Turkey: Interface Between General Terms And Conditions And Credit Loan Agreements

One of the novelties of the Turkish Code of Obligations ("Code"), which went into force in 2012, is that it codified provisions applicable to general terms and conditions, without making any distinctions as to whether one of the contracting parties is a consumer.^[1] The first paragraph of Article 20 of the Code defines general terms and conditions as provisions of an agreement which are unilaterally prepared by one party to be used in many similar agreements in future. What is aimed by the codification of general terms and conditions is to grant protection to the party which did not have any role or a say during the preparation of a document whose execution is imposed by the counterparty.^[2]   The second paragraph of the same article further stipulates that the content of the agreements, which are prepared for the same purpose, do not necessarily have to be identical to be deemed general terms and conditions. As long as a provision of an agreement coincides with the definition provided under the first paragraph of Article 20, the differences within the texts are deemed insignificant. This is to prevent preparation of typical agreements, which only slightly differ from each other, to circumvent the law.^[3]   Additionally, the third paragraph of Article 20 stipulates that clauses indicating such provisions have been discussed and then accepted by the parties, would not solely be sufficient to prevent the execution of Article 20 and such provisions would fall within scope of the relevant article nevertheless The consequence of one provision being deemed a general term and condition is stipulated under Article 21 of the Code. As per the relevant article, it is only possible to deem such provision, which is against benefits of the counterparty, indeed a part of an agreement, only if (i) the issuer party proves that it informed the counterparty explicitly regarding existence of such provision, (ii) that it indeed provided the counterparty with the opportunity to learn the content of such provision and (iii) that the counterparty has indeed accepted the existence thereof. In case the issuer party fails to prove the foregoing, the relevant provisions will be deemed not to be included within the agreement text. As for other provisions within the agreement, they will remain to be effective.

As stated above, the importance of the codification brought by the Code is that it does not make any distinctions as to whether one of the contracting parties is a consumer.^[4]   In fact credit agreements are explicitly referred to within the official reasoning of the Code.^[5] Accordingly, it shall provide protection also with respect to commercial agreements, to which at least one of the parties is a merchant.

Professor Oguzman explicitly states in his book that "a merchant (be it a real or a legal person) entering into an agreement with a bank for obtaining credit may also resort to Articles 20 - 25 [articles regarding general terms and conditions] of the Code".^[6]  Another author also conveys that the legal writing accepts that the credit agreements signed between two parties, which are both merchants, shall be subject to an assessment under general terms and conditions provisions of the Code.^[7]  What this means is that the credit agreements signed between banks and merchant counterparties shall also be subject to the test posed by the Code and certain provisions therein could be deemed invalid when the relevant provisions fail to pass the relevant test. Accordingly, counterparties would be able to claim that certain relevant provisions were not formed through mutual negotiation and thus are void.

All said, in cases where the counterparty is also a merchant, such claim could be deemed to be in breach of Article 18 of the Turkish Commercial Code No. 6102, which stipulates that each merchant should act as a prudent businessman with respect to all her/his activities regarding her/his business. A merchant claiming that it signed an agreement without examining and negotiating it and without being provided the opportunity to learn the content thereof would not coincide with the principle of merchants being prudent.

Such claim of the counterparty, that it signed an agreement without having the opportunity to read/negotiate it thoroughly, is also against the natural flow of commercial life, since merchants are obliged to guarantee themselves against any act which puts them under obligation(s). Accordingly, the foregoing could be utilized as a defense mechanism, if a merchant third party were to claim the voidness of certain general terms and conditions.

What happens then to provisions within credit agreements that are widely in use, such as, for example, bank's unilateral right to increase interest rates? The High Court of Appeals, during the era of the previous Code of Obligations, did acknowledge banks' unilateral right to determine interest rates,^[8]  with the conditions that such determination is made in line with the principle of good faith,^[9] is not applicable retroactively^[10] and that the counterparty is notified of such change.^[11] That said, Article 24 of the Code explicitly stipulates that the articles stipulated within an agreement by the issuer, granting itself a unilateral right which would be against counterparty's rights, shall be deemed "non-written". As the Code recently went into force, i.e., June 2012, the precedents of the Court of Appeals in light of the aforementioned article, are yet to shed light on what the standing of such provisions within the agreements will be. That said, since Article 24 refers to "unilateral" amendments, bilateral amendments shall be deemed to fall out of scope of the relevant article.

The Court of Appeals mentioned in some of its decisions that the provisions, which entitled a bank to request early repayment fee, conflicting with Article 20 of the Code, should be deemed as "non-written".^[12] On the other hand, the Court of Appeals ordered that a bank should be entitled to request a reasonable fee from its borrowers.^[13] As there are not yet many established precedents regarding due practice under Articles 20 and 25 of the Code, it is still a matter of discussion among the practitioners. In the meantime, what should carry out importance is that such matters are tried to be stipulated within the credit agreement so as to not allow counterparties' possible claims that the matters were not stipulated upon both parties' negotiation and thus should be deemed invalid. Though a successful claim as to the failure of the abovementioned test (thus as to invalidity of certain relevant provisions) is more difficult when realized by a merchant, due to her/ his supposed prudence, it would be recommendable to preserve correspondence, which takes place between relevant parties, indicating that the agreement text and further information as to possible negative effects of enforcement of the text was indeed conveyed to the relevant counterparty for its examination and parties' negotiation.