Islamic Banking & Finance BS Accounting & Finance

ELEMENTS OF SALE
Elements of Sale Outline of the Presentation

 Essential elements of sale

 Contract
 Subject Matter
 Price
 Delivery or Possession
Elements of Sale Sale

 Sale is defined in Shariah as “the exchange of a thing of value by another thing of value with mutual
consent”
 Example: Sale of a commodity in exchange of cash
Permissibility
“Allah has permitted sale and prohibited Riba.” (Surah AlBaqarah)
Types of Sale
 Valid sale (Bai Sahih)
 Void/Non existing Sale (Bai Baatil)
 Existing sale but void due to defect (Bai Fasid)
 Valid but disliked sale (Bai Makrooh)
Elements of Sale Essentials of a Valid Sale

1. Contract or Wording of the Contract

A contract must fulfill the following
1.1 Offer & Acceptance (Ijab o Qubool)
 Offer means that one person proposes to either sell his commodity to another or buy from him
 Acceptance means that a person who has been offered gives his consent/ approval of the proposal
 Offer and acceptance are always done in past tense
 Example: I have sold or I have purchased
There are two ways of doing it
 Oral/Verbal (Qauli)
 Implied (Ishara)
Elements of Sale Essentials of a Valid Sale

Oral/Verbal (Qauli)
 By saying or expressing in such a manner that the transaction is executed
 Example: One can say “I have sold” but one can not say “I Shall sell to you”
Implied (Ishara)
 By indicating. This is of two types
 Credit Sale (Istijrar)
 Example: Settlement of bill at the end of the month
 Hand to Hand Sale (Ta’ati)
 Exchange of money with goods without uttering Ijab o Qubool
 Example: Purchase of commodities in super markets
Elements of Sale Essentials of a Valid Sale

1.2 Buyer & Seller (Muta’aqidain)

Both parties i.e. buyer and seller must be
Sane
 Should be mentally sound at the time of executing contract
Mature
 Should be adult. However, in case of a minor, he must understand the nature of transaction
Elements of Sale Essentials of a Valid Sale

1.3 Conditions of Contract

 Sale must be non-contingent
 Unconditional contract
 Under reasonable conditions
 Under unreasonable conditions but in market practice
 Sale must be immediate
Elements of Sale Essentials of a Valid Sale

1.3 Conditions of Contract

i. Sale must be non-contingent
 The delivery of the sold commodity to the buyer must be certain and should not depend on a
contingency or chance
 Example: ‘A’ sells his stolen car to ‘B’ who purchases it with a hope that he will manage to recover
it. This sale is void
a. Unconditional contract
 The sale must be unconditional. For example: ‘A’ buys a car from ‘B’ with a condition that
‘B’ will employ his son in his firm. This sale is conditional and hence it is invalid
Elements of Sale Essentials of a Valid Sale

b. Under reasonable conditions

 The condition of sale should not go against the contract. For example: ‘A’ asks ‘B’ to deliver
goods within a month. This sale is valid
c. Under unreasonable conditions but in market practice
 If a sale is under unreasonable condition but it is in the market practice and it is not against the
teaching of Quran and Sunnah, the sale is valid
 Example: ‘A’ buys a refrigerator from ‘B’ with a condition that ‘B’ undertakes its free service for
a year
Elements of Sale Essentials of a Valid Sale

ii. Sale must be immediate

 Sale must be immediate and absolute
 Sale attributed to a future date or contingent on a future event is void
 Example: ‘A’ says to ‘B’ on January 1: I sell my car to you on February 1. The sale is void as it is
attributed to a future date
 Similarly, ‘A’ says to ‘B’: If ‘X’ party wins the elections, my car stands sold to you. The sale is
void as it is contingent on a future event, which may or may not occur
 However, in some specific cases, promise to sell on a future date may be allowed
Elements of Sale Essentials of a Valid Sale

2. Subject Matter or Goods for Sale (Mabee’)

2.1 Existence
2.2 Valuable
2.3 Usable
2.4 Capable of Ownership
2.5 Capable of Delivery/ Possession
2.6 Specific and Quantified
2.7 Seller must have title and Risk
Elements of Sale Essentials of a Valid Sale

2. Subject Matter or Goods for Sale (Mabee’)

2.1 Existence
 Subject matter of sale must exist at the time of sale
 A thing which is not possessed and cannot be delivered cannot be sold
 A thing which has not yet come into existence cannot be sold
 If a non-existent good is sold even with mutual consent, the sale is void
 Example: ‘A’ sells the unborn calf of his cow to ‘B’. This sale is void
2.2 Valuable
 The subject of sale must be a property of value
 A thing having no value according to the usage of trade such as leaf or stone on a road side cannot
be sold or purchased
Elements of Sale Essentials of a Valid Sale

2. Subject Matter or Goods for Sale (Mabee’)

2.3 Usable
 The subject matter of sale must have a permissible use
 It must not be a thing which is haram such as pork, wine etc
2.4 Capable of Ownership
 The subject mater must have the capability of being owned
 It must not be a thing which is not capable of ownership like sea, sky
2.5 Capable of Delivery/ Possession
 The subject matter must be possessed and has the capability to be delivered
 It must not be a thing which is non-existent or not yet produced
Elements of Sale Essentials of a Valid Sale

2. Subject Matter or Goods for Sale (Mabee’)

2.6 Specific and Quantified
 Subject matter of sale must be specifically known and identified
 It may be identified through pointing out or by detailed specification
2.7 Seller must have title and Risk
 The subject matter of sale must be in the ownership of the seller at the time of sale
 The speculation in shares without acquiring ownership and risk
Elements of Sale Essentials of a Valid Sale

3. Price (Thaman)
3.1 Existence (Maloom)
 The measuring unit of the price must be known such as currency
3.2 Specified & Certain (Muta’aiyan)
 The price should be ascertained and specified such as total amount in Rupees etc.
 If the price is uncertain, sale is void
Elements of Sale Essentials of a Valid Sale

4. Delivery or Possession (Qabza)

 The subject of sale must be in physical or constructive possession of the seller at the time of
sale
4.1 Physical (Haqiqi)
 Physical possession means where the possessor has taken actual and physical delivery of the goods
from the seller
4.2 Constructive (Muta’aiyan)
 Constructive possession is a situation where the possessor has not taken the physical delivery yet
the goods has come into his ownership and all the rights and liabilities are passed on to him
including the risk of destruction
Elements of Sale BS Accounting & Finance

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