by our own or that is used by our brother, should yield material profits to us. It will give a misleading impression that business world is identical to profits, while it actually recognizes loss too.

These two doctrines are the mirror image of how far are the businessmen today from beliefs in Allah and the Last Day.

These doctrines are among the causes that trap the businessmen into unlawful practices, seeking for the material profits by legalizing all ways to achieve it.

يا معشر التجار! فاستجابوا لرسول الله صلى الله عليه و سلم ورفعوا أعناقهم وأبصارهم إليه، فقال: إن التجار يبعثون يوم القيامة فجارا، إلا من اتقى الله وبر وصدق. رواه الترمذي وابن حبان والحاكم وصححه الألباني

“O people of trade!” They turn their heads to him, paying attention to the calling of the messenger of Allah -peace and prayer of Allah be upon him- . He said, “Indeed, on the Hereafter the merchants will be resurrected as the wicked ones but the pious merchant, perform righteous deeds, and honest. “ (Narrated by At Tirmidhi, Ibn Hibban, Al Hakim, and classed sahih by Al Albani).

Brother! It is evident that those doctrines (of the disbelievers) are unable to applied and should not be practiced by the muslims.

Islamic sharia have taught it’s followers to have an open minded and broad perspective regarding the meaning of profit in business.

Islam has introduced it’s followers to a concept that states that the profit of business could be established in two things:

  • Material profits or real profits
  • Immaterial profits, such as blessing in wealth, rewards, and Allah’s please.

Brother, think about the two hadith below:

First,

عن حكيم بن حزام رضي الله عنه عن النبي صلى الله عليه و سلم قال: البيعان بالخيار ما لم يتفرقا، فإن صدقا وبينا بورك لهما في بيعهما، وإن كذبا وكتما محقت بركة بيعهما. متفق عليه

“It was narrated from Hakîm bin Hizâm that the Prophet said: “The two parties to a transaction have the option (of canceling it) until they part. If they are honest and disclose any defects, their transaction will be blessed, but if they lie and conceal defects the blessing will be erased.” (Muttafaqun ‘alaih)

Second,

عن حذيفة رضي الله عنه قال: قال رسول الله صلى الله عليه و سلم أتى الله بعبد من عباده آتاه الله مالا، فقال له: ماذا عملت في الدنيا؟ قال: ولا يكتمون الله حديثا. قال: يا رب آتيتني مالك، فكنت أبايع الناس، وكان من خلقي الجواز، فكنت أتيسر على الموسر وأنظر المعسر، فقال الله: أنا أحق بذا منك، تجاوزوا عن عبدي. متفق عليه

“Hudzaifa -may Allah be pleased with him-said: The messenger of Allah -peace and prayer of Allah be upon him- said: Allah bring in one of His slave whom He bestowed upon wealth, and Allah said to him: What did you do on earth? (And they can’t hide anything from Allah) [Chapter:The Women:42]. He reply: O my Lord, You have bestowed upon me wealth, and I used to trade with other people, and I used to (my attitude) give them ease, I used to lighten (the bills) of the have and postpone (the bills of) the poor. Allah decree: I am more rightful than you to do such, make the affairs of this slave of Mine easy.” (Muttafaqun ‘alaih)

Based on this, Islamic sharia divided transactions in terms of it’s goals into three major parts, as explained in the first point.

As for the limit of profits, basically there are no indications that mention the appropriate limit of profits. Hence, no matter how much the profits taken by a businessman, as long as, the transaction is based upon consensual principle, it is considered legal in Islam.

عن عروة البارقي رضي الله عنه قال أعطاني رسول الله صلى الله عليه و سلم دينارا أشتري به أضحية أو شاة فاشتريت شاتين فبعت إحداهما بدينار فأتيته بشاة ودينار. فدعا له بالبركة في بيعه، فكان لو اشترى التراب لربح فيه. رواه أبو داود والترمذي وابن ماجه

“From Urwah Al Bariqy -may Allah be pleased with him-, he said: The Messenger of Allah -peace and prayer of Allah be upon him- gave me one Dinar to purchase a sheep for him. So I purchased two sheeps for him, and I sold one of them for a Dinar. So I returned with the sheep and the Dinar to the Prophet -peace and prayer of Allah be upon him- and I mentioned what had happened and he said: ‘May Allah bless you in your business dealings.’ Thus, if he were to buy the dust, he would get profits in it.” (Narrated by Abu Dawud, At Tirmidhi, Ibn Maja)

However, it is advised to all muslim businessman to make ease and lighten the affairs of his brothers, also in trading, without making any exception.

عن حذيفة رضي الله عنه قال: قال رسول الله صلى الله عليه و سلم : أتى الله بعبد من عباده آتاه الله مالا، فقال له: ماذا عملت في الدنيا؟ قال: ولا يكتمون الله حديثا. قال: يا رب آتيتني مالك، فكنت أبايع الناس، وكان من خلقي الجواز، فكنت أتيسر على الموسر وأنظر المعسر، فقال الله: أنا أحق بذا منك، تجاوزوا عن عبدي. متفق عليه

“Hudzaifa -may Allah be pleased with him-said: The messenger of Allah -peace and prayer of Allah be upon him- said: Allah bring in one of His slave whom He bestowed upon wealth, and Allah said to him: What did you do on earth? (And they can’t hide anything from Allah) [Chapter: The Women:42]. He reply: O my Lord, You have bestowed upon me wealth, and I used to trade with other people, and I used to (my attitude) give them ease, I used to lighten (the bills) of the have and postpone (the bills of) the poor. Allah decree: I am more rightful than you to do such, make the affairs of this slave of Mine easy.” (Muttafaqun ‘alaih)

Brother, as already mentioned above, that in the business world, there is a couple that always come together: that is profit and loss. The question is; Who deserve to get material profit in Islam?

The answer : That is one who’s ready to accept the reality if the business world as the way it is. If it suffers from loss, he’ll be ready to bear it, and if it yields profits, he’ll also be glad to receive it. Such businessman deserves to get profits. This is one of the trading principle that was depicted by the Prophet -peace and prayer of Allah be upon him-, in his saying,

الخراج بالضمان

“Income/advantage is the return of readiness to bear the collateral.” (Narrated by Ahmad, Abu Dawud, At Tirmidhi, An Nasai; classed good by Al Albani)

CONSENSUAL PRINCIPLE

Islamic sharia is a set of laws that truly respect the ownership of it’s followers. Thus, it is not allowed for anyone to take or to use the property of his brothers unless he is willing to let it happened, either in trading or other forms.

Allah the Exalted decreed,

يَا أَيُّهَا الَّذِينَ آمَنُوا لا تَأْكُلُوا أَمْوَالَكُمْ بَيْنَكُمْ بِالْبَاطِلِ إِلَّا أَنْ تَكُونَ تِجَارَةً عَنْ تَرَاضٍ مِنْكُمْ

“Believers! Do not devour one another’s possessions wrongfully; rather, let there be trading by mutual consent; and do not kill yourselves. Surely Allah is ever Compassionate to you.” (Qs. An Nisa’/The Women: 29)

The Prophet -peace and prayer of Allah be upon him said:

لاَ يَأْخُذَنَّ أَحَدُكُمْ مَتَاعَ أَخِيهِ لاَعِبًا وَلاَ جَادًّا، وَمَنْ أَخَذَ عَصَا أَخِيهِ فَلْيَرُدَّهَا. رواه أحمد وأبو داود والترمذي وصححه الألباني

“For (each) one of you to not taking his brother possessions, whether he is pretending to do so or with a vengeance. And whoever has already taken – for example – the stick of his brother, should return it immediately.” (Narrated by Ahmad, Abu Dawud, At Tirmidhi; classed hasan by Al Albani)

In another hadith, he also said:

لاَ يَحِلُّ مَالُ امْرِئٍ مُسْلِمٍ إِلاَّ بِطِيبِ نَفْسٍ مِنْهُ. رواه أحمد والدارقطني والبيهقي، وصححه الحافظ والألباني

“The property of a muslim is illegal (for the others to take) but by his willingness,” (Narrated by Ahmad, Ad Daruquthny, Al Baihaqi; classed sahih by Al Hafizh Ibn Hajar and Al Albani)

And in another hadith, he -peace and prayer of Allah be upon him- specifically mentioned about trading:

إنما البيع عن تراض. رواه ابن ماجة وابن حبان وصححه الألباني

“Verily, a (true) trading is a trading that is based on the sense of consensual.” (Narrated by Ibn Maja, Ibn Hibban, and classed sahih by Al Albani)

Hence, it is not allowed for both parties who run a transaction to be parted one another before they achieve an agreement.

If no agreement occurred between them, it means no transaction occurred as well.

لا يفترقن اثنان إلا عن تراض. رواه أحمد وأبو داود والترمذي والبيهقي وصححه الألباني

“For two man who are transacting selling and buying to not be parted from each other but based on the sense of consensual.” (Narrated by Ahmad, Abu Dawud, At Tirmidhi, Al Baihaqi; classed sahih by Al Albani)

Based on this requirement, a contract that was performed due to coercion without any legal reason is considered invalid.

coerced or forced one is a cornered one, thus he is unable to reject the transaction, and he is forced to sell his properties. For example, if there is a person who force other to sell his property, otherwise he’ll kill him, and the other one, fear of being killed, sell his property, the status of such contract is invalid, since it is not based on consensual principle.

Sheikh Ibn Uthaymeen -may Allah have mercy on him- gave an example for this requirement by saying,

“If you know that this seller sold his goods to you merely due to his shyness and bashfulness, then it is not allowed for you to buy it from him, as long as you know that if it was not for his shyness and bashfulness, he wouldn’t sell it to you. Thus, the scholars -may Allah have mercy upon them- said: It is unlawful to accept gift from someone who gave it to you just because he felt shy to you, because although he did not tell straightly that he was unwilling to do it, but his attitude evidently showed that he was unwilling.” (See: As Syarhul Mumti’ 8/121-122)

It is important to notice that the meaning of ‘coercion’ in this context is a type of coercion without any legal basis.

But if there is a person who was coerced of forced to sell his goods due to a right reason, and he sold it, the selling contract is valid. As the consequence, we are allowed to buy it from him. That is because such contract is aimed to establish the truth, and do not mean to afflict wrongdoing or to rob other people’s possessions.

For example: One who has mortgaged his house to another man as a guarantee of a debt he took from him, and when the due time came the debtor was unable to settle his debt, then, that mortgaged house should be sold to settle his debt, whether he was willing to do it or not.

These are things that I can explain in this occasion, and I hope it’ll be useful for us all.

اللَّهُمَّ اكْفِنِا بِحَلاَلِكَ عَنْ حَرَامِكَ وَأَغْنِنِا بِفَضْلِكَ عَمَّنْ سِوَاكَ

“O Allah, please bestow upon us sufficiency with legal sustenance from You, from consuming wealth that You forbid, and suffice us with Your generosity from hoping to get a helping hand from other than You.” And Allah knows best.

Footnotes:

[1]. The meaning of deposit in this context is a deposit without any fee. As for the kinds of deposit that commonly found in our society, such as motorcycle deposit, car deposit, etc, that require some amount of deposit fee, are not considered as the true contract of deposit, but selling and buying of service, that is termed as the contract of ‘ijarah’ (Working contract) in Islamic jurisprudence.

[2]. The meaning of a similar contract to both of it is every contract that is performed to gain profits.

***

Author: Ustadz Dr. Muhammad Arifin Badri, M.A.
Article of www.syaria.com


Description: types of trade in islam, forms of trade in islam, trade and business in islam, meaning, translate

Keywords: what, is, the, wisdom, behind, profitable, business, in, islam

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