The remedies under Iranian law in case of non-payment of the consideration

 

The remedies under Iranian law in case of non-payment of the consideration

• The remedies under Iranian law in case of non-payment of the consideration
  • EXECUTIVE SUMMARY
  • Legal framework applicable to the sales agreements in iran
    • TYPES OF SALES AGREEMENT UNDER IRANIAN LAW
      • A. Sales with specific goods
      • B. Sales with semi-specific goods
      • C. Sales with fungible goods
  • ENFORCEABILITY OF RETENTION OF TITLE CLAUSES UNDER IRANIAN LAW
  • Remedies for sellers to enforce sales agreements
    • A. Right of retention
    • B. Right of repossession
    • C. Specific performance
    • D. Right of termination
  • IMPLICATIONS OF THE LEGAL FRAMEWORK FOR THE SELLER
    • Is retention of title clause allowed under Iranian law, at all?
    • Is the clause provided for in the Payment Terms sufficient for agreeing on retention of title?
    • Even if the retention of title can be agreed upon and is actually agreed in our case, is there a chance to repossess the Products to the Seller (without terminating the Contract)?
    • Even if the retention of title can be agreed upon and is actually agreed in our case, is there a chance to repossess the Products to the Seller (without terminating the Contract)?
      • A. Prohibiting repossession because the Seller has waived its rights through delivery of the Products
      • B. Allowing the repossession because the Products have not been delivered in strict legal sense
      • C. Allowing the repossession because the Products have been given to the Purchaser only for its use (in Farsi Ebaahey-e-Entefaa)
    • Does Iranian law provide the possibility to withdraw from the Contract and then demand and sue for the return of the Products?

This article has been prepared by Iran Best Lawyer in order to provide you with the detailed information concerning the legal framework of remedies under Iranian law in connection to the non-payment of the contractual consideration.

More specifically, this article is organized in two different sections as follows:

1. Legal Framework Applicable to Sales Agreements in Iran; and
2. Implications of the Legal Framework for the Seller.

 

EXECUTIVE SUMMARY

1. Retention of title clauses are allowed and enforceable under Iranian law, and the clause stated in the Contract qualifies as such.
2. Remedies generally available to a seller in order to enforce its rights arising from a sales agreement under Iranian law generally include rights of retention, repossession, asking specific performance and finally, termination of the agreement. As will be explained in paragraph 4 below, not all of these remedies are available to the Seller in this case.
3. Where the price should be paid through one or more installments, and/or seller has voluntarily delivered the goods to the buyer, the rights of retention and/or repossession are deemed to be waived. Further, a seller might not terminate the sales for buyer’s failure to pay the price unless the seller first seeks specific performance from the court.
4. In this case, an Iranian court may or may not allow repossession of the Products without the Seller terminating the Contract depending on the court’s interpretation of and approach towards facts of the case.
5. An argument against allowing repossession would be that by voluntary delivery, the Seller has waived its right of repossession and the only remedy available to him would be seeking specific performance and finally, termination of the Contract.
6. Two arguments can be developed for allowing repossession on behalf of the Seller. First, wording of the retention of title clause indicates that the Buyer has not been given full legal control over the Products. Therefore, ‘delivery’ in the sense of Iranian Civil Code has not happened. As a result, Buyer’s right of repossession has not been waived. Second, the mere fact that the Seller has retained ownership in the Products shows that the parties’ intention allowed neither ownership nor possession of the Products to be given to the Buyer. Consequently, the Seller has given the Products to the Buyer only for the latter’s use (in Farsi: Ebaahey-e-Entefaa). Therefore, where the Buyer is in breach of its payment obligations, nothing in the Contract prohibits the Seller to take back the Products from the Buyer.
7. Although room is left for argument, our assessment is that chances that the court allows repossession without termination of the Contract are low. First, the Purchaser is given full possession of the Products and is most likely using them in its operations. As a result, an argument that ‘delivery’ has not occurred may not be persuasive for the court. Second, the Seller needs to provide the court with more indicative evidence to show that it only intended Ebahey-e-Entefaa. This has to do with the fact that an Iranian court might not deem the mere incorporation of retention of title clause into the Contract sufficient for this purpose. Moreover, as the Products have been imported to Iran by the Purchaser and customs documents have been issued in its name, the Purchaser is deemed owner of the Products in these documents. Consequently, we need also to challenge customs documents in the court proving that the ownership has remained with the Seller. This challenge will be normally difficult and time-consuming to establish because customs documents are deemed official deeds.
8. The Seller might also terminate the Contract. However, it first needs to seek specific performance for Purchaser’s payment obligation. Please be advised that the court proceedings for specific performance and termination may take up to two to three years to conclude. The Seller may also apply for an interim measure in order to seize assets belonging to the Purchaser in the value of unpaid instalments. These assets include the Products themselves and the Seller may apply for the interim measure before submitting its petition for specific performance. Nevertheless, the Seller needs to initiate its main claim within a maximum of two weeks after the interim measure is issued, otherwise the interim measure will be revoked by the court. Upon issuance of the interim measure, the Purchaser will not be allowed to sell or otherwise transfer the Products to third parties.
9. To apply for the interim measure, the Seller needs to deposit security for potential damages that might be sustained upon the Purchaser as a result of execution of the interim measure.

 

 

Legal framework applicable to the sales agreements in iran

This section offers an overview of the legal framework applicable to sales agreements in Iran. In particular, it examines enforceability of retention of title clauses under Iranian law, and remedies by which a seller can enforce its rights under a sales agreement. Sales agreements are governed by Iranian Civil Code of 1935. In accordance with the Civil Code, a sales agreement is a contract by which the ownership of an asset transfers from the seller to the buyer in return for a known consideration.

While Iranian law generally acknowledges party autonomy in concluding contracts, the Civil Code has regulated various aspects of sales agreements and where parties are silent on a specific issue, the law will fill the gap found in their agreement. As explained in the following, this has important implications as far as the effect of certain actions on rights and obligations of the parties are concerned.

As a general rule, the ownership of assets subject to a sales agreement immediately transfers from seller to buyer without the need for any further actions or obligations. However, this special feature of sales agreements governed by Iranian law is only applicable in sales with specific goods as defined below. In such sales, the seller loses its title in the assets upon the execution of an agreement governed by Iranian law.

 

 

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 The remedies under Iranian law in case of non-payment of the consideration