The supply agreement is the principal instrument by which a supplier undertakes to deliver goods to a purchaser on agreed terms. Under Iraqi law, the supply agreement is governed by the general law of obligations set out in the Iraqi Civil Code (Law No. 40 of 1951), supplemented by the specific provisions of the Civil Code on the contract of sale (Articles 506 et seq.) and by the Iraqi Commercial Code (Law No. 30 of 1984) where the contract is concluded between merchants and in the course of their commercial activity. The drafting of the supply agreement must accommodate the mandatory provisions of these instruments and structure the contractual terms within the framework of party autonomy that they recognise.
Capacity
the Civil Code provides that any person who is not declared incompetent by law has the capacity to enter into contracts. Full capacity is attained on completion of the age of majority, fixed at eighteen complete years under the Civil Code, provided that the person is of sound mind. For legal persons, the capacity to contract is established by the Companies Law No. 21 of 1997 and the company’s constitutional documents, with the powers of the representatives delimited by the resolutions of the competent corporate organ. A contract concluded by a person lacking capacity, or by a representative acting outside his authority, is liable to nullity or to be ratified at the option of the principal in accordance with the applicable provisions of the Civil Code.
Subject Matter and Cause
The Civil Code requires that the subject matter of the contract be determined or determinable, possible, and lawful. The price in a contract of sale must be determined or determinable; pursuant to Civil Code, the price may be left to be fixed by reference to a method specified in the contract, including reference to a recognised market price or to a third-party valuer. The cause (السبب) of the obligation must be lawful and not contrary to public policy. Where the subject matter or the cause is unlawful, the contract is null and void.
Form Requirements
Iraqi law does not, in general, prescribe a particular form for the validity of supply contracts between private parties, and the principle of consensualism applies. Certain categories of transaction are subject to formal requirements, including transactions involving real property and transactions subject to specific registration regimes. Notwithstanding the absence of a general form requirement, the contract should be reduced to writing as a matter of evidentiary discipline; the Civil Code recognises that the parties may agree to make their contract subject to the satisfaction of a particular form, and where they have so agreed, the contract is concluded only upon the satisfaction of that form.
Essential Terms of the Supply Agreement
A comprehensive supply agreement under Iraqi law should address, at a minimum:
- Identification of the parties, including their legal form, registration details, and authorised representatives
- Definition of the goods supplied, including specifications, quality standards, and any reference to the Standards and Quality Control Law No. 54 of 1979
- Quantity, including any minimum or maximum order quantities and any flexibility in scheduling
- Price, including the basis of pricing, currency, and any price adjustment mechanism
- Delivery terms, including the place of delivery, transfer of risk, and applicable INCOTERMS where international supply is involved
- Payment terms, including the timing of payment, payment instruments, and consequences of late payment
- Warranties and quality remedies, including the conformity of the goods and the period within which defects may be notified
- Force majeure and hardship, in accordance within Civil Code.
- Termination, including the grounds, notice requirements, and consequences
- Governing law and dispute resolution
Commercial Sale under the Commercial Code
Where the supply agreement is concluded between merchants in the course of their commercial activity, the contract is characterised as a commercial sale and is governed by the Commercial Code No. 30 of 1984, supplemented by the Civil Code on matters not addressed by the Commercial Code. The Commercial Code recognises certain commercial usages and presumptions that depart from the civil law default, including in matters of joint and several liability of co-debtors in commercial obligations, the rules on commercial proof, and the position with respect to interest. The characterisation of a transaction as a commercial sale should be assessed at the contract structuring stage, as it affects both substantive provisions and procedural matters.
Transfer of Title and Risk
Under the Civil Code, the transfer of title to specific goods is, in principle, effected by the conclusion of the contract, save where the parties have otherwise agreed. The transfer of risk is, in general, coterminous with the transfer of title, with the consequence that loss or damage occurring after the transfer of title is borne by the purchaser save where the loss is attributable to the supplier’s fault. The parties may modify the statutory position by express provision, for example by adopting INCOTERMS that allocate risk by reference to a defined point in the delivery chain. The provisions of the contract on transfer of title and risk should be drafted with attention to their interaction with the financing and insurance arrangements engaged.
Conformity and Defects
The Civil Code obliges the seller to deliver goods conforming to the contract. Where the goods are non-conforming, the purchaser is entitled to the remedies prescribed by the Civil Code, including specific performance, reduction of price, or rescission of the contract together with compensation for loss caused. The purchaser is, in general, bound to notify the seller of any defect within a reasonable period of its discovery, failing which the right to invoke the defect may be lost. The contract should specify the procedures for inspection, notification of defects, and the supplier’s response, calibrated to the nature of the goods and the operational requirements of the purchaser.
How We Can Help
Etihad Law Firm advises on supply agreements governed by Iraqi law, including the drafting and negotiation of the agreement, the structuring of essential terms in accordance with the Civil Code and Commercial Code, the design of warranty and remedies provisions, the allocation of risk and title, and the structuring of dispute resolution and governing law provisions.