bay al salam and bay al istina are

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BAY AL SALAM AND BAY AL ISTINA ARE
TWO CONTRACTS WHERE THE SUBJECT
MATTER IS ABSENT DURING AQAD.
HOWEVER THE MUSLIM JURIST TREAT
THEM AS VALID AND EFFECTIVE. DISCUSS
NUR AZIMUL AZAMI
KHAIRUL ANUAR BIN ABDUL HADI
AHAMAD FAKHRI ABU SAMAH
MOHD HAZIQ DHIZAUYUDIN
GENERAL RULE
• Aqad
WHAT DOES IT MEAN?
• Literally :
“al-’Aqd” means to tie (between two ends), to fasten, to link together.
•
In legal view, it has two interpretation either general interpretation or specific
interpretation.
In general :
anything that is intended by a person to do/perform; either based on his own
will, eg, endowment (waqaf), divorce (talaq); or depended on wills of at least
two parties, eg, sale (al-bay’), marriage (nikah)
In specific:
‘aqd means a connection of the words of one party (ijab) to the words of the
other party (qabul) which constitutes legal implication on the subject matter.
(Hurryah el Islamy, Business on the internet: Islamic Persepective and its
Comparison with Common Law and the Law as Applicable in Malaysia)
Cont;
• Among the legal authority that show the recognition of ’aqd in
Islamic Law as follow:
• Surah al-Maidah 5:1:
“O ye who believe! Fulfill all obligations
• Similarly in surah al-Taubah 9:4, :
“… So fulfil your engagements with them to the end of their term, for
Allah loves the righteous.”
• From the hadith, the Prophet (PBUH) expressly stated:
that “Muslims are bound by their conditions (Narrated by AlBukhari), … except condition to make lawful what is unlawful and to
make unlawful what is lawful (narrated as the continuance to the first
hadith by al-Asqalani)
Elements of aqad
Hanafi
Majority
• Ijab
• Qabul
• Sighah ( consists of Ijab
& Qabul
• Contracting Parties
• Subject Matter
Subject matter
• Muslim jurists had laid down four
conditions for the subject matter:
1. The subject matter must exist
2. It can be delivered
3. It can be ascertained
4. It must be legal
The subject matter must exist
• Islamic law requires that subject matter
must be in existence at the time when an
‘aqd is concluded. Otherwise an ‘aqd is
void, even if the subject matter would exist
in the future.
• Exception is given to bay al-salam (sale by
advance payment for the future delivery),
bay al-istisna (contract of manufacture)
BAY AL SALAM
• WHAT DOES IT MEAN?
• Is also known as ‘deferred sale’
• Bay’ al-salam is a sale of an object, which is not
available at the time of the conclusion of the sale, but will
be delivered in the future on a fixed future date.
• The price is, however,to be paid immediately during the
session of the contract
• In other words, the transaction is called bay’ al-salam,
when it is a sale for an agreed price with immediate
payment for a determinate thing, to be delivered in the
future on a fixed date. ( Mohd Zulkifli Mohammed and
Rosita Chong as quoted from Nawawi, 1999, Islamic law
on commercial transactions)
Cont;
• A bay’ al-salam contract is a sale with deferred delivery. It is similar
to a conventional forward contract, but key differences exist.
• Sale in its general sense also comprises forward sales (salam) in
which one of the counter value namely, the price is paid at the time
of contract but delivery of the object of salam is postponed to a later
date.
• The payment on a forward contract is not due until the buyer
officially gains control of the asset.
• In a bay’ al-salam contract, two parties agree to buy or sell an asset
in the future, but the payment is due at the time of the contract, not
at the time of the exchange of control.
• In a conventional forward contract, two parties agree to buy or sell
an asset at a specified time in the future. (Mavrakis Nadia, Islamic
Finance, A Vehicle for Economic Developmet, 2009)
Authority
• Quran:
• O you who believe! When you deal with
each other in transaction involving future
obligation for a fixed period (idha
tadayantum
bi-daynin
ila
ajalin
musanman), reduce them into writing. Let
a scribe write down faithfully as between
the parties. (2:282)
Cont;
• Hadith:
Ibn Abbas narrated that when the Prophet
arrived in Medina found that the people had
been practicing forward sales (i.e. salam) in
fruits for one or two years. The Prophet said:
anyone who pays money in advance for dates
(to be delivered later) should pay it for s
specified measure and specified weight and
specified period. (Bukhari, sahih,III,234-44,
hadith nos. 441 and 443)
Examples
• A contract with B to buy dates for the price
of X
• The dates are not yet grown but the price
has been fixed upon them and A pays B at
that moment X amount.
• A and B agree that after 3 months that B
shall deliver the dates to A.
Bay al-Istina
•
WHAT DOES ITS MEAN ?
•
Literally the word istisna’ is a derivative from the root word sana’ or to manufacture
or to construct something.
•
Istisna’ is an order or request to manufacture something,whereby the requestor
invited, induced or caused another to make or manufacture some goods for him.
•
Technically, it is a contract to purchase for a definite price something that may be
manufactured later on, according to agreed specifications between the parties.
•
In other words, it is a contract of sale of specified items to be manufactured or
constructed with an obligation on the part of the manufacturer or contractor to deliver
them to the customer upon completion (Akhtarzaite, 2006).
•
An istisna contract is a sale in which the customer asks the seller to manufacture
aspecific product for purchase.
•
Both parties agree on a price and specifications for the productto be manufactured
•
istisna’, like the bay’ al-salam contract, is a contract whereby the sale of future goods
is allowed on a certain condition or conditions.
•
The istisna’ contract allow an order to be placed with a manufacturer to make a
certain product, answering a definite description at an agreed price to be paid either
in advance or on completion.
•
In istisna’, the subject matter is non-existent goods at the time of the conclusion of
the contract but it is treated as valid the principle of equity (istihsan) and on the basis
of customary practice (‘uruf) (Nawawi, 1999).
•
The contract of Istisna’ creates a moral obligation on the manufacturer to
manufacture the goods.
•
But before he starts the work, any one of the parties may cancel the contract.after
giving a notice to the other.
•
However, after the manufacturer has started the work,the contract cannot be
cancelled unilaterally
Bay Al salam & Bay Al Istina
• Istisna and bay’ al-salam are both exceptions to the
general rule for sale contracts that the subject of the sale
must exist at the time of the sale
• However there exit differences between them. There are
four main differences
• Bay al-istina consist of an agreement made in advance
to pay a deffinate price for something that is to be made
delivered at future date unlike the contract of Bay Salam
which has been validated on the explicit authority of
hadith, bay al istina has been validated by general
consensus (ijma), custom (uruf) and the necessity of
business) (Abdul Rahim, Jurisprudence)
• First, the purchased good in an bay ‘ al-istisna contract
must be manufactured, while it does not have to be in a
bay’ al-salam contract.
• Buyers in istisna contracts are not required to pay the full
price immediately upon signing the contract, as they are
in bay’ al-salam contracts.
• Bay’ al-istisna contract can be canceled by either side
before the seller begins manufacturing, while a bay’ al
salam contract can only be canceled with the consent of
both parties.
• Finally, the seller is given flexibility regarding time of
delivery in an istisna contract, while time of delivery must
be specified exactly in a bay’ al-salam contract
Validity of Bay al Salam & Bay al
Istina
• Deferred sales is permitted if the the
deferment is for a specified period in such
a way as to eliminate the possible ground
of conflicts. (Ibn Abidin as quoted from Dr.
S. E Rayner in the Theory of Contract in
Islamic Law)
• Salam is normally valid for fungible items,
although some has extended the validity of
salam to all comidities except gold and silver in
which case deferment is unacceptable for fear of
riba (as the value of the gold and silver is
uncertain, depending on the market value).
(Abur Rahim, Jurisprudence quoted Dr. S. E
Rayner in the Theory of Contract in Islamic Law)
Conditions of bay’ al-salam
i. Bay’ al-salam cannot be affected on a particular commodity or on a
product of a particular field or farm. For instance, if the seller
undertakes to supply the barley of a particular field, or the fruit of a
particular tree, the bay’ alsalam will not be valid. This is because
there is a possibility that the crop of that particular field or the fruit of
that tree is destroyed before delivery, and given such possibility, the
delivery remains uncertain. The same rule is applicable to every
commodity the supply of which is not certain (Usmani,n.d.);
ii. It is necessary that the quality of the object of sale is fully specified
leaving no ambiguity which may lead to a dispute. All the possible
details in this respect must be expressly mentioned. Also, the exact
date and place of delivery must be specified in the contract
(Nawawi, 1999);
iii. Bay’ al-salam can be affected in those commodities only
the quality and quantity of which can be specified exactly.
The things whose quality or quantity is not determined by
specification cannot be sold through the contract of bay’
al-salam. For example, precious stones cannot be sold on
the basis of bay’ al-salam. This is because every piece of
precious stones isnormally different from the other either
in its quality or in its size or weight and their exact
specifications is not generally possible;
iv. It is necessary for the validity of bay’ al-salam that the
buyer pays the price in full to the seller at the time of
affecting the sale. It is necessary because in the absence
of full payment by the buyer, it will be tantamount to sale
of a debt against a debt, which is expressly prohibited by
the Holy Prophet s.a.w;
v. Bay’ al-salam cannot be affected in respect of
things, which must bedelivered at spot. For
instance, if wheat is purchased in exchange of
barley, it is necessary that the delivery of both
be simultaneous (according to Shari’ah)
(Usmani, n.d.);
vi. It is necessary that the quantity of the object of
sale is agreed upon in unequivocal terms. If the
object of sale is quantified in weights according
to the usage of its traders, its weight must be
determined and if it is quantified through
measures, its exact measure should be known.
What is normally weighted cannot be quantified
in measures and vice versa.
Conditions of istisna’
i. The subject matter should be well defined without
ambiguity with respect to quality, quantity and other
relevant characteristics. This follows since the object to
be manufactured is an object of sale, which must be
known by specifying those aspects. Therefore, if any of
those aspects of the object of the contract is not
specified, the contract would be rendered defective due
to ignorance that may lead to legal dispute (Sudin &
Shanmugam, 2001);
ii. The subject matter should normally be used by the
people (e.g. jewelry, shoes, pots, means of
transportation, etc.). The istisna’ is not proper if the
subject matter is rarely used by the people;
iii. There is no specific term of deferment is specified. Hanafi school
ruled that if the parties to the contract specify a term of deferment,
the istisna’ becomes defective and the contract is converted to a
bay’ al-salam that must satisfy all the other conditions of the latter
contract; Labuan e-Journal of Muamalat and Society, Vol. 1, 2007,
pp. 21-28
iv. The price of the subject matter of istisna’ is known at the time of the
conclusion of the contract. The price could not be increased or
decreased on account of the normal increase or decrease in
commodity prices or the cost of labor. This is to avoid gharar
(uncertainty) in the price of the subject matter. The price or
consideration for the manufactured good to be determined could be
in cash or tangible goods or the usufruct of an asset for a particular
duration. As a matter of fact, the utilization of the usufruct of the
manufactured item itself (the subject matter of istisna’ upon
completion) could also be the price of the contract;
v. The manufacturer must undertake to construct
the goods with his own material. If the buyer
supplies the raw material to be manufactured it
is considered then as Ijarah, instead of istisna’. It
is not permitted for the manufacturer to stipulate
in the contract of istisna’ that he will not be liable
for defects in the subject matter. The reason for
this prohibition is that istisna’ is a sale of
specified goods to be delivered in future, while
the exclusion of liability as to defects is valid only
in the sale of particular identified goods
(Muhammad Al-Amine, 2001).
School of thought
• Syafie
• The most liberal in validating deferred sale
provided that the deferment period is
clearly defined so as to preclude gharar.
• The date of delivery bay al salam need not
be fixed.
• In validating deferred sale Shafie relied on
Quranic text on the permissibility of
deffered liability contract (2:282)
Cont;
• Hanbali
• Validate deferred sale provided that it is
devoid of usury and gharar.
• Considers deferred sale to be valid but
they have done so with reservations
• View was criticized by Ibn Qayum on
grounds that the transaction should be
accepted as a matter of principle
• Maliki
• Validate deferred sale provided that it is
devoid of gharar.
• Restrictive in their stance on deferred
sales and have prescribed many varieties
of them on precautionary grounds for fear
of indulgence in riba
• Hanafi
• The goods stipulated in salam must exist
continuously from the time of the contract
until delivery and the date of delivery must
be specified at the time of contract.
• Istisna is not a binding contract but an
exchange of promises.
Consensus vs Non Consensus
• All the four Islamic schools are agreeable that Bay Al Salam and
Bay Al Istisna are valid provided that there is no element of gharar
and usury.
• Such agreement on the validity of Salam and Istisna may be due to
custom practice in the business sector and to respond to the need of
the public. (Zulkifly Mohamad and Rosita Chong : The contract of
Bay al Salam and Istisna in Islamic Commercial Law)
• Freedom of Contract: the relevance of this theory with Istisna' lies in
the fact that first of all there is no explicit text from the Qur'an and
Sunnah to establish the legality of this contract and the main basis
for its legality as advanced by the classical jurist is Istihsan which is
based upon need and necessity
Cont;
•
On the other hand, the advocates of freedom of contract in Islamic law held
that the non-restriction of nominated contracts represents the general rule,
while any restriction is considered to be exceptional. They based their
argument on the Qur'anic verses: "Oh you who believe fulfil all obligations"
(Al-Ma'idah 5:1). This stand is supported by the verse: "He hath explained
unto you that which is forbidden unto you except under compulsion or
necessity" (al-An'am 6:119), which means that, in the natural state of things,
there is a presumption of legality. All acts and dispositions (including the
making of contracts and conditions) are valid (mubah) unless they have
been expressly prohibited.Besides, they cited the saying of the prophet:
"Every stipulation is lawful among the Muslims, except one, which declares
forbidden what is allowed or allows what is forbidden".17
•
Hanafi states that date of delivery must be specified at the time of the
contract but Shafie states that the date of delivery is need not be specified.
Cont;
• As a mode of investment, Istisna' can play
an
important
role
in
economic
development. It encourages the demand
for manufacturing goods; financing
economic activities, contributing to the
stabilisation of prices of manufactured
goods,
promoting
industrial
and
technological advancement and making
use of the available possibilities of the
economy.
Conclusion
• This may be based on difference of juristic
Ijtihad and such contract (salam and
istisna) has not expressly prohibited in
Quran and the main concern is whether
this contract is free from element of usury
and gharar which is expressly prohibited
by Islam.
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