5.6.3 Trade and Contracts

Foundations of Trade in Islam

Islam views trade as a noble means of earning a living when it is honest, transparent, and free from injustice. The Prophet ﷺ himself was a trader before prophethood, and many Companions were merchants.

Allah praises lawful commerce when it does not distract from His remembrance and obedience.

"Men whom neither commerce nor sale distracts from the remembrance of Allah, nor from establishing prayer, nor from giving zakah..."
(Qur’an 24:37)

The Prophet ﷺ said regarding honest traders:

"The truthful, trustworthy merchant will be with the prophets, the truthful ones, and the martyrs."
(Tirmidhi)

Islam does not condemn wealth itself. It regulates how wealth is earned and spent. Trade becomes an act of worship if it is done with lawful means, sincere intention, justice, and trust in Allah.

Conditions for Valid Islamic Contracts

In Islamic law, a contract is a binding agreement between two or more parties to exchange something of value. Trade contracts are one type of contract among many. For beginners, it is enough to grasp some basic conditions that make a trade contract valid in Islam.

A contract in trade normally involves an offer and acceptance between a seller and a buyer, concerning some property or benefit, for a price.

"O you who have believed, fulfill your contracts."
(Qur’an 5:1)

"O you who have believed, do not consume one another’s wealth unjustly, but only [in lawful] business by mutual consent..."
(Qur’an 4:29)

From these and other texts, scholars derived core conditions. The details belong to advanced study of fiqh, but there are clear principles that a Muslim beginner should know.

Mutual Consent and Freedom from Compulsion

The first clear rule is that both parties must agree willingly. Forced sales or contracts are not allowed in Islam. The Prophet ﷺ said:

"Indeed, sale is only by mutual consent."
(Ibn Majah)

A person must not be forced to buy or sell. Pressure, threats, blackmail, or abuse of authority that removes real choice contradicts the spirit of this rule.

Clarity in Offer and Acceptance

In a valid contract, there must be a clear offer and a clear acceptance. In simple daily trade, this can be done by words or clear actions.

The Prophet ﷺ would buy and sell in simple, clear ways and he forbade tricks that confuse or mislead. In markets he taught the Companions straightforward dealings and said:

"Leave that which makes you doubt, for that which does not make you doubt."
(Tirmidhi)

Islam encourages simple, unambiguous agreements. Price, quantity, and main terms should be known and understood. Joking or ambiguous statements that blur whether someone truly agreed can be dangerous in contracts.

Lawful Subject of the Contract

What is being sold or exchanged must itself be lawful in Islam. Trading in what Allah has forbidden is a major sin, even if the environment or non‑Islamic laws allow it. The Prophet ﷺ said:

"When Allah forbids a thing, He forbids its price."
(Ahmad, Abu Dawud)

Therefore, it is not allowed to trade in alcohol, pork, unlawful sexual services, idols, or anything clearly prohibited. The Prophet ﷺ cursed those involved in alcohol at all levels of production and trade.

"Allah has cursed alcohol, the one who drinks it, the one who serves it, the one who sells it, the one who buys it, the one who squeezes (produces) it, the one for whom it is squeezed, the one who carries it, and the one to whom it is carried."
(Abu Dawud, Ibn Majah)

Similarly, anything harmful that has no lawful benefit, like many forms of drugs, cannot be the subject of a valid Islamic trade contract.

Ability to Deliver and Ownership

In valid trade, the seller should own the item or at least have the right to sell it, and it must be deliverable. Selling what a person does not own or cannot hand over is generally not permitted. The Prophet ﷺ said to a Companion:

"Do not sell what you do not possess."
(Abu Dawud, Tirmidhi)

He also forbade selling birds in the sky or fish that are not yet caught, because they are not in one’s control. This is to prevent disputes and injustice.

There are some special contract types studied in advanced fiqh, such as salam, where payment is made in advance for something to be delivered later under strict conditions. Those are exceptions with clear rules, not general permission to sell what you do not have.

Known and Specified Price

The price must be known and agreed at the time of the contract. If a seller says, "Buy this from me for whatever my friend will decide later," this is unclear and leads to disputes. Similarly, mixing two different prices in one contract without clarity is a problem.

The Prophet ﷺ forbade certain confusing forms of sale. Among them was a sale with two prices where the parties leave the decision for later without clarity. Scholars understood from his practice that ambiguity in price is not allowed.

Therefore, the contract should state, openly or clearly by custom, how much is being paid, in which currency or measure, and under what schedule. Any discounts or extra conditions should be mentioned, not left to guesses.

Honesty, Transparency, and Avoiding Deception

Islam emphasizes truthfulness in all contracts and trade. Lying, hiding major defects, or flattering falsely to grab a higher price are serious wrongs. The Prophet ﷺ said:

"The buyer and the seller have the option (to cancel) as long as they have not separated. If they are truthful and make things clear, they will be blessed in their sale. But if they conceal and tell lies, the blessing of their sale will be erased."
(Bukhari, Muslim)

Here blessing refers to real benefit in this life and reward in the Hereafter.

Hiding a major fault in a product while knowing that the buyer is unaware is a form of deception. The Prophet ﷺ passed by a man selling grain and put his hand into it. It was wet inside, although it seemed dry on top. He said:

"What is this, O seller of food?" He said, "It was rained on, O Messenger of Allah." He said, "Why did you not put it on top so that the people could see it? Whoever cheats us is not of us."
(Muslim)

This hadith shows that the Muslim merchant must present goods honestly and make important faults visible. While small or obvious imperfections may be acceptable under local custom, hiding serious defects that affect value or use is not.

Flattering with lies, false swearing, and fake claims about quality or demand are also forbidden. The Prophet ﷺ said:

"Three people, Allah will not look at them on the Day of Resurrection... the one who promotes his goods by false oaths."
(Muslim)

Recording and Witnessing Contracts

Islam encourages clarity and documentation, especially for deferred payments and larger agreements. The longest verse in the Qur’an speaks about writing down debt and credit transactions.

"O you who have believed, when you contract a debt for a specified term, write it down... And call upon two witnesses from among your men..."
(Qur’an 2:282)

Although this verse speaks directly about debts, scholars mention that writing and witnessing are also beneficial in sale contracts that involve delayed payment, delivery, or anything that might be disputed.

For simple, immediate purchases in daily life, writing is not usually needed. For larger business contracts, partnerships, property sales, or long‑term agreements, written contracts and reliable witnesses help protect everyone’s rights and avoid future conflict.

Prohibition of Interest within Trade Contracts

In this course, interest (riba) has its own chapter. Here, we only mention its connection to trade. Allah clearly distinguishes lawful trade from forbidden interest.

"Allah has permitted trade and forbidden riba (interest)."
(Qur’an 2:275)

Some people try to disguise interest as trade. They increase the price only because of time in a way that copies interest, or they arrange back‑to‑back sales that are in reality a loan with interest.

Since the details belong in the chapter on riba, here the key point is that a Muslim should make sure any trade contract is not secretly a loan with extra payment guaranteed just for time. Trade involves real goods or services, real risk, and ownership. Riba involves guaranteed extra money for simply lending money without risk.

Conditions Attached to Sale and Complex Contracts

Sometimes people add conditions to a sale, such as "I will sell you this car, but only if you also rent my house," or "I will sell you this product but you must also buy that one." Some conditions are allowed, others are forbidden.

The Prophet ﷺ said:

"Muslims are bound by their conditions, except a condition that makes the lawful unlawful, or the unlawful lawful."
(Tirmidhi)

This showed that conditions can be used as long as they do not contradict the law of Allah or bring injustice.

Scholars mention that conditions which clearly harm one side, or that turn the sale into a trick to reach something forbidden, are not allowed. For example, a contract where a person must pay extra only if he is late, in a way that copies interest on late payment, would be problematic.

On the other hand, reasonable conditions that both parties accept, which do not involve anything haram, are part of valid Islamic trade. For example, a return policy within a certain number of days, or a warranty, is usually permissible.

Because this area can become complicated in modern contracts, a Muslim trader should seek knowledge and ask scholars familiar with contemporary commercial practice.

Avoiding Excessive Uncertainty and Gambling in Trade

Islam allows risk because trade always includes some risk. However, it forbids contracts built on excessive uncertainty or on pure chance like gambling. This is called gharar. The Prophet ﷺ forbade some types of sales that were entirely unclear or speculative, such as the sale of "what is in the womb of the animal" or "what the diver will bring up," where no one knows if there will be anything at all.

"The Messenger of Allah forbade the sale of the unborn animal in its mother’s womb, the sale of the milk in the udder, the sale of spoils before possession, the sale of charity before its receipt, and the sale of what the diver is yet to bring up."
(Ahmad, Abu Dawud, Nasa’i)

These examples show that a valid contract should not be based on something whose existence or basic characteristics are completely unknown.

Gambling contracts, where each side hopes to win by chance and one will lose without a just exchange, are forbidden.

"O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone altars, and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful."
(Qur’an 5:90)

Modern financial instruments that resemble gambling, where parties only bet on price movement without real trade or real ownership, can fall into this category. Details belong in more advanced study, but the guiding principle is to avoid making money purely through speculation that resembles gambling.

Fair Dealing, Prices, and Market Ethics

Islam establishes general moral rules for markets and prices but does not fix prices in normal circumstances. During the time of the Prophet ﷺ, people asked him to fix prices when they increased. He replied:

"Indeed it is Allah who withholds and gives, who sets prices, who provides, and who gives abundance. And I hope to meet Allah while none of you has any claim against me for injustice in blood or wealth."
(Abu Dawud, Tirmidhi)

From this, scholars understood that price control is not the normal rule. However, when people engage in injustice such as hoarding essential goods to cause artificial price rises, or controlling markets through monopoly, rulers can intervene.

The Prophet ﷺ forbade a person who goes out of the town to meet farmers or traders before they enter the market, to buy all their goods cheaply before they know the market price. He said:

"Do not meet traders on the way to buy their goods, and whoever buys from them, then when they come to the market, they have the option (to cancel)."
(Muslim)

This protects the weaker or less informed trader from being taken advantage of.

Islam also forbids artificially raising prices by fake bidding, where someone pretends to want to buy at a high price only to trick others into paying more. The Prophet ﷺ said:

"Do not artificially raise prices for one another."
(Muslim)

All these rules show that a Muslim trader must be fair, not manipulative. He or she should not exploit ignorance, necessity, or lack of information for unjust gain.

Trust, Responsibility, and Keeping Promises

Trade involves trust. When a seller promises a feature or a date of delivery, or a buyer promises payment at a certain time, these promises are treated seriously in Islam.

Allah describes believers as:

"...and those who are faithful to their trusts and their covenants."
(Qur’an 23:8)

The Prophet ﷺ said:

"The signs of the hypocrite are three: when he speaks, he lies; when he makes a promise, he breaks it; and when he is entrusted, he betrays the trust."
(Bukhari, Muslim)

In trade, this means that a Muslim must not promise what he cannot reasonably deliver. If circumstances change beyond his control, he should explain honestly and seek the other party’s understanding or forgiveness, not simply disappear.

Debts arising from trade are a serious matter. The Prophet ﷺ at first refused to pray the funeral prayer over one who had died with unpaid debts until someone took responsibility for paying them.

"The soul of the believer is held back by his debt until it is paid on his behalf."
(Ahmad, Abu Dawud)

Therefore, taking on debt in trade must be done carefully and with a sincere intention to pay back.

Modern Contracts and the Need for Knowledge

Today, trade contracts are not limited to physical markets. There are online stores, digital services, shares, complex financial products, and many new forms of agreement. The principles of Islamic trade still apply, but applying them correctly requires understanding how those products work.

Allah commands believers:

"So ask the people of knowledge if you do not know."
(Qur’an 16:43)

A Muslim entering business or complex trade should learn the basic rules and ask reliable scholars about new forms that may involve interest, excessive uncertainty, or forbidden elements. Good intention alone is not enough. Intention must be joined with knowledge.

At the same time, the spirit of Islamic trade must be preserved. This spirit includes justice, mercy, ease, and kindness toward others. The Prophet ﷺ said:

"May Allah have mercy on a man who is easy when he sells, easy when he buys, and easy when he demands his right."
(Bukhari)

This shows that trade is not just about contracts and legal forms. It is about character and good conduct.

Trade as a Path to Allah’s Pleasure

When trade and contracts follow Islamic rules, they become a means to draw closer to Allah. A person earns halal income, supports family, helps society, and avoids harming others. Every honest transaction becomes a good deed.

Allah promises great return for those who combine trade with faith and obedience.

"O you who have believed, shall I guide you to a trade that will save you from a painful punishment? [It is that] you believe in Allah and His Messenger and strive in the cause of Allah with your wealth and your lives..."
(Qur’an 61:10–11)

Here Allah uses the word "trade" as a metaphor for faith and striving, to remind believers that the best business is with Him.

A Muslim trader, therefore, should see every contract as an opportunity to show honesty, trustworthiness, justice, and mercy. When a person upholds these values, his shop, office, or online business becomes a place of remembrance of Allah and service to His creation.