Turkish Contract Law

A contract is a legally binding agreement (a legal transaction) that is usually concluded between two parties. Therefore, it is generally referred to as a bilateral legal transaction. For instance, in a sale contract, there are two parties: a buyer and a seller. In a lease contract, there are also two parties: a lessor and a lessee. However, a contract may be concluded between more than two parties—e.g., a partnership contract with multiple partners. Another example is an inheritance partition agreement made between more than two heirs. These kinds of contracts are referred to as multilateral legal transactions or, more precisely, as multilateral contracts.

TCO art. 9 regulates public promises. At first sight, a public promise might be thought of as an offer, since art. 9 is found between art. 1 and art. 11, being the provisions of the Code concerned with the formation of the contract. However, in spite of its place in the Code, a public promise is not an offer. It is a unilateral legal transaction, according to which a public promisor incurs an obligation.

The freedom of form is one of the main principles of the Turkish Code of Obligations. This principle has its basis in TCO art. 12 par. 1, according to which the validity of a contract does not require any specific form unless it is provided for by law. Consequently, the parties may enter into contracts that do not require a specific form depending on their own preferences as to form. In this context, subject to certain exceptions, a contract for the sale of movable property may be concluded in any form. A lease contract for movable or immovable property may also be made orally or in writing.

During the formation of a contract, the parties generally negotiate the terms of the contract. However, in certain cases, one of the parties prepares the contract’s terms in advance and, without negotiation, imposes them on the other party. Generally, banks, insurance companies, travel agencies and public institutions providing utility services use such terms prepared in advance, which are referred to as ‘standard terms’, ‘general conditions’ or ‘adhesion contracts’.

The principle of freedom of contract has its basis in TCO art. 26. Pursuant to this article, the parties may freely determine the content of the contract, their obligations, duties, responsibilities, liabilities, rights, entitlements, remedies, etc. within the limits of the law. According to this principle, within the limits of the law, persons are free to conclude or not to conclude a contract and they also have freedom of choice of the contracting parties.

Initially, one might think that an acknowledgement of debt is a unilateral legal transaction. However, this is not true; on the contrary, an acknowledgement of debt is a contract. In fact, such a contract does not require any specific form. Nevertheless, in practice, this kind of legal transaction is usually concluded in written form.

According to the principle of freedom of contract, within the limits of the law, each person is free to enter into a contract or not. However, in certain circumstances, a person may have an obligation to contract.

If the interpretation of the contract is not contested by the parties, then their common interpretation will be applied. However, in the event that each party interprets the text (wording) of the contract in a different manner and the parties’ interpretation is contradictory, this dispute will be determined by a judge.

As mentioned in the section concerning the formation of the contract, in order to form a contract, the parties must agree on all the necessary elements of the contract. The necessary elements of a contract are divided into two categories: objectively essential elements and subjectively essential elements. Furthermore, there are also secondary elements of a contract, but, as a rule, they are not indispensable for the conclusion of the contract.

In determining the terms of a contract, the parties consider the existing circumstances that constitute the basis of the contract (e.g., cost, price, regulations related to performance, etc.). However, after the conclusion of the contract, a change in these circumstances may occur and significantly affect the obligations to be performed. For instance, the price of the raw materials to be used in the performance of the obligations may increase substantially, and consequently a fundamental imbalance in the rights, obligations and entitlements of the parties to the contract may arise.

According to TCO art. 30, a party entering into a contract under a material (fundamental) mistake (error) will not be bound by such a contract. In the Turkish Code of Obligations, there are two types of mistake: the first is a mistake in declaration of will (intention), and the second is a mistake in motive.

When the parties to a contract are reciprocally obliged so that the obligation of one party is correlative to the obligation of the other, this contract is called a bilateral contract. In other words, a bilateral (synallagmatic) contract is a contract formed by the exchange of mutual or reciprocal promises between the parties. For example, in a sale contract, the seller has an obligation to transfer ownership of the goods specified in the contract, and the buyer is obliged to pay the agreed price. Similarly, in lease, employment or work contracts, each party undertakes reciprocal obligations.

A person (the agent) may make a legal transaction, especially a contract, in the name of and on behalf of another person (the principal). In the case of a contract, there may be three persons: an agent, a principal and the other party to the contract. If the agent has the authority and acts in the name of and on behalf of the principal, the contract binds the principal. The agent has neither rights nor obligations with regard to the concluded contract between the parties. Such a case is referred to as direct agency. It should be noted that there are certain legal transactions that cannot be made by an agent such as an engagement, a marriage and a testamentary disposition.

A debtor may be obliged to give, to do or not to do something. The debtor must perform what he is obliged to perform. The following examples may be given for each type of obligation.

A debtor must perform exactly what he is obliged to perform. If the debtor offers performance of an obligation that is different from the original, then the creditor does not have to accept it. Even if the value of the debtor’s proposal is higher than the original obligation, the creditor need not accept it. Similarly, a creditor is not entitled to demand performance of an obligation that is different from the original. In other words, the debtor does not have to accept such a proposal. Even if the value of the creditor’s proposal is less than the original obligation, the debtor need not accept it either.

According to TCO art. 83, a debtor, as a rule, need not fulfil the obligation in person. However, where the debtor’s specific personal skills and experience is of importance to the creditor, the obligations under the contract may not be fulfilled by a third party. In this respect, the following examples can be mentioned: (1) according to TCO art. 395, unless the contrary is understood from the contract or the circumstances, an employee must perform the work in person; (2) TCO art. 506 par. 1 states that an agent, subject to certain exceptions, must carry out the obligation in person; and (3) TCO art. 471 par. 3 sent.1 states that, subject to certain exceptions, a contractor must carry out the work in person or have it carried out under his specific direction.

A debtor must perform the obligation at the place determined for performance. If the debtor does not do so, the creditor may reject the performance. In that case, the debtor must bear the consequences of non-performance. However, the creditor may also accept performance that is offered at a different place. In such a case, the obligation is deemed to be performed and, is thus, extinguished.

If the time of performance is not determined either by the parties’ agreement, by the nature of the legal transaction or by the law itself, the obligation falls due immediately (TCO art. 90). Accordingly, if the obligation may be performed immediately, then immediate performance may be demanded.

The Turkish Code of Obligations sets out three specific provisions relating to proof of performance of pecuniary obligations. However, these specific provisions are also applicable to other types of obligation.

In certain cases, a debtor may fulfil an obligation without the participation of the creditor. In this context, for an obligation not to do, such as an obligation not to compete, the creditor’s participation is not needed. In such a case, the default of the creditor is not in question.

It is not easy to give an exact definition that encompasses all types of natural obligations (obligatio naturalis). That is why, in this section, each type of natural obligation will be analysed individually. However, a common characteristic of natural obligations, except for time-barred obligations, is that when a creditor seeks an order against a debtor to perform the obligation, the court must dismiss the case. As to time-barred obligations, the court may not take into consideration ex officio the fact that the obligation is time-barred (TCO art. 161). If the debtor raises the fact that the obligation is time-barred, then the court must dismiss the case. In addition, there is a further attribute that all natural obligations share; namely, if a debtor performs the obligation voluntarily, then it may not be recovered.

If a debtor fails to perform an obligation, in principle, as long as the performance of the obligation is possible, the creditor may only demand and sue for specific performance of that obligation. If the court accepts a lawsuit filed by a creditor against a debtor for performance of an obligation, then two possibilities arise: (1) the debtor may comply with the court order, fulfil the obligation and thereby extinguish it or (2) the debtor may fail to obey the court order, and the obligation will remain unfulfilled. In the latter case, the creditor is entitled to enforce the court order according to the provisions of the Turkish Code of Bankruptcy and Enforcement.

When an obligation becomes due, the fact that the debtor does not perform the obligation creates a delay in performance of the obligation. As a general rule, a delay in performance of the obligation does not automatically constitute the debtor’s default by itself. According to TCO art. 117 par. 1, in order for a debtor to fall into default, the obligation must be due, the debtor must fail to perform the obligation and the creditor must give notice for performance.

An obligational relationship is a legal bond (vinculum iuris) solely between a debtor and a creditor. Thus, as a general rule, an obligational relationship may not give rights to third parties. This principle is referred to as privity of the obligational relationship.

There are several causes of extinguishment of obligations. The normal manner of extinguishment of an obligation is its performance as required. The other causes are set out in the Turkish Code of Obligations in the following order: discharge by agreement, constitution of a new obligation (novation), merger, impossibility of performance and set-off.

As a rule, claims are subject to limitation periods. When an obligation becomes time-barred, it remains valid but becomes a natural obligation. Thus, the debtor may perform the time-barred obligation or raise a defence that the claim is time-barred. When the debtor asserts that the obligation is time-barred, the court must dismiss the case provided that this defence is not contrary to the principles of good faith (TCC art. 2 par. 2).

In certain cases, there may be several debtors liable to perform the same obligation. If the creditor has the right to demand that each debtor perform the entire obligation, then these debtors are referred to as joint and several debtors. This situation may only arise from a legal transaction, generally a contract, or the law itself.

In certain cases, there are several creditors of the same obligation. As long as the obligation is divisible, each creditor may only demand partial performance. However, if any of these creditors have the right to demand the entire performance of the obligation and the debtor can be discharged by performing the obligation for one of the creditors, then there is a joint and several claim.

As a rule, most legal transactions, whether they are unilateral or bilateral, may be made conditional. Contracts in particular, whether obligatory or dispositive, may be made dependent on the occurrence or non-occurrence of a future uncertain event. There are two types of condition: suspensive (precedent) and resolutive (subsequent).

An amount of money paid by a party when entering into a contract is not deemed to be forfeit money; on the contrary, it is deemed to be earnest money (TCO art. 177 par. 1). That is to say, the money paid serves as proof that the contract is concluded. For instance, in a car sale contract, the buyer pays €10,000. If the parties’ intention is not sufficiently determined in the contract, then this amount is deemed to be earnest money and is deemed to prove that the contract is concluded.

As a general rule, if a debtor does not perform his obligation at all or as required and he is at fault, then the creditor is entitled to demand that the debtor pay compensation for his damage. Consequently, the creditor must prove the requirements for the debtor’s liability for non- or improper performance of the obligation, in particular the existence and the quantum of his damage.

A claim arising from a contract or some other source of obligation, such as a tort or unjust enrichment, may be transferred to third parties. A claim may be transferred by an agreement, by a court order or by law. In this section, assignment of claims effected by agreement and those effected by a court decision or operation of law are analysed respectively.

According to TCO art. 195, a third party with respect to an obligational relationship may promise the debtor to discharge him from the debt. As a result of this agreement, the promising third party is obliged to discharge the debtor from the debt. For instance, debtor D is obliged to pay €10,000 to creditor C. A third party enters into a contract with debtor D and undertakes to discharge him from this debt.

The transfer of a contract is an agreement that concluded between the transferor, the transferee and the remaining party to the contract. In such a case, all the claims and the debts of the transferor, and the legal position of being a party to the contract, are transferred to the transferee (TCO art. 205 par. 1).