The Role of Contracts in Islam


Throughout history Muslims have been renowned traders. Many of the Sahabah (ra) were shrewd businessmen. Indeed, trading is an issue that has been implicitly and explicitly encouraged in the Qur’an and Sunnah.

”O you who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will.” [ 4:29] 

”And when the (Friday) prayer is finished, then may you disperse through the land, and seek of the Bounty of Allah: and celebrate the Praises of Allah often (and without stint): that you say prosper.” [ 62:10] 

”Allah has permitted trade and forbidden usury.” [ 2:275] 

”And O my people! Give just measure and weight, do not withhold from the people the things that are their due: commit not evil in the land with intent to do mischief. That which is left you by Allah is best for you, if you (but) believed! but I am not set over you to keep watch!” [ 11:85] 

Rasul-Allah (saw) was asked what type of earning was the best, to which Rasul-Allah (SAW) answered, ”The work of a man’s own hand, and every pious sale”. [Hakim] Rasul-Allah (saw) said, ”A trustworthy and an honest and truthful businessman will rise up with martyrs on the Day of Resurrection.” [Ibn Majah, Hakim] He (saw) also said, ”A truthful, and trustworthy trader will rise up with the Prophets, the righteous and the martyrs.” [al-Hamim, Tirmidhi] 

As Muslims, we should not consider that Allah (swt) left us to trade in whichever manner we choose without giving us a guide. Allah (swt) sent Rasul-Allah (saw) as that guide. A’isha (ra) reported that Rasul-Allah (saw) said, ”He who does an act which is not in accordance with our matter will have it rejected.” The basis of all trading is the contract. As we are encouraged to trade we are therefore encouraged to understand the subject of contracts within Islam. Further to this, it is not just merchants and entrepreneurs that are involved in trading. All humans, not just Muslims, need to exchange in some form. Therefore, if we are to perform our transactions in accordance with what has been revealed, it is necessary for us to understand some basic principles of contract. 

The Contract (‘Aqd) in Islam 

It is obligatory for us to honour our contracts and agreements. 

”O you who believe! Fulfil all your covenants” [ 5:1] 

”Fulfil (every) engagement, for (every) engagement will be enquired into (on the Day of Reckoning)” [17:34] 

Contracts may be generally described as the effective mode of acquisition of ownership and transfer of property or services. It expresses the combination of offer and acceptance. The contract, ‘aqd or tie forges legal relations between two parties over a particular matter. It is formed with the declaration of offer al-ijaab (offer) and al-qabool (acceptance). An example of ijaab by a seller would be, ”I sold this to you for the price of…” Al-qabool would then be ”I accepted”. Regardless of how elaborate a transaction may be, this simple model is the basis of all Islamic contracts. 

Contracts and agreements should preferably involve the spoken word. The maximum degree of clarity must be given by the one who makes the offer, and the maximum degree of clarity must be ascertained by the one who accepts. This is the underlining principle of contracts in Islam. The period between the offer and its acceptance should not be longer than what is customary. The offer should not be made conditional (t’aliq) upon an occurrence outside the agreement. For example, the contract is invalid if a person sells his car under the stipulation that the purchaser shall not sell it again. ”I will sell ‘x’, provided you sell it back to me, should you decided to sell it.” [Sarkhasi, Mabsoot] 

On the authority of ‘Urwa, ‘A’isha (ra) said Burairah came to me and said, ”My people (masters) have written the contract for my emancipation for nine ounces (of gold) to be paid in yearly instalments, one ounce per year; so help me.” ‘A’isha (ra) said (to her), ”If your masters agree, I will pay them the whole sum provided the allegiance will be for me.” Burairah went to her masters and told them about it, but they refused the offer and she refused the offer and she returned from them while Allah’s Messenger (saw) was sitting. She said, ”I presented the offer to them, but they refused unless the allegiance would be for them.” When the Prophet (saw) heard that and ‘A’isha told him about it, he (saw) said to her, ”Buy Burairah and stipulate that her allegiance will be for them, as the allegiance is for the slave-freer.” ‘A’isha (ra) did so. After that Allah’s Messenger (saw) stood up amidst the people, glorified and praised Allah (swt) and said, ”What is wrong with some people who stipulate things which are not in Allah’s laws? Any condition which is not in Allah’s laws is invalid even if there were a hundred such conditions. Allah’s rules are the most valid and Allah’s conditions are the most solid. The allegiance is for the slave-freer” [Sahih al-Bukhari] 

General Islamic rules concerning contracts 

According to Imam Ghazali, 
”a Muslim who makes up his mind to adopt trade as a profession or to set up his own business should first acquire a thorough understanding of the rules of business transactions codified in the Islamic Shari’ah. Without such understanding he will go astray and fall into serious lapses making his earning unlawful.” 

There are several general rules about trading agreements that we should all acquaint ourselves with. We are all directly or indirectly involved in these types of agreements. As stated, one of the key issues is clarity. Many ahadeeth concerning buying and selling indicate that clarity in the agreement is paramount: 

Ibn ‘Umar (ra) related that Rasul-Allah (saw) said, ”If palm trees are sold after they have been pollinated, the fruit belongs to the seller unless the buyer makes a stipulation about the inclusion.” [Muwata, Muslim] 

Hakim bin Hizam (ra) related that Rasul-Allah (saw) said, ”Both parties in a business transaction have the right to annul it so long as they have not separated; and if they speak the truth and make everything clear they will be blessed in their transaction; but if they tell a lie and conceal anything the blessing on their transaction will be blotted out.” [Muslim] 

Ibn ‘Umar (ra) also related that Rasul-Allah (saw) forbade the sale of fruits until they were clearly in good condition, he forbade it both to the seller and the buyer. [Muslim] 

Jabir bin ‘Abdullah (ra) related that Rasul-Allah (saw) forbade the sale of a heap of dates, the weight of which is unknown, in accordance with the known weight of dates. [Muslim] 

There are many unique mannerisms that Islamic traders should adopt. These are very different to those adopted in the West. Moreover, these manners are not just a gentleman’s code of ethics, rather they are the direct product of the sayings of Rasul-Allah (saw). It is forbidden to buy and sell with any undue advantage over other traders. For example, trading in ignorance of the current market prices. 

Ibn ‘Umar (ra) related that Rasul-Allah (saw) said, ”Do not go out to meet merchandise on the way, (wait) until it is brought into the market.” [Muslim] 

Abu Hurayrah (ra) related that Rasul-Allah (saw) said, ”Do not meet the merchant on the way and enter into business transaction with him, and whoever meets him and buys from him (and in case it is done, see) that when the owner of the (merchandise) comes into the market (and finds that he has been paid a lower price) he has the option (to declare the transaction null and void).” [Muslim] 

Abu Hurayrah (ra) related that Rasul-Allah (saw) said, ”The townsman should not sell for a man from the desert (with a view to taking advantage of his ignorance of the market conditions of the city).” [Muslim] 

Ibn ‘Umar (ra) related that Rasul-Allah (saw) said, ”No-one amongst you should enter into a transaction when another is bargaining.” 

Ibn ‘Umar (ra) related that Rasul-Allah (saw) said, ”A person should not enter into a transaction when his brother is already making a transaction and should not make a proposal of marriage when his brother has already made a proposal except when he gives permission.” 

These two last ahadeeth have many implications for sale such as auctioning and gazumping(raise the price of something after agreeing on a lower price), which may involve Muslims. 

Today’s situation 

We now live in a situation in which Islam is not implemented in its correct form anywhere in the world. This fact has left Muslims focusing on ritual aspects of Islam. For example, prayer and fasting etc. Generally, there is a good understanding of the rules of prayer amongst the Ummah. However, there remains a general lack of knowledge of contract law. There are many problems that we face in modern life that we can not take for granted. We can not assume that the ways in which we buy, sell, rent and hire are all allowed in Islam. In an article like this, space does not allow comprehensive answers to questions about trading. However, we should question many of the common trading methods employed today. To follow are a few examples of trading methods that we should consider. 

The verbal offer and acceptance is certainly the best contract in Islam. This manner of transaction can easily be performed even in the modern age and even in Europe or America. However, it is common practice today to place orders by purchase order form, by fax machine, merely quoting a catalogue or part number of the items to be purchased. Further to this, items can be bought over the internet from anywhere in the world from one’s living room. Also, Rasul-Allah (saw) forbade ”…making one contract of sale into two transactions.” [Nisa’i, Tirmidhi]. So, it is not permitted to sell a car, stipulating that the buyer buys parts from the seller alone. Nor is it permitted to sell a house, whilst insisting that all the furniture is to be bought from the seller. He (saw) also said, ”…the attachment of an extra condition with a sale transaction” [Tibran]. Issues such as vending machines, hire-purchase agreements, the involvement of separate financing companies, insurance cover, trading in stocks and share companies, selling things that are not yet in one’s possession and sub-contracting of orders, are all issues we cannot assume are allowed or not allowed in Islam. As a final example, the employment contract is a contract that should be honoured in Islam. There are many comprehensive rules mentioned directly in the Qur’an and Sunnah concerning employment of labour. 

”The duty of feeding, clothing and nursing mothers in a seemingly manner is upon the father of the child.” [ 2:233] 

Abu Hurayrah (ra) narrated that Rasul-Allah (saw) said, ”Three persons I am their opponent on the day of judgement; a person who gave in my name and then betrayed, one who sold a free person and used his price, and the person who hired a labourer and did not give his wage.” Rasul-Allah (saw) also said, ”Whosoever hired a person he has to inform him about his wage.” 

In today’s situation both the employer and employee must honour the work contract not for the sake of humanity but for the sake of fulfilling Allah’s (swt) command. However, this has implications for trade unions and strike action. Withdrawal of labour in industrial action is a violation of the original contract and is therefore forbidden in Islam. Trade unions are established to protect the rights of the worker. Whilst in Islam, only the Islamic State is allowed to protect worker’s rights. It is not allowed for Muslims to participate in such ‘industrial action’. However, this is the normal way of settling disputes in a Capitalist system. 

Pre-Islamic contracts 

It is clear from the seerah of Rasul-Allah (saw) that the business ethic of the pre-Islamic Arabs was riddled with corruption. Indeed, the dishonesty in jahiliyyah is condemned in the Qur’an. 

”Woe to those that deal in fraud, those who, when they have to receive by measure from men, exact full measure, but when they have to give by measure or weight to men, give less than due. Do they not think that they will be called to account?” [83:1-3] 

The Jews, Christians and Persians at the time were again not noted for the fairness in transactions. The first Muslims were on the one hand encouraged to adopt trade as their profession and on the other hand exhorted to observe truthfulness and honesty in the transactions. This was surely a unique situation at that time. Similarly today the Islamic society should have a very unique character. 

Capitalism and contracts 

Western style contracts and agreements are usually in the written form only. Buying and selling agreements are always underpinned with the maxim caveat emptor (the buyer alone is responsible for assessing the quality of a purchase before buying) or buyer beware. Not only is it in the written form but they involve reams of very small print. This small print is written in language that is harder to interpret than Shakespeare’s sonnets. This combination of jargon, oxymoron and tautologies all contribute to enshrouding agreement with the mystique of ambiguity. Loop hole and get out clauses are always woven into the agreement in contract speak. Any person who has ever tried to end a contract of line rental for a mobile telephone fully should understand this. Western trading is often based on maximising profits through deceiving the purchaser. 

Fulfilling obligations for services 

Agreements are not necessarily based on items and objects. Contracts to fulfil a service or duty are common both in Islam and in the capitalist system. Marital services are agreed upon in the ‘aqd zawaj’.The marriage contract stipulates that the husband should spend for the wife and children.But he is not required to look after members of his wife’s family financially.Similarly the wife is not required to look after or serve every member of her husband’s family.And moreover the husband cannot claim any share in the wealth of his wife or wife’s family.But if the wife is willing to share then it is allowed.Hence Islam did not leave the obligations and duties of marriage to be decided by the mind of humans.It is not allowed for either partner to withdraw marital obligations and duties. One can also make agreements for services from a cleaner, book-keeper or a physician. 

Another important contract that is often overlooked today is the contract of ruling. The Khaleefah in Islam is charged with the duty of implementing the Law of Allah over the people. This is laid down and defined contractually. Unfortunately this is little understood by Muslims today. This is not because we are ignorant but because of our situation. The time is such that there is no living memory where this system of bay’ah (contract) actually existed as a working example. Muslims can only read about it in books. Nonetheless it is fard for Muslims to study this subject. 

Ironically, we see Western systems of government nurture the citizens in such a way that they understand the concept of the pledge to rule. The US has widely broadcast (even internationally) inauguration ceremonies. This is where the president makes a pledge to honour the obligations laid down in the constitution. US school children all memorise the, ”We the people…” preamble to the constitution. 

”We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquillity, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this constitution for the United States of America.”

This small paragraph reminds the American people of the obligations they have to the state and the states obligation to the citizens. Their system of democracy is such that they believe that ‘The People’ are the actual rulers and are charged with the duty of upholding the constitution. A direct parallel in the actual detail of the American system cannot be drawn with Islam. Its basis, democracy, is the antithesis of Islam. However, the principle of pledge of obedience to the Khaleefah and the obedience of the Khaleefah to Allah (swt) must be ingrained within all Muslim. It is this principle of nurturing the citizens of the state to understand the position of pledges and duties that oils the machinery of the state. 


Buying and selling is an agreement. The procedure of buying and selling should not be seen as a mundane and routine necessity. Rather, it is a normal human action from which we can derive many rewards both in this life and in the hereafter, i.e. it is an act of worship. The converse is also true. If one performs the act of buying or selling in a manner that contradicts the law one is sinful. 

Many contracts made today are made without considering Islam. This is entirely unacceptable. For although they do not involve camels, dates and slaves, the principles laid down in the Qur’an and Sunnah are just as applicable today as they where in the time of Rasul-Allah (saw). None of us as Muslims should take any agreement lightly or assume that because that is the way things are done today, then that is the way we should do them. 

Lastly, we should remind ourselves of the one obligatory contract that none of us are performing today. That is the contract of bay’ah to the Khaleefah. Ibn ‘Umar (ra) related that Rasul-Allah (saw) said, ”Whosoever takes off his hand from allegiance (bay’ah), Allah will meet him on the Day of Resurrection without having any proof for himself, and whosoever dies while there was no allegiance on his neck dies a death of the Days of Ignorance (jahiliyyah).” [Muslim]


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