International Commercial Contracts and Their Applications
With the expansion and development of international commercial and economic relations, the conclusion of international commercial contracts between natural and legal persons has become increasingly common. These contracts may be entered into with parties located outside the country, in which case they are classified as international contracts. A key consideration in such contracts is their enforceability in domestic and foreign courts, which depends on proper legal structuring and compliance with applicable legal principles.
Key Elements in Drafting International Contracts
The Concept of an International Contract
A contract is considered international when it contains at least one foreign element, such as the nationality of the parties. Given that many individuals and businesses engage in international contracts, understanding how to apply legal principles and rules when drafting various types of international agreements is essential to prevent potential losses and damages.
A contract acquires an international character when the contracting parties are resident in different countries or when the place of performance is outside the parties’ country of residence.
Structure and Essential Elements of International Contracts
- Parties to the Contract: A legal contract involves two parties, each of whom may be a natural person or a legal entity.
- Subject Matter of the Contract: The subject matter refers to the act, service, or obligation for which the contract is concluded. It must comply with applicable international legal rules or the laws of the relevant country and must involve a legitimate and reasonable benefit.
- Obligations: The parties’ obligations and responsibilities must be clearly stated in the international contract.
- Duration of the Contract: International contracts must specify a defined period for the performance of obligations and execution of the contractual terms.
- Contractual Guarantees: The inclusion of guarantees in contracts helps address issues such as compensation for damages resulting from non-performance or defective performance of obligations. Provisions concerning the method of performance, termination or automatic termination of the contract, warranties and guarantees, price of goods or services, force majeure events, dispute resolution mechanisms, and the governing law of the contract should also be clearly stipulated.
The drafting and preparation of international contracts must be carried out in accordance with international legal standards and principles in order to ensure their validity and enforceability.
Applications of International Contracts
Transactions conducted under international commercial contracts form the foundation of international trade law, within which the objectives and obligations of each party are defined through an international agreement. When contracting parties from different countries enter into a commercial relationship, international contract rules apply unless the parties expressly agree to subject the contract to the laws of a specific country.
Governing Law of International Contracts
In international contracts, the parties may agree on the applicable law and the competent court to resolve disputes.
According to Articles 968 and 969 of the Iranian Civil Code, obligations arising from contracts are generally governed by the law of the place where the contract is concluded, unless the parties are foreign nationals or have expressly or implicitly agreed to subject the contract to another law. Documents are also governed, in terms of their form, by the law of the country in which they are executed.
Accordingly, if one of the parties to an international contract is Iranian and the contract is concluded in Iran, Iranian law and courts shall have jurisdiction. If the contract is concluded in another country and the method of dispute resolution is not specified, prevailing customs and practices shall apply. In cases where the contract is concluded electronically, the court of the place of residence of the party in breach of the obligation shall have jurisdiction.
Types of International Contracts
International commercial and business contracts take many forms. With advances in international communication and the passage of time, new types of contracts continue to emerge. One of the most commonly used international contracts is the franchise agreement.
A franchise agreement, also known as a concession or licensing agreement, is a contract under which a company grants another company the right to sell its products or services in exchange for a fee. In practice, franchising is a business strategy aimed at attracting and retaining customers. It is a marketing system designed to create a specific image of a company’s products or services in consumers’ minds and to define them in a way that satisfies customer needs.
Frequently Asked Questions About International Commercial Contracts
An international contract is an agreement that contains at least one foreign element, such as parties resident in different countries or the place of performance in another country.
The principal elements include the parties to the contract, the subject matter, obligations, duration, guarantees, termination conditions, force majeure, governing law, and dispute resolution mechanisms.
The parties may agree on the governing law and the competent court. In the absence of such an agreement, the law of the place where the contract is concluded or applicable international customs generally apply.
These contracts serve as the legal basis for global commercial relations, including trade transactions, services, export and import activities, joint ventures, and technology transfer.
A franchise agreement is a contract under which a company grants another party the right to sell its products or services in return for payment of a fee.
Proper drafting helps prevent disputes and financial or legal losses and ensures that the contract can be effectively enforced in domestic and foreign courts. What is an international contract?
What are the main elements of international contracts?
How is the governing law of an international contract determined?
What are the applications of international contracts?
What is a franchise agreement in international trade?
Why is the proper drafting of international contracts important?
