Turkey: The Court Of Appeals Clarifies The Validity Of Standardized Terms In Agreements Between Merchants

The Turkish Code of Obligations No. 6098 ("TCO") entered into force on July 1, 2012. One of the novelties introduced by the TCO involved provisions regarding standardized terms in agreements. Despite the fact that the "freedom of contract" is a touchstone principle of the TCO, in some cases, the validity of certain provisions in an agreement may be challenged based on Articles 20-25 of the TCO, which regulate standardized terms in agreements.

According to the text of the TCO and scholarly analysis, standardized terms are defined as stipulations that are: (i) drafted in advance by one party unilaterally, (ii) offered to the counterparty without providing an opportunity to negotiate, (iii) with the aim of using such terms in similar agreements in the future. Under the TCO, such standardized terms are subject to a control mechanism in terms of their validity, as explained below.

As per Article 21 of the TCO, if a standardized term is contrary to the interests of the counterparty, such a term may be deemed valid only if the party drafting the term provides the other party with the opportunity to become aware of and comprehend the contents of the term by explicitly pointing out and calling attention to its existence, and only if the other party then explicitly accepts the term. Otherwise, such standardized terms are deemed null and void, and the agreement is treated as if such terms do not exist in the agreement. In the same vein, if a standardized term is contrary to the character of the agreement and the nature of the business, such a term will also be deemed null and void.

The TCO provides a control mechanism with regard to the interpretation of standardized terms. Pursuant to Article 23 of the TCO, if a standardized provision is not explicit and comprehensible, or if it is open to multiple interpretations, such a term will be interpreted against the interest of the party drafting the term and will be interpreted in favor of the opposite party.

If a standardized term confers on the drafting party the authority to unilaterally amend the agreement or to add new provisions to the agreement to the detriment of the counterparty, such a standardized term will be deemed null and void as well.

The final control mechanism that the TCO provides is known as "content control," which entails that standardized terms cannot work against the interests of the counterparty or aggravate/change the circumstances and responsibilities of the counterparty in a way that is contrary to the principles of honesty and fair dealing.

Therefore, the TCO provides a highly detailed and theoretically effective control mechanism for standardized terms. But, in practice, parties undersigning agreements that contain standardized terms to their detriment, which are usually the parties that are in a weaker position economically, claim that they are often forced or left with no option but to sign these agreements, and thereby are compelled to seek judicial relief and request that such terms be deemed invalid. There are various decisions rendered by different local courts, which accept such claims without properly examining the validity of standardized terms in light of the abovementioned control mechanism provided by the TCO. This could be interpreted as a prejudicial approach and dismissive of the principle of the freedom of contract, especially for merchants who are supposed to be prudent and savvy enough to walk away from agreements that they perceive to be highly detrimental and contrary to their interests.

The 19th Civil Chamber of the High Court of Appeals recognized this prejudicial and dismissive approach, and clarified its stance with respect to the validity of standardized terms in agreements between merchants in its Decision No. 2016/9737 E., 2017/5110 K., dated June 19, 2017. In its decision, the High Court of Appeals stated that, when there is an agreement signed between two merchants, the mere fact that one of the parties is economically weaker than the other is not sufficient by itself to deem a standardized term null and void.

Thus, the High Court of Appeals established that invalidity claims regarding standardized terms should not be granted merely because such terms may be to the detriment of (or disadvantageous for) the party that is weaker economically. In light of this decision, it has been established that a proper examination pursuant to the control mechanisms put forth in the TCO must be carried out before deeming such terms null and void.

In conclusion, the mere fact that a standardized term is detrimental to the economically weaker party cannot be the determinative factor that leads to the invalidation of such standardized terms in an agreement on its own, and the mentioned precedent of High Court of Appeals show that courts must thoroughly and carefully investigate the specific facts surrounding each agreement on a case-by-case basis. This is a significant step forward in the judicial approach to standardized terms, which would make it easier for the economically stronger party to an agreement to legally execute and enforce the standardized terms of such agreements, subject to the terms surviving the scrutiny of the control mechanism prescribed by the TCO.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in December 2017. A link to the full Legal Insight Quarterly may be found here.

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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