The "Draft Bill of the Turkish Code of Obligations" prepared by a Commission appointed by the Republic of Turkey, Ministry of Justice, to repeal and supersede the current Code of Obligations no. 818, has been presented to the public for comments.
The Draft Bill of the Turkish Code of Obligations is comprised of 2 parts, as detailed below:
First Part: General Provisions:
- Debt Relations Arising Out of Contract
- Debt Relations Arising Out of Torts
- Debt Relations Arising Out of Unjust Enrichment
- Performance/Discharge of Contractual Debts
- Results of Non-Performance of Contractual Debts
- Effects of Debt Relations on Third Persons
- Causes of Termination of Debt Relations
- Solidarity (joint and several liability for debts)
- Terms and Conditions of Contract
- Contract Price, Forfeit Money and Penal Clause
- Assignment/Transfer of Receivables
- Assumption of Debts
- Transfer of Contract and Joining in Contract
Second Part: Special Debt Relations:
- General Provisions of Sales Contract
- Sale of Movables
- Sale of Immovables and Contracts Creating Sales Relations
- Some Types of Sales
- Barter Contracts
- Donation Contracts
- General Provisions of Rent Contracts
- House and Roofed Office Rents
- Rent of Profits
- Loan Contract for Use
- Loan Contract for Consumable Generic Goods
- General Employment Contract
- Marketing Contract
- Service at Home Contract
- Job Contract (Locatio Conductio Operis)
- Publication Contract
- Procuration/Agency Contract
- Letter of Credit and Credit Order
- Brokerage Contract
- Negotiorum Gestio
- Commissioning Agent Contract
- Trade Representatives and Other Merchant Agents
- Custody Contracts
- Surety Contracts
- Gambling and Betting
- Life Annuity Contract
- Contract of Maintenance For Life
- Ordinary Partnership Contract
In this Memorandum, as most of the basic provisions of the current Code of Obligations are incorporated also into the Draft Bill, we are going to summarize only some provisions which we believe are relevant to and significant for the banks out of the amendments made by the Draft Bill in the current Code of Obligations.
II. Some Important Innovations As Specified In The Reasons Of The Draft Bill:
Some new provisions mentioned in the Reasons of the Draft Bill are hereby summarized below:
1. A new provision under the heading of "Formation of Contract" is added to the First Division of First Section "Sources of Debt Relations" in the First Part "General Provisions" of the Draft Bill, and that new provision is article 7 under the marginal heading "Dispatch of Unordered Goods".
2. The "Written Form" requirement is made compliant with the Electronic Signature Law no. 5070.
3. It is stated in the Reasons that the (General Transaction Conditions) which are not set down in the current Code of Obligations, but are severely needed in the law practice are also incorporated into the Draft Bill, and the opinions quoted below are put forward:
"Our Code of Obligations is based on the individual contract model. Individual contract refers to the contracts all of the conditions and terms of which are discussed, negotiated and bargained between the parties thereto until the parties come to full mutual agreement on the basis of their recent mutual declarations of will, such as offer, counter-offer and acceptance. However, the social and economic developments of our day have created a requirement for mass-oriented services and for production for masses. As a result, in addition to the individual contract model, a new contract model called as mass contract or formulary contract has emerged. Prior to execution of an individual contract, the banks, insurance firms, etc. generally prepare the terms and conditions of contracts (drafted abstractly and unilaterally) and regulate their future legal transactions and relations of an indefinite number, but in the same format and type, by using such general terms and conditions. Such pre-determined typical contract conditions and terms are called as "general transaction conditions", and this type of contracts is termed as "mass contract" or "participative contract" or "formulary contract". To put it in other words, the individual contracting party has only the options "yes" or "no", and does not have the option "yes, but ….." against the printed text offered to him. It is clear and evident that such types of contracts must also be taken under legal protection the law practice…".
4. In article 93 with the marginal heading "Interest" and in article 125 with the marginal heading "Default Interest", the provisions of the Law on Legal Interest and Default Interest no. 3095 are taken into consideration.
5. The "participation in debt" by the third persons in article 206, and the "transfer of contract" in tenders or similar other situations in article 210 and the "joining in contract" on the side of either party thereto in article 211 are new provisions which are not dealt with in the current Code of Obligations.
6. The new arrangements also contain the "preemption right".
7. The following clause is added to article 398: "an employment contract which is later proven to be invalid remains in full force and effect just like a valid employment contract until the employment relationship is terminated".
8. "Delivery and accountability obligations" and "obligation to comply with the regulations and instructions" which are not included in the current Code of Obligations are dealt with in respectively articles 401 and 403 of the Draft Bill.
III. Some Important Provisions Included In The Draft Bill:
1. Addition of New Means of Communication to the "Written Format" Conditions of Contracts:
Article 14 of the Draft Bill provides that unless otherwise provided in the Code, in addition to "duly signed letter" and "cable with its original duly signed by the debtors",
- Confirmed fax message,
- Telex and
- Other texts which may be sent and stored securely with electronic signature thereon
... are also accepted for the purposes of "written format" conditions of contract.
2. (General Transaction Conditions) Concept:
The Draft Bill proposes the "general transaction conditions" concept which is not so clear for implementation purposes. According to the related article of the Draft Bill which is reminiscent of the "Terms and Conditions" concept commonly used in the foreign contracts, where one of the parties unilaterally determines and imposes its terms and conditions for the contract, "general transaction conditions are the general conditions of contract WHICH ARE UNILATERALLY PREPARED AND PRESENTED BY ONE SIDE TO THE OTHER SIDE, at the time of contracting, for use also in a great number of similar other contracts in the future".
According to the Draft Bill:
(i) Whether these general transaction conditions are written in the main body of the contract or in an exhibit of the contract, and even their "scope", "letter characters" and "format" do not bear any importance.
(ii) The texts of contracts issued for the same purpose may not be identical to each other, and this does not preclude the provisions of such contracts from being considered and treated as "general transaction conditions".
(iii) Again, a phrase incorporated in the text of contract containing the general transaction conditions or in a separate contract, stating that each of these conditions is discussed and agreed mutually by the parties thereto, does not exclude them from the "general transaction conditions" status.
The phrase of "discussed and agreed mutually" herein reminds us the provisions of article 6 "unfair conditions in contract" of the Law For Protection of Consumers no. 4077. According to the Law For Protection of Consumers, if a contract condition is prepared in advance and particularly is contained in a standard form of contract, and the consumer cannot influence its contents, it is considered and accepted that the said contract condition is not discussed and negotiated with the consumer. The same Law provides that the conditions imposed by the vendor or supplier without "discussing and negotiating" with the consumer are "unfair conditions". However, in the Draft Bill of the Code of Obligations, it is stated that even if it is stated in the text of the contract that a condition is discussed and agreed mutually by the parties thereto, such phrase does not affect its being a part of the "general transaction conditions" applicable on that contract.
(iv) The law provisions pertaining to the general transaction conditions are applicable also on the contracts prepared and applied by the persons and entities who provide and offer services on "concession" basis.
(v) However, the general transaction conditions which are to the detriment of the counter party may be incorporated in the contract only if and when the contract issuer gives full information to the counter party about such conditions and enables the counter party to learn the contents thereof and the counter party explicitly accepts such conditions at the time of signature of the contract, or otherwise, the general transaction conditions will be deemed non-existent and void, according to the Draft Bill.
If a provision of the general transaction conditions IS NOT CLEAR AND EASILY UNDERSTANDABLE or has several MEANINGS (i.e. polysemous), such provision is interpreted in disfavor of the contract issuer and in favor of the counter party.
Any phrase or clause included in a contract containing general transaction conditions or in a separate contract, which authorizes the contract issuer to make additions to or amendments in the contract containing general transaction conditions, UNILATERALLY AND IN DISFAVOR OF THE COUNTER PARTY, is deemed invalid and void.
Again, provisions contained in the general transaction conditions which are detrimental to the counter party or are by nature aggravating the situation of the counter party, in conflict to the rules of honesty, are also directly considered invalid and void.
It is, therefore, deemed necessary to have the frontiers of this new provision fixed and arranged well, and to clearly determine and assess its effects on the existing type standard form contracts of banks and similar other institutions (Art. 20 – 25).
3. Causal Relation (Art. 58):
As a new provision, it is stated in the Draft Bill that "in the light of the life experiences, and in the ordinary course of events, if a loss is the expected natural result of an act, then there is a causal relation between the loss and the act". According to the Draft Bill, the causal relation ceases to exist in the case of evident and weighted effects of a force majeure event or an act of the injured or a third person.
4. Discretion of Judge in Compensation of Damages:
Pursuant to the proviso of the Draft Bill, if the equity justifies so by considering the economic and financial situations of the sides, the judge may order the person who causes the loss to compensate and indemnify the loss appropriately, "regardless of his fault therein" (Article 60). This reflects the absolute and objective liability concept of the Code of Obligations which is currently in force. However, the Draft Bill terms this liability as "Equity Liability".
5. Release/Discharge Not Subject To Any Requirements of Form:
Article 137 of the Draft Bill provides that "even if the deal underlying the debt is made subject to a certain form by the sides thereto or as a requirement of law, the debt may be fully or partially released and removed by a contract of (release/ discharge) between the sides without being subject to any requirements of form".
6. Partial Impossibility:
According to the Draft Bill, if performance of a debt becomes partially impossible, the debtor gets relieved of only the part of his debt which becomes impossible. Provided, however, that the debt ceases to exist fully, if it is evidently understood from the available circumstances that the sides would not ever enter into such a contract/deal, had this partial impossibility been foreseen by the sides. (Art. 142)
7. Excessive Distress of Performance:
Article 143 of the Draft Bill provides that: "If and when a condition which is not foreseen and is not expectable to be foreseen by the sides at the time of signature of the contract emerges for a reason not attributable to the debtor, and changes the circumstances available as of the time of signature of the contract to the disadvantage of the debtor to such extent that it is against the equity to demand performance of the debt by the debtor, and the debtor has not yet performed his debt or has performed his debt by reserving and retaining his rights of claim arising out of the excessive distress of performance, then and in this case, the debtor will have the right to demand adaptation of the contract to the new conditions, and if this is not possible, to renounce and repudiate the contract."
8. Five Years’ Term of Prescription:
The Draft Bill repeals the provision of the existing Code of Obligations (Article 126/4) stating that all of the lawsuits, whether commercial or not, arising out of a partnership agreement and commenced between a company and its partners are subject to a term of prescription of five years. However, Article 152 of the Draft Bill keeps in force the five years’ term of prescription in various disputes listed under 6 headings, including "rentals, principal interests and other periodic contractual obligations".
9. Registration of Preemption and Repurchase Rights in Land Registry:
It is stipulated in the Draft Bill that the rights of preemption and repurchase may be agreed upon by and between the sides for a maximum period of TWENTY-FIVE years, and the right of purchase may be agreed upon by and between the sides for a maximum period of TEN years, and may be registered in land registry only for the periods envisaged in the applicable laws. According to the Draft Bill, the rights of preemption, purchase and repurchase cannot be transferred and assigned, but can be inherited. (Articles 243-244)
10. Installment Sales:
The Draft Bill also contains provisions relating to installment sales. Articles 258 to 277 of the Draft Bill deal with installment sales.
These articles give a definition of installment sale, and show the contents of an installment sale contract.
It is stated that an installment sale contract becomes effective SEVEN DAYS AFTER receipt by the buyer of a copy of the contract duly signed by the parties thereto.
It is further provided that the buyer is liable to pay 1/5th of the cash sale price in cash at the time of delivery at the latest, and the balance of the sale price within no later than THREE YEARS following the date of the installment sale contract.
The Draft Bill specifies that the Council of Ministers may decide to reduce down to half or to increase up to twice the amount of down-payment and the legal payment periods, depending on the kind of the goods sold.
According to another new provision (Article 262), unless the installments of debt are secured by promissory notes or other bills of exchange, the debtor may at any time pay the outstanding balance of the purchase/sale price at once and get relieved of the debt. In this case, the portion of the amount of interests added to the cash sale price corresponding to the remaining unpaid installments will be reduced pro rata to the reduction in the installment payment period, in any case not being less than the half thereof.
The Draft Bill defines in Article 268 the concept of "installment sales with payment in advance". According to this definition, "the installment sale with payment in advance is a type of sales wherein the buyer agrees and undertakes to pay the sale price of a movable property in installments in advance, and the seller agrees and undertakes to deliver the sold property to the buyer upon payment of the sale price in full."
We would like to state that this concept has not originally been incorporated into the currently in force Code of Obligations from the Swiss "Code des Obligations", and thus, this new provision is only a part of the new Turkish Code of Obligations and an innovation in the law practice of our country.
11. Duration of Rent:
The Draft Bill contains provisions so that the "real property rents law" shall no more be needed.
The Draft Bill also regulates the "duration" of rent in Article 304, according to which a rent contract may be signed for a definite or indefinite term. The rent contract of a definite term is defined in the Draft Bill as follows: "The rent contract of a definite term is a type of rent contract which automatically expires upon completion of the agreed upon duration without any further notice." And all other rent contracts will be deemed to have been signed for an indefinite term.
It is derived out of this law provision that the tenants of some types of rents, such as residential (house) rents, which are currently under protection of various laws and precedents may definitely encounter the risk of eviction at the end of the duration of rent, in the law practice.
There is an interesting provision in Article 355 of the Draft Bill: "as for the real estates rented for use as (family house), the tenant is not allowed to terminate the rent contract without a clear and evident consent of his/her spouse".
12. Right of Guarantor To Request To Be Released From Debt:
According to Article 600 of the Draft Bill, upon occurrence of some certain events and circumstances, the guarantor may request the main debtor to designate and give a security and if the debt has already become due and payable, may request the main debtor to release the guarantor from debt. The same provision is already included in Article 503 of the currently in force Code of Obligations, but the new provision stipulates that, inter alia, also if and when the legal proceedings become materially and substantially difficult due to relocation of the residence of the debtor to another country, the guarantor may request the main debtor to designate and give a security and to release the guarantor from debt.
Article 604 of the Draft Bill provides that in a guarantee given for a "future" debt, if and when the financial situation of the debtor materially deteriorates after the date of the contract of guarantee and before the debt arises, or the financial situation of the debtor is later understood and proven to be much worse than that assumed by the guarantor in good faith at the time of giving the guarantee, then and in this case, the guarantor may at any time by a written notice to the creditor "renounce" the contract of guarantee.
13. Assignment/Transfer of Debt:
Articles 200 and 201 of the Draft Bill make a separation of:
- internal assumption of debt and
- external assumption of debt
under the heading of "Assumption of Debt".
A person who enters into an "INTERNAL ASSUMPTION OF DEBT" contract with the debtor agrees and undertakes to release the debtor from his debt by personally performing the debt or by assuming the debt himself with a consent of the creditor.
Replacement of the debtor by a new debtor and release of the original debtor from his debt is realized by an "external assumption of debt" contract signed between the "creditor" on one side and the new debtor who assumes the debt on the other side.
14. Loan of Consumable Generic Goods:
Contract of loan is termed as "loan of consumable generic goods" in the Draft Bill. According to Article 390 of the Draft Bill, "loan of consumable generic goods" is a contract wherein the lender agrees and undertakes to pay a certain amount of money or to deliver certain consumable generic goods to the borrower, and the borrower agrees and undertakes to redeliver the generic goods of the same kind and the same quantity to the lender.
15. Obligations of Employee and Employer in an Employment Contract:
In two new articles (401 and 403) added to the Code by the Draft Bill, it is stated that the employee is under duty and obligation of "delivery of" and "accounting for" the things received from third parties in the name of the employer in the course of performance of his job duties, while the employer is authorized to make general arrangements and decide general rules relating to the behaviors and acts of employees in the workplace, and this is termed as "the duty to comply with the internal bylaws and instructions".
16. Marketing Contract:
According to the definition given in the Draft Bill, marketing contract is a type of contract wherein the marketer agrees and undertakes to continuously "mediate in all kinds of deals" independently from and outside the commercial enterprise and in the name and account of the employer, being the proprietor of a commercial enterprise, or if there is a written contract, to perform his obligations arising out of such contract, while the employer, being the proprietor of the commercial enterprise, agrees and undertakes to pay a fee. (Article 453) Unless otherwise required due to just causes, the marketer is under obligation to visit the customers in accordance with the instructions given to him. However, the marketer may not enter into deals or mediate the deals in his own account or in the account of third parties without a written consent of the employer.
Contracts which hold the marketer liable for "defaults in payment" or defaults in other obligations of the customers, or liable to indemnify and hold the employer harmless from all or some of the expenses incurred for recovery and collection of the receivables from customers will be deemed "null and void".
As an exception to this rule, the marketers who mediate as an insurance broker in the insurance contracts may agree and undertake IN WRITING to indemnify up to HALF of the expenses to be incurred by the employer for "recovery and collection of the receivables".
Conclusively, this text some important new provisions of which are summarized above in order to give the reader an idea about it is only the first draft of the Draft Bill, and as the process is ongoing, the Draft Bill will probably be subject to various other amendments in the coming days.The content of this article is intended to provide a general guide to the subject matter. Speacialist advice should be sought about your specific circumstances.