Question # 119: Selling something you don’t own: There are Ahadith that prohibit such transactions; are they unconditional and understood on face value or is there more to it? Here’s a situation. A person makes an order and pays me for goods. I don’t own them but from his money, I buy the goods and sell them to him making a profit. That person doesn’t know or care what I do and I am the main seller as far as he is concerned. Moreover, if I’m unable to buy those goods, I’ll return the money to him incurring no loss to anyone. Technically, I’m not an agent, am I? How would such a situation be viewed
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Shorter Answer: The type of sale transaction (Salam) described in the question would be permitted, whereby the buyer pays at spot and the seller delivers the commodity at a later date, provided all the following conditions are fully met:
- Buyer must pay the price in full to the seller at the time of effecting the sale;
- Quality (specifications) and quantity of the commodity sold should be exactly specified;
- Sales cannot be effected on a unique specific commodity or product;
- Exact date and place of delivery must be specified in the contract;
- Sales cannot be effected in respect of things that must be delivered at the spot;
- Commodity should not be rare rather should have an established market demand;
- Commodity should be available at the time of delivery; if it is not available, the buyer may choose to wait until the product is available or he may ask for annulling the contract and ask for refund;
- Buyer has the option to cancel the contract and demand refund on delivery, if any defect is discovered in the commodity or it is not as per the specifications agreed in the contract.
Long Answer: The general principle of Shari’ah is that it is not permitted to sell a commodity that is not in one’s ownership. It is one of the basic requirements for a valid sale that the commodity or item being sold is in the ownership and possession of the seller. Hence, if the seller does not own a particular item, it will not be permitted for him/her to sell it to someone else.
Hakim ibn Hizam (رضي الله عنه) reports that he said to the Messenger of Allah (صلى الله عليه و سلم): O Messenger of Allah! At times an individual comes to me to purchase a specific item that I do not possess. Can I sell him the item and then purchase it from the market? The Messenger of Allah (صلى الله عليه و سلم) said: Do not sell what you don’t own. (Sunan Tirmidhi and others)
However, there is an exception to this general rule, namely the sale of what is known as Salam. Salam is a special type of sale wherein the seller undertakes to supply the commodity or goods to the buyer at a future date in exchange of payment fully paid at spot. (See: al-Fatawa al-Hindiyya, 3/178)
This kind of transactions is permissible according to the Qur’an, the Sunnah and the consensus of Muslim scholars. Allah (سبحانه و تعالى) says in the Qur’an: “O you who have believed, when you contract a debt for a specified term, write it down…” (Soorah Al-Baqarah, 2: 282)
lbn Abbas (رضي الله عنه) said: ”I testify that Allah has made lawful to us (Muslims) to pay in advance for the price of a thing to be delivered later after a specified term. He then recited the above-mentioned ayah” (Al-Hakim, Al-Bayhaqi and Abur Razzaq)
When the Prophet (صلى الله عليه و سلم) arrived at Madinah and found its people paying in advance the prices of fruits to be delivered later after a year, two or three,, he said: “Whoever pays in advance, the price of a thing (or “…of fruits…” according to another narration) to be delivered later should pay it for a specified measure at specified weight for a specified period.” (Related by Al-Bukhari and Muslim)
This hadith proves that the salam is permissible when these conditions are fulfilled. Besides, Ibnul Mundhir and other scholars report that scholars uniformly agree that the salam is permissible. (Al-Ijma)
The reason for making an exception in allowing an advance payment against a forward sale in the early days was to meet the needs of the small farmers in Arabia who required money to grow their crops and to feed their family until the time the crop could be harvested and sold. Owing to the prohibition of riba they could not borrow money on interest; they were allowed to sell the agricultural produce in advance of cultivation for delivery later and take payment in advance. Salam was also beneficial to the buyer because normally, the price in Salam used to be lower than price in spot sales.
CONDITIONS OF SALAM
The permissibility of Salam was an exception to the general rule that prohibits the forward sales. Therefore it was subjected to some strict conditions. These conditions are summarized below:
- First of all, it is necessary for the validity of Salam that the buyer pays the price in full to the seller at the time of effecting the sale. It is necessary because in the absence of full payment by the buyer, it will be tantamount to a sale of debt against debt, which is expressly prohibited by the Prophet (صلى الله عليه و سلم). Moreover, the basic wisdom behind the permissibility of Salam is to fulfill the instant needs of the seller. If the price is not paid to him in full, the basic purpose of the transaction will be defeated. Therefore, all the Muslim jurists are unanimous on the point that the full payment of the price is necessary in Salam. However, Imam Malik is of the view that the seller may give a concession of two or three days to the buyers, but this concession should not form part of their agreement.
- Salam can be effected in those commodities only whose quality and quantity can be specified exactly. The things whose quality or quantity is not determined by the specification cannot be sold through the contract of Salam. For example, the precious stones cannot be sold on the basis of Salam, because every piece of precious stones is normally different from the other either in its quality or in its size or weight and their exact specification is not generally possible.
- Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply wheat of a particular field, or the fruit of a particular tree, the Salam will not be valid, because there is a possibility that of that particular field or the fruit of that tree is destroyed before the delivery, and in the presence of this possibility the delivery remains uncertain. The same rule is applicable to every commodity whose supply is not certain. It is necessary that the quality of the commodity (intended to be purchased through Salam) be fully specified leaving no ambiguity that may lead to dispute. All the possible details in this respect must be expressly mentioned.
- It is also necessary that the quantity of the commodity be agreed upon in unequivocal terms. If the commodity is quantified in weights according to the usage of its traders, its weight must be determined, and if it’s quantified through measures, its exact measure should be known. What is normally weighed cannot be specified in measures and vice versa.
- The exact date and place of delivery must be specified in the contract.
- Salam cannot be effected in respect of those things that must be delivered at the spot. For example, if gold is purchased in exchange of silver, it is necessary, according to Shari’ah, that the delivery of both be simultaneous. Here, Salam cannot work. Similarly, if wheat is bartered for barley, the simultaneous delivery of both is necessary for the validity of sale, therefore, the contract of Salam in this case is not allowed.
All the Muslim jurists are unanimous on the principle that Salam will not be valid unless all these conditions are fully observed, because they are based on the express ahadith of the Prophet (صلى الله عليه و سلم) mentioned above.
However, there are certain other conditions, which have been a point of difference between the different schools of the Islamic jurisprudence. Some of these conditions are discussed below:
- It is necessary, according to the Hanafi school, that the commodity (for which Salam is effected) remains available in the market right from the day of contract up to the date of delivery. Therefore, if a commodity is not available in the market at the time of the contract, Salam cannot be effected in respect of that commodity, even though it is expected it will be available in the markets at the date of the delivery. However, all the other three schools of Fiqh (i.e. Shafi’i, Maliki, and Hanbali) are of the view that the availability of the commodity at the time of the contract is not a condition for the validity of Salam. What is necessary, according to them, is that it should be available at the time of delivery, only. This latter view can be acted upon in the present circumstances.
However, if the sold item is not present or available at the due time, the one who has paid for the item in advance may choose whether to wait until the [product] is available or he may ask for annulling the contract and ask for the money he has paid. This is because in case the contract is annulled, it is obligatory for the seller to repay the price paid in advance. If the payment given by the buyer against the sold item is damaged, a compensation for it must be paid.
Further, salam transaction is suitable for purchase of goods that have an established market demand; goods of a rare commodity which cannot be delivered immediately, or goods that will not be in season or available at the time of delivery cannot be the basis of salam. In the event, the buyer does not take delivery of the goods it should be possible for the seller to sell such goods in the market with no or minimum loss. Similarly, in the event the seller does not deliver the goods in time, it would be possible for the buyer to purchase such goods from the market with no or minimum loss.
In the case of salam, Muslim jurists disallow the option condition that allows one of the parties to cancel a contract within a specified number of days (Khiyar al-shart) because it prejudices the seller’s entitlement to the price of the goods to be supplied later. The buyer also does not have “option of inspecting” the goods (Khiyar al-royat) that are not available at the time of contract and have to be delivered at a future time, this option is available in the case of normal sales where immediate delivery takes place. However, after taking delivery, the buyer has the option to cancel the contract if any defect is discovered in the goods (khiyar al-aib) or the goods not having the quality or specification as agreed at the time of contract (khiyar al-wasf); in that case, only the amount of the price paid in advance can be recovered, without any increase.
- It is necessary, according to the Hanafi and Hanbali schools that the time of delivery is, at least one month from the date of agreement. If the time of delivery is fixed earlier than one month, is not valid. Their argument is that has been allowed for the needs of small farmers and traders, therefore, they should be given enough opportunity to acquire the commodity, and they may not be able to supply the commodity before one month. Moreover, the price in is normally lower than the price of spot sales. This concession in the price may be justified only when the commodities are delivered after a period that has a reasonable bearing on the prices. A period of less than one month does not normally effect the prices. Therefore, the minimum time of delivery should not be less than one month.
Imam Malik supports the view that there should be a minimum period for the contract of Salam. However, he is of the opinion that it should not be less than fifteen days, because the rates of the market may change within a fortnight.
The view is, however, opposed by some other jurists, like Imam Shafi’i and some Hanafi jurists also. They say that the Prophet (صلى الله عليه و سلم) has not specified a minimum for the validity of Salam. The only condition, according to hadith, is that the time of delivery must be clearly defined. Therefore, no minimum period can be prescribed. The parties may fix any date for delivery with mutual consent. This view seems to be preferable in the present circumstances, because the Prophet (صلى الله عليه و سلم) has not prescribed a minimum period. The jurists have prescribed different periods that range from one day to one month. It is obvious that they have done so according to the expediency and keeping in view the interest of the poor sellers. But the expediency may differ from time to time and place to place. Likewise, sometimes it is more in the interest of the seller to fix an earlier date. As far as the price is concerned, it is not a necessary condition of Salam that the price is always lower than the market price on that day. The seller himself is the best judge of his interest, and if he accepts an earlier date of delivery with his free will and consent, there is no reason why he should be forbidden from doing so. Certain contemporary jurists have adopted this view considering it more suitable for the modern transactions.
In light of the above details, the type of sale transaction described in the question would be permitted, whereby the buyer pays at spot and the seller delivers the commodity at a later date, provided all the conditions mentioned above are fully met.
(The above reply is based on the following resources:
- An Article on ‘Forward Sales and Manufacturing Contracts: Salam And Istisna’ By Mufti Taqi Usmani
- ‘Summary of Islamic Jurisprudence’ by Salih Al-Fawzans
- Answer on ‘Islam and Online Sales (ecommerce)’ by Muhammad ibn Adam al-Kawthari, Darul Iftaa, Leicester, UK
- Study Material on ‘Forward Sales’ by Institute of Islamic Banking and Insurance London, UK)
Allahu A’lam (Allah (سبحانه و تعالى) knows best) and all Perfections belong to Allah, and all mistakes belong to me alone. May Allah (سبحانه و تعالى) forgive me, Ameen.