Turkey: New Provisions Of The TCO Regarding Change Of Parties: Transfer And Adhesion Agreements

Introduction

In the last chapter of its general provisions, the Turkish Code of Obligations No. 60981 ("TCO") regulates the transfer of agreements and adhesion to agreements within the scope of change of parties in contractual relations.

These provisions introduced under the TCO are innovative and, by comparison, there is no specific regulation under the Swiss Code of Obligations, which is the reference code for the TCO, regarding such agreements2. However, during the application of the former Code of Obligations, it was generally accepted that within the scope of contractual freedom it was possible to transfer or adhere to an agreement, and that such agreements would be atypical agreements.

This Newsletter article will analyze the transfer of and adhesion to an agreement.

Transfer of an Agreement

The TCO defines the transfer of an agreement as an agreement entered into between the transferor, transferee and the remaining party of the agreement, whereby the transferor cedes its title of party to the agreement together with all its rights and obligations to the transferee (Art. 205/1). Through this means, one of the parties to an agreement will transfer the title of being a party, all its rights and obligations to another person. The transfer of an agreement regulated under this article is a voluntary transfer. Statutory provisions governing succession in situations such as heritage and pledge are reserved.

Even prior to introducing this provision under the TCO, academics accepted that the transfer of an agreement was possible within the scope of liberty of contract, which would constitute a sui generis agreement. Especially prior to the entry into force of this specific provision, there was an academic debate as to whether a party assigning all its receivables and transferring all its obligations arising under an agreement to another party would be deemed to have transferred the agreement or not. However, pursuant to the prevailing opinion (theory of unity) the transfer of an agreement differs from the joint assignment of receivables and transfer of obligations, as it results in the synchronized transfer of the titles of creditor and obligor and all innovative rights arising under the agreement (such as termination, renunciation from contract, elective rights, notice of default etc.) conferred to such party. On the other hand, the assignment of receivables and the transfer of obligations result respectively in the transfer of the actives and passives of a contractual relationship (thus the title of creditor and obligor of the agreement), however the party to the agreement remains as the transferor of the receivables and obligations3.

Transfer Agreement

The TCO foresees the transfer agreement as a trilateral agreement. The parties to the agreement are the transferor, the transferee and the unchanged remaining party to the original agreement. Upon the execution of the transfer agreement, the transferor ceases to be a party to the transferred agreement. This transfer agreement is a dispositive act for the transferor, an acquisition act for the transferee and an innovative agreement for the remaining party to the original agreement4.

However, it is not mandatory for this agreement to be executed in the form of a trilateral agreement. Pursuant to the TCO, it is possible to transfer an agreement by obtaining the prior consent or succeeding approval of the remaining party to a bilateral transfer agreement signed by the transferor and the transferee.

Form of the Agreement

The TCO states that the transfer agreement shall be made in the same form as the original (transferred) agreement. Thus, if the transferred agreement is made in ordinary or qualified written form or official form, the transfer agreement shall be subject to the same form. Moreover, pursuant to TCO Art. 29, a promise to execute an agreement is also subject to the same form as the promised agreement. Therefore, an agreement to promise to transfer an agreement is subject to the same form requirement mentioned above. Nonetheless, the approval of the remaining party is not mandatory in order for a promise to transfer an agreement to generate an obligation5.

TCO Art. 205, applicable to trilateral agreements without any hesitation, gave rise to disputes on how it will be applicable to bilateral agreements subject to the approval of the remaining party of the original agreement. TCO Art. 205/2 states that the agreement between the transferor and the transferee shall be subject to the provisions governing transfer agreements. However, there is a legal gap concerning the form of the approval of the remaining party. Accepting that such approval should conform to the form of the transferred agreement may result in certain difficulties in practice. In such an event, for instance, when transferring an agreement made under official form at the land registry pursuant to an agreement between the transferor and the transferee, the remaining party would be obliged to execute a separate transaction at the land registry. Nonetheless, such a transaction is not among the defined actions under the Land Registry By-Laws. From an academic point of view, it is also argued that the approval of the remaining party is a declaration for achieving a legal purpose, and therefore that it is not subject to any form requirement; nonetheless the principle of proof based on a deed (executed document) should be taken into consideration6.

Provisions Governing the Transfer Agreement

Upon the execution of the transfer agreement, the transferee shall replace the transferor, assuming all their rights and obligations. Nonetheless, apart from the change of parties, all other provisions of the agreement remain unchanged. The new party assumes all rights of its successor and undertakes all its obligations and owns its innovative rights (elective right to choose the performance, determine the due date, renounce from the contract, etc.). Thus, in the event a compensation obligation arose from the violation of the agreement by the transferor prior to the transfer, the transferee shall have assumed this obligation as well7.

It is accepted by scholars that the transfer of an agreement is independent from its legal cause. Pursuant to this opinion, unless there are grounds directly affecting the validity of the transfer agreement, the invalidity of the legal cause for executing the transfer agreement shall not automatically render the transfer void. Nonetheless, it is possible for the transfer agreement itself to be invalid or subject to annulment pursuant to the general provisions of the TCO. In the event of invalidity or annulment, the parties to the agreement shall be deemed to remain unchanged.

In order for a transfer agreement to be executed, it is necessary for a valid agreement, which may be transferred, to exist. A renounced agreement, or an agreement which became impossible to be performed may not be transferred as there will be no agreement which may constitute the subject matter of the transfer in such cases.

Certain agreements may not be transferred even if the transfer agreement complies with the necessary form requirements. The reason for such limitation may arise from the fact that certain obligations may only be performed by certain persons having specific qualities. For instance, an attorney who is party to a mandate agreement may not transfer this agreement to a person who is not an attorney.

Adhesion to an Agreement

As with the transfer agreements, adhesion to an agreement has been regulated for the first time under the TCO. Nonetheless, it was generally accepted that adhesion to an agreement was possible despite the lack of an express provision.

In General

The TCO defines adhesion as an agreement between the adhering person and the parties to the original agreement, by which the adhering person is entitled to the rights and assumes the obligations of one of the parties to the original agreement together with such party (Art. 206/1). The previous parties to the agreement continue to be the parties following the adherence. The adhering person on the other hand becomes the new party to the agreement next to one of the parties thereto.

TCO Art. 206 is materially similar to the provision governing the transfer of an agreement. The adhesion agreement is regulated as a trilateral agreement and is subject to the form of the original agreement. Unlike the transfer agreement, there is no article in the TCO enabling a bilateral agreement between the adhering person and the party whose rights and obligations will be assumed which shall be subject to the approval of the other party.

The adhering person will jointly own the rights and jointly assume the obligations of one party next to whom it joins the agreement. Thus, the adhering person will be in a position of joint creditor and debtor with the relevant party of the agreement.

The TCO does not regulate the exercise of innovative rights (for instance elective rights in the event of default by the other party) by the adhering party nor the original party in the event of adhesion. However, scholars argue that the principles of joint ownership will be applicable by analogy8.

Differences from Participation to an Obligation

Participation to an obligation has been regulated for the first time under the TCO (Art. 201) and it is possible to participate in an obligation through the execution of an agreement between the creditor of a receivable and the participant. In such an event, the participant shall become a joint obligor of the obligations arising from an agreement, even without obtaining the approval of the obligor. Thus, a person not bound by the obligations of a contractual relation will become jointly responsible for the obligations along with the original obligor through a participation agreement executed with the creditor9.

This mechanism differs from adhesion to an agreement. The reason is that, as a result of the adhesion, the adhering person becomes joint creditor and joint obligor together with one of the parties of an agreement, which therefore includes becoming the creditor of certain obligations in the agreement.

Moreover, unlike participation to an obligation, adhesion to an agreement is not a bilateral agreement; to the contrary, both parties to the agreement in addition to the adhering person shall execute the agreement.

Conclusion

Transfer and adhesion agreements are regulated for the first time under the TCO. However prior to the introduction of the relevant provisions, it was accepted that transfer and adhesion was possible within the scope of the liberty of contract principle and that such agreements would constitute sui generis agreements.

Pursuant to the provisions of the TCO, transfer of and adhesion to an agreement is possible with an agreement executed between the transferee or the adhering person, as the case may be, and the original parties of the agreement. It is also possible for the transferor and the transferee to execute a bilateral agreement subject to a separate approval of the remaining party when transferring an agreement.

Both transfer and adhesion agreements are subject to the form of the original agreement.

Footnotes

1. Published in the Official Gazette dated 4 February 2011 and numbered 27836, and entered into force on 1 July 2012.

2. M. Kemal Oguzman/Turgut Oz, Borçlar Hukuku Genel Hükümler (General Provisions of Law of Obligations), Volume – 2, 9th Edition, Istanbul 2012, p. 598.

3. Oguzman/Oz, p. 598; Ahmet M. Kilicoglu, Borçlar Hukuku Genel Hükümler (Law of Obligations, General Provisions), 15th Edition, Ankara 2012, p. 809.

4. Oguzman/Oz, p. 601.

5. Nonetheless, it should be stated that in the event the transferor is faulty of not foreseeing that the remainin party would not consent to the transfer agreement, while executing the promise to transfer, it is accepted that this will constitute a violation of contractual obligations. Oguzman/Oz, p. 601.

6. Oguzman/Oz, p. 600; Kilicoglu, p. 811.

7. Oguzman/Oz, p. 603.

8. Oguzman/Oz, p. 605.

9. In principle, the agreement regarding participation to an obligation is not subject to any requirement of form; nonetheless, the provisions governing capacity, form and the consent of the spouse for surety may be applicable for participations for the purpose of providing collateral pursuant to TCO Art. 603. Oguzman/Oz, p. 592.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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