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An Introduction: General Rules and Foreign contracts

In Iran contract law a contract is a mutual agreement between two or more parties. It is about two or more mutual obligations. Every legal system describes a contract differently so every person has a different understanding about contracts.

Normally, any mutual agreement about any act or omission which create an obligation is a contract regardless of the name and title.

Any specific contract has its own definition. This definition determines the structure and content of contract.

Transnational contracts have two different sides; on one hand, they are related to a national jurisdiction and on the other hand, they are related to international business norms. This multi-side nature can result in some issues:

  • Since the contract is related to two different national jurisdictions, the problem of “conflict of Laws” is inevitable.

  • Rule of procedure in courts has a different approach toward conflict of laws than rule of procedure in arbitration.

  • In some cases, there might be some restrictions on obligation of the parties in their national jurisdiction.

  • Membership in international conventions about transnational contracts like CISG can lead to different results in different courts.

In Iran contract law there are two types of contracts: 1- Specified contract 2- Unspecified contract. Specified contracts are those contracts that have a definition in Iran laws. Unspecified contracts don’t have any definition in laws.

  • What is difference between these two types?

    • First- When a contract is a specified contract, the condition of contract should be exactly as the law says. In this contract parties cannot change pillars of the contract. Of course there are always some minor conditions that parties can change.

    • Second- In specified contract, the law will determine whether the contract is revocable or not. An unspecified contract always is irrevocable.

    • Third- In specified contract if the parties change the required condition of the contract, it will be void and null. In unspecified contracts parties can stipulate any condition they want.

  • What are specified contracts?

Most of these contracts are in Civil Code. See Iran Civil Code. Other law and regulations also created some specified contracts like banking contracts and business contracts.

  • Specified contract in Civil Code are:

  1. Sale contract (Irrevocable in nature)
  2. Hiring contract including properties and persons (Irrevocable in nature)
  3. Harvesting contracts (Irrevocable)
  4. Irrigation contract (Revocable)
  5. Partnership contracts (Revocable in nature)
  6. Reward contracts (Revocable)
  7. Lending contract (Revocable)
  8. Loan contract (Revocable in nature)
  9. Agency contract (Revocable in nature)
  10. Guarantee contract (Irrevocable)
  11. Assignment contract (Irrevocable in nature)
  12. Surety contract (Irrevocable)
  13. Compromise contract (Irrevocable in nature)
  14. Mortgage Contract (Irrevocable in nature)
  • Specified contracts in Commercial Code are:

  1. Brokerage contract
  2. Commission agency contract
  3. Carriage contract
  4. Commercial representative contract.
  • General rules in Iran contract Law:

    • Every contract is a valid contract until its invalidity has bee proven.

    • Custom determines the meaning of words in a contract.

    • If a party failed to fulfill his/her obligations, the other party should pass three steps before revoking the contract: one- force the obligator, two- substitute the obligator and three- fulfilling the obligation himself/herself. Of course parties can determine different rules on this regard.

    • Parties can put any condition in their contract. In some countries, condition of a contract should be about contract itself. In Iran contract law, parties can put any condition in their contract even conditions unrelated to the contract.

As I mentioned before, if parties use one of the specified contract they cannot change the main pillars of that contract. See Remedies for Breach of a Contract. What if they do? The contract is invalid.

For example Sale contract in Iran civil code consists of the giving possession of specified goods in return for known consideration. “Giving possession” of “Specific good” in return for “known consideration” (emphasize added) are main parts of this contract. If any of these parts were missing in a sale contract, it will result in nullification of contract.

  • What if parties want to change something?

  1. Most of conditions in specified contract are changeable Except for main pillars or “core of contract”. See Remedies for Breach of a Contract.
  2. If parties want to conclude a specified contract but simultaneously want to change the main pillars, they can use a “Compromise Contract”. In Islamic contract law this contract created to make room for new contracts. Of course in Iran contract law, Freedom of Contract is a principle. This principle stated in Article number 10 of Civil Code. According to this Article, any contracts is valid and binding as long as it is not against the law.
  • International contracts

Iran contract law is mostly based on Iran Civil Code. This code ratified in 1928. It is not surprising that there is not any rule about international contract in this Code. Rules about international contract in Civil Code are:

  1. Freedom of Contract
  2. Article number 966: Possession, ownership and other rights exercised over moveable or immovable property follow the laws of the country where the things exist or are situated; nevertheless, the transfer of moveable property from one country to another cannot affect or limit the rights which persons may have acquired over those things in accordance with the laws of the country in which the things were first situated.
  3. Article number 968: Contracts are under governance of law of the place where the contract is made. If both parties are foreign nationals they can choose a foreign law to govern to the contract.
  4. Article number 975: The court cannot enforce foreign laws or private agreements which are against good behavior. Same is about contracts which are against common sense or public order. For an Example about a contract which can be against public order See Obstacles for Off-Take agreement in Iran Law

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