Turkey: Standard Terms Practice In Turkey: The High Court of Appeals Interprets The General Transaction Terms Articles Of The Turkish Code Of Obligations

I. Introduction

The corporate life in present conditions requires a precautional approach and a precise predictability so that the main idea of business, making money, is maximized. This main motive leads some institutions (hereinafter referred to as "contractor"), especially the banks, to prepare well-designed, juridically controlled, ex parte (prepared by one party only) contracts to use in numerous transactions. The pre-drafted provisions contained in these kinds of model contracts are named as "standard terms".

These sort of contracts may be referred to as "adhesion contracts", with the definition of "a type of contract, a legally binding agreement between two parties to do a specific thing, in which one side has all the bargaining power and uses it to form the contract primarily for his or her advantage" if the contractor is qualified as an institution that operates under a permission granted by an authority or by law, or as "standard terms" if the situation requires a more vague definition.

On one hand, these beforehand prepared contracts has some advantages such as the standardization and the rationalization of the contracts[1] as well as the rapidness of the making process of a contract[2]; but on the other hand it prevents the counter party (hereinafter referred to as "contractee"), who has a superior need which needs to be satisfied in no time, to negotiate. Consequently, a "take-it-or-leave-it" situation appears. Thus those kinds of terms violate the freedom of contract[3] as they are unilaterally drafted by one party, ex parte, and not subject to any negotiation. In order to protect the freedom of contract principle, which is probably the most valuable rule of the Turkish Code of Obligations (hereinafter referred to as "TCO"), the legislator, at one point, needed to take necessary steps against the powerful side (the contractor) and in favor of the weaker one (the contractee).

Turkish law incorporated Standard Terms in steps. During the last decade of the previous century, High Court of Appeals interpreted the Article 1 of the Turkish Civil Code, which enables judge to create law in case there is no applicable legislation to the case at hand, broadly to the extent that Standard Terms shall not be valid if they suppress the contractees' willpower. While doing this, the High Court of Appeals also benefited from the comparative law, i.e. Swiss law, German law. Meantime, in 1995, Consumer Protection Law numbered 4077 enacted, in which standard terms against consumers regulated for the first time under the name of unfair terms in contracts. Although the "Unfair Terms in Contracts" section of the Consumer Protection Law was designed to protect solely the consumers against the unfair terms that was a big step in positive law on the route towards the regulation of standard terms.

Finally, the new TCO numbered 6098, which entered into force on 01.07.2012, regulated directly the standard terms under the section titled "General Transaction Terms" under Articles 20-25. The new TCO sets fort restrictions on standard terms for any and all kinds of contracts (e.g. general credit agreements, form financial leasing agreements etc.). One may say that Turkish law has reached to fruition by incorporating the universally accepted principles of general transaction terms into the new TCO. The new TCO also expanded the context of the protection against the standard terms in a way to include protection of both real and legal persons along with the consumers.

II. Standard Terms in Turkish and in Comparative Law

1. Turkish Law

a. Overall[4]

Pursuant to Article 20 of the TCO, general transaction terms is defined as "the contract terms which are previously and unilaterally prepared by one party with a purpose of using them for several numbers of similar contracts and submitted to the other party during the signing of a contract".

Within the scope of the definition, following primary factors taken into account:

(i) the use of contractual terms for several numbers of identical agreements,

(ii) previously and unilaterally preparation, and

(iii) submission to the other party.

Therefore provisions of a contract which are used in numerous transactions, and drafted by one of the parties, ex parte, are by law deemed as "standard terms". It should be noted that the above mentioned criteria must be present at the same time. In other words, provisions of a contract which are prepared by one party, ex parte, with regards to only one specific transaction (and not to be used in numerous transactions) shall not be deemed as "standard terms". If all of these conditions are present, standard terms shall be determined.

Records indicating that each term are discussed by and between the parties and accepted concurringly, cannot be the sole proof to claim that relevant terms are no longer standard terms. In other words, if clause fulfils the conditions required to be considered standard terms contracting parties cannot agree to un-do it.[5] Furthermore, if a contract is partially negotiated and the rest is drafted by one of the parties, ex parte, the provisions of the part which is not negotiated will still be deemed as standard terms.

Pursuant to the new TCO, provisions regarding general transaction terms are also applicable for the contracts prepared by the persons or entities who are rendering services as per the permits granted by law or by authorities without considering the characteristics. Thus, the contracts of the services rendered by the governmental bodies also become subject to the standard terms assessment provided by TCO.

b. Validity[6]

Standard terms of a contract are valid under Turkish law as long as they comply with the provisions set forth under the relevant section of the new TCO. Pursuant to Article 21 of the new TCO, in order for the standard term fall under the contract, it is necessary for the party who drafted the contract to give explicit information to the counter party regarding the existence of these terms, to provide the opportunity to the other party for learning the content of these terms and it is also necessary that the other party accepts such terms. 

Therefore, standard terms are valid, only if the party; whose interests are violated, is aware of and has the opportunity to get information regarding the standard terms of the relevant contract. Otherwise, those standard terms will be deemed as not written. On top of that, if there are any standard terms in a contract which are not relevant with the nature and the characteristics of the contract; those terms will also be deemed as not written even if the party whose interests are violated has been informed of and accepted them.

A doctrinal discussion regarding the invalidity enforcement, i.e. deemed as not written, accepted within the new TCO worth mentioning here. "Deemed not-written" is an expression adopted from Swiss Code of Obligations[7]. Such an expression does not exist in Turkish law discipline, which actually provides mainly the following invalidities: nonexistence, nullity, and annulability. Consequently, it is not clear that whether the enforcement named "deemed not-written" must be categorized under nonexistence or nullity.

c. Interpretation Assessment[8]

Article 23 of the new TCO sets forth the interpretation assessment. According to the article, if a general transaction term is not expressed with a plain language and easily understandable or ambiguous, then it shall be construed against the party who prepared the contract and in favor of the weaker party. This provision with respect to the interpretation assessment is a reflection of the main principles of Roman Law "in dubio contra stipulatorem" (in doubt, the contract construed against the drawee).

Therefore, if a term of a contract is not explicit and clear enough, or have different meanings, such term will be interpreted against the party who has drafted it but in favor of the other party. Likewise, the standard terms in a contract should not contain, by disregarding the principle of good faith, any provision which is against the interest of the counter party and which causes that party to be in a bad condition.

2. Comparative Context

a. German Law[9]

Until the legislation in 1977 "The German Law governing standard business conditions" standard terms of contract was a matter of the courts. It was a specific code which was integrated neither to German Civil Code nor to Code of Obligations. The law provided a three-phased control mechanism. In 2002, the code was integrated into German Civil Code and then to the Act on the Modernization of the Law of Obligations. This new act has a two-stepped control. First the standard terms should be incorporated properly into the contract. In order to do so, the contractor should draw the attention of the contractee to these terms, and the contractee should be allowed to view the context and to take notice of the standard terms. Henceforth the contractee should agree upon the terms. Then a content review should be made in order to determine whether these terms are fair or not. There are some terms which are considered directly as unfair and some other terms that are presumed to be unfair. If there is an inconvenience at any point of these steps then standard terms are void.

b. Swiss Law[10]

Swiss Law has a divergent regulation about the standard terms, referred to as "General Terms and Conditions" in Swiss law discipline. Instead of categorizing it within the code of obligations, Swiss legislator preferred to define the standard term as a violation of unfair competition and to regulate it within the Swiss Act against Unfair Competition. Jurisprudence and doctrine also plays an important role in the practice of standard terms. Swiss law provides three stages. First stage is to review of validity which is the evaluation of the validity of the incorporation of the terms to the contract. The second stage is the interpretation of the general terms and conditions. Third and the last stage is content review to inspect any abuse or inequity.

c. EU Law[11]

Council Directive 93/13/EEC on unfair terms in consumer contracts is published on 05.04.1993. This directive allowed some time, till 31.12.1994, to member states to harmonize their national law as specified in the directive. The directive is based on two notions "good faith" and "significant imbalance". Within the scope and criteria given by the directive, member states are allowed to constitute their own domestic law.

III. High Court of Appeals' Interpretation of Standard Terms

Decisions of the High Court of Appeals will be held in three sections. The decision in the first section reflects the implementation before the enactment of the codes. In the second section, the dispute resolved according to the provisions of the Consumer Protection Law of 1995 and finally the third decision presents the implementation of new TCO principles.

1. In its decision numbered 1998/4263 E. 1998/6098 K. and dated 02.06.1998, the High Court of Appeals for the 3rd Circuit protects the plaintiff against standard terms, which has not regulated by that time. The case is about a dispute between a public water distribution corporation ("The Defendant") and a subscriber ("The Plaintiff"). The plaintiff requested from the court to declare the inequity that defendant executed while issuing the water bill. The court indicated that; among Turkish laws, there is no legal regulation about standard terms. In that case it is judge's duty to decide interpretations, fulfilment or invalidity of the provisions. In order to do so the comparative context especially the German and the Swiss laws and their jurisprudence will be held in consideration.[12]

In another decision numbered 1996/3-717 E. 1996/850 K. and dated 04.12.1996 of the High Court Assembly of Civil Chambers, when the legal protection regarding the standard terms has not been accepted, the high court resolved the dispute by executing the principle of good faith, the prohibition of the abuse of rights and equity.

2. The High Court of Appeals for the 13th Circuit, applied the provisions of the Consumer Protection Law of 1995 in its decision numbered 2008/4345 E. and 2008/6088 K. and dated 02.05.2008. The case is between a bank (The Plaintiff) and a borrower (The Defendant) and about unfair credit card fees. The high court indicated that: (i) once the contract is examined, one can see that it is prepared by the plaintiff bank in a printed and standardized form and the empty parts are filled through writing numbers, names and addresses; (ii) the contract is not formatted in bold black letters of font size 12[13]; (iii) the plaintiff cannot assert and prove that the clause[14], which puts the consumer under the obligation of paying a card-holder fee and works to his detriment as a result, was determined after a negotiation with the consumer. Therefore, it must be assumed that the clause stipulating the collection of a card-holder fee is an unjust term under the provisions of the aforementioned codes and regulations. By extension, the plaintiff bank cannot demand fees through a standard term from the defendant credit-user on the basis of this clause.[15]

3. In its decision numbered 2014/13315 E. 2014/13503 K. and dated 29.04.2014, the High Court of Appeals for the 13th Circuit approved the decision numbered 2013/371 E. 2013/606 K. and dated 27.12.2013 of the Sivas 1st Civil Court of First Instance which propounds a remarkable perspective on general transaction terms which was regulated by then by the new TCO. The decision was made in order to resolve a case between a bank (The Defendant) and a borrower (The Plaintiff). The plaintiff requested from the defendant bank to return the commission, the mortgage release, the early credit return fee and the fees collected under the name of file costs, which he deem to be illegitimate, all paid by the claimant in return for a commercial credit. In their response, the defendant claims that the plaintiff has been well-informed about these fees and therefore they are fair. The court indicated that; (i) according to Article 20/3 of the TCO, informing the borrower about it does not stop them being the general transaction terms; (ii) according to Article 21/1 of the TCO, various fees stipulated in the contract to the detriment of the plaintiff, the early return commission fee and the mortgage release fee should be deemed not-written. The collection of fees deemed non-written is an explicit violation of standard terms on the part of the bank and these fees must be returned.[16]

In his justification the court remarks, in general, "... Due to the social and economic developments of our age, many persons and establishments prepare "standard terms", drawn in an abstract and one–sided way, before the stipulation of the individual contract between two parties, thus regulating future legal transactions which are indefinite in quantity, yet similar in form and type. These characteristic contract clauses prepared beforehand are called "standard terms" and the contracts that are stipulated using them are dubbed "typical contracts" or "formularized contracts." Standard terms, which are prepared by experts taking into account every possibility, protect solely the interests of the party who gets them prepared and uses them in most cases. Whereas, the other party is not aware of the existence or the contents of the standard terms or does not have the means to fully understand them and consider every possibility related to them or lacks the bargaining power to refuse to accept them. Indeed, during the stipulation of such contracts aimed at masses, there is no room for meetings and negotiations, perhaps with the exception of a couple of points such as the price and the due date. As a result, the other party, in the face of the establishments that have the contract prepared, could either agree to the terms imposed upon him or do without the performance or service presented through the contract. To put it another way, the other party would have to say either "completely yes" or "completely no" to the contract; he would not be able to say "yes, but..." and demand that parts of the contract be altered. For instance, a trader could either get a credit through signing the contract put before him by the bank or give up on getting the credit. Likewise, the individual could either sign the subscription agreement put before him by the concessionaire company or give up on having electricity and running water in his residence. Taking into consideration that it is not possible to refuse certain performances and services and to say "yes, but...", the individual needs to be protected by the imperative provisions of the legislation during the execution of contracts that he is forced to sign, against his will.

As can be seen above, High Court of Appeals, by approving the decision of the local court, have a clear and certain opinion about standard terms.

IV. Conclusion

Applying standard terms is tool which is widely used and implemented for many years as it has remained judicially uncontrolled. The field of standard terms has been regulated generally for the first time in Turkish law by the enactment of the new TCO. While doing so, the legislator has benefited from the comparative law as well as "judicial know-how".

Maintaining the balance between the parties of transactions in commercial life plays a vital importance in a competition environment. One may argue that the basic principle of protection against standard terms system is to interfere with the freedom of contract in minimum, and to resolve the contractual injustice. By enacting the general transaction terms, Turkish legislator "gently" interrupted to the freedom of contract, one of the leading principles of the TCO, in order to "reinstate" the power balance between the parties of the contract.

[1] Tekinay/Akman/Burcuoğlu/Altop, Borçlar Hukuku Genel Hükümler, İstanbul 1993, p. 156 ff.; M. Kemal Oğuzman/M. Turgut Öz, Borçlar Hukuku Genel Hükümler, İstanbul 2014, p. 20; M. Yeşim Atamer, Sözleşme Özgürlüğünün Sınırlandırılması Sorunu Çerçevesinde Genel İşlem Şartlarının Denetlenmesi, İstanbul 1999, p.61 ff; Ayşe Havutçu, Açık Denetimi Yoluyla Tüketicinin Genel İşlem Şartlarına Karşı Korunması, İzmir 2003, p.74; Fikret Eren, Borçlar Hukuku Genel Hükümler, Ankara  2012,  p. 215.

[2] Eren, p. 215.

[3] TCO § 26.

[4] TCO § 20.

[5] Oğuzman/Öz, p.166.

[6] TCO § 21-23, 25.

[7] Federal Act on the Amendment of the Swiss Civil Code (Part Five: The Code of Obligations) §995, 999, 1002, 1006, 1109, 1110.

[8] TCO § 23.

[9] http://www.jurawelt.com/sunrise/media/mediafiles/14586/German_Standard_Terms_of_Contract_Thomas_Zerres.pdf (Last viewed on 27/08/2015).

[10] http://www.lalive.ch/data/publications/CLInt_8_2_June_2013_feature_Ehle_Moss.pdf (Last viewed on 27/08/2015) ;http://www.homburger.ch/fileadmin/publications/Bulletin_02.04.2012.pdf (Last viewed on 27/08/2015).

[11] http://www.europarl.europa.eu/RegData/bibliotheque/briefing/2013/130624/LDM_BRI(2013)130624_REV1_EN.pdf  (Last viewed on 27/08/2015).

[12] http://www.kazanci.com/kho2/ibb/files/3hd-1998-4263.htm (Last viewed on 26/08/2015).

[13] Should be stipulated in bold black letters with a minimum font size of 12 according to CPC § 6 VI.

[14] CPC § 6 III.

[15] http://www.kazanci.com/kho2/ibb/files/13hd-2008-4345.htm (Last viewed on 26/08/2015).

[16] http://www.kazanci.com/kho2/ibb/files/13hd-2014-13315.htm (Last viewed on 26/08/2015).

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