The definition the basic elements of a sale contract are briefly explained in the previous article. Today, we’re going to discuss the different categories of sale contracts. It’s very important to have the basic understanding of these different categories. Because, this classification is mainly based on the legal purposes of the contract. Every contract has different nature and legal effects such as the transfer of ownership, risk-taking and profit distribution etc. When these contracts are different from each other in nature and legal purposes, they have different requirements and conditions which should be met in order to make the contract valid. Therefore, it’s very important to know these classifications. So, we can determine the rules and conditions for every contract accordingly.

Classification of sale from the perspective of exchanged items

The most commonly used classifications are discussed in the following.

The sale contracts can be classified from the perspective of exchanged items in the following three types.

 Barter trading (Bay al-Muqayadah)

It’s a sale of commodity for another commodity. This type of sale was very common in the early period of human history. Although, It’s permissible. But Shariah doesn’t encourage this type of sale in order to avoid any element of unfairness in exchange of goods.

Exchange sale (Bay al-Sarf)

It’s an exchange of one monetary form for another in the same or different category. This includes gold for gold, silver for silver, gold for silver, and currency sale with same or different type. The general conditions for this type of sale is that both counter values must be equal in amount if there is exchange of the same type. And the contracting parties should take possession of counter values before they disperse.

General sale (Bay al-Mutlaq)

It’s a sale of goods for money. This is the most commonly used and preferred mode of sale. It was developed due to various issues in barter trading system. Because, we can determine the price of goods fairly and easily in this mode of sale. Therefore, it’s encouraged by Shariah.

Classification of sale contract from the perspective of mode of payment

The sale contract may be divided into three types from the perspective of mode of payment

 Deferred payment sale (BBA)

This is a type of sale where the payment of price is deferred. An important condition for this type of sale is that price must be fixed at the time of contract and there should not be any additional charges on late payment.

Spot sale 

This is a type of sale where the payment is made on the spot. This form is most common in our daily business activities.

Bay al-Salam

This is a type of sale where the payment is fully made in advance and the commodity will be delivered later. This is an exceptional sale in Shariah which is basically used for agriculture financing to fulfills the needs of poor farmers. The main condition for this sale is to determine the subject matter (commodity) properly. So, there would be no possibility of dispute among the parties at the time of delivery.

Classification of sale contract from the perspective of disclosure of capital and profit

 Bargaining sale (Bay al-Musawamah)

It’s type of sale where the property is sold for mutually agreed price without any reference to the cost price and profit. In other words, this sale is based on bargain and agreement of the parties and the seller is not obliged to disclose his cost price and profit.

 Trust sale (Bay al-Amanah)

It’s a type of sale where the seller has to disclose the cost price and profit. It’s called bay al-amanah or trust sale. Because, the buyer trusts on seller with regard to actual cost price and profit. This trust sale is further divided into three types.

(a)Murabaha (Mark-up sale): In this type of sale, the commodity is sold for a given price plus a certain profit margin with agreement of the buyer and the seller.

(b)Tawliyyah: In this type of sale, the price is set equal to the original acquisition cost without any profit.

(c) Wadhi’ah: In this type of sale, the seller sells his commodity below the cost price or at a discounted price.

This is a brief explanation of some important categories of sale contracts. From the next article, we are going to learn Islamic finance contracts one by one in some details. (Stay tuned)