Transactions (Buyu')

Islam permits commercial exchange as a necessary and beneficial activity, while laying down clear conditions to ensure transactions are just, transparent, and free from exploitation. Allah Most High says: "Allah has permitted trade and forbidden usury” (al-Baqarah 2:275). The Prophet, peace be upon him, said: "The truthful, trustworthy merchant will be with the prophets, the truthful, and the martyrs” (Tirmidhi). Islam's commercial law aims to protect both parties from harm and deception.

Definition of Bay' (Sale): A sale (bay') is a mutual exchange of property for property with the mutual consent of both parties. It is one of the most common and important contracts in Islamic commercial law.

Pillars (Arkan) of a Valid Sale: A sale requires: (1) Two contracting parties — the seller and the buyer — who must both be sane, adult (or with guardian permission for a minor), and acting voluntarily without coercion; (2) The offer (ijab) and acceptance (qabul) — which may be verbal, written, or by conduct (mu'atah) in the case of small transactions; (3) The subject matter (mabi') and the price (thaman) — both must be lawful, exist at the time of the contract, be owned by the seller, be deliverable, and be known to both parties.

Conditions for the Validity of the Subject Matter: The item being sold must be: pure (not an impure substance like alcohol or pork); of benefit in the Shariah sense; owned by the seller or with the owner's permission; capable of being delivered; and known in description, quantity, and quality to avoid gharar (uncertainty).

Prohibited Transactions: Islamic law prohibits several categories of sale: (1) Bay' al-gharar — sale involving major uncertainty about the existence, quantity, or delivery of the item, such as selling fish in water or birds in the air; (2) Bay' al-mudtarr — exploiting a person in dire need by charging excessively beyond the market price; (3) Selling what one does not own and has no right to sell; (4) Selling a commodity before taking possession; (5) Najsh — artificially inflating bids in an auction without intention to buy; (6) Bay'atayn fi bay'ah — two sales in one; (7) Selling grapes to one who will make wine, or weapons to one who will use them unlawfully.

Khiyar (Option to Cancel): Islamic law grants both parties certain rights of cancellation (khiyar). Khiyar al-majlis: the right to cancel while both parties are still in the same gathering after the contract. Khiyar al-shart: a stipulated period during which either party may cancel. Khiyar al-'ayb: the right to return goods with hidden defects. Khiyar al-tadlis: the right to return if the seller misrepresented the goods.

Salam and Istisna': Salam is a contract in which full payment is made upfront for goods to be delivered at a future date. This is permitted as an exception to the prohibition against selling what one does not own, subject to precise specification of the goods, quantity, quality, and delivery date. Istisna' is a manufacturing contract where someone orders an item to be made.