General Terms And Conditions Within The Scope Of Turkish Law Of Obligations And Their Application Regarding Merchants

KC
Kilinc Law & Consulting

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Kilinç Law & Consulting established by Levent Lezgin Kilinç currently operates in Istanbul, Izmir and London. Our firm, provides services to clients in a wide range of complex matters including Project Finance, Corporate Law, M&A, Energy Law, Dispute Resolution, Maritime Law, IP Law, International Transactions as well as Litigation of the disputes.
General terms and conditions, which we can refer to as standard contracts, appear frequently in everyday life such as electricity, water, and natural gas contracts, bank loan contracts...
Turkey Corporate/Commercial Law
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Introduction

General terms and conditions, which we can refer to as standard contracts, appear frequently in everyday life such as electricity, water, and natural gas contracts, bank loan contracts, transportation contracts, insurance contracts, and many others. The general terms and conditions are regulated in the Turkish Code of Obligations No. 6098 ("TBK") and stipulating that the interpretation and content of the relevant provisions will be subject to control. However, no specific framework has been delineated regarding the application scope of these provisions for individuals. The applicability of general terms and conditions, particularly concerning merchants, has led to various debates in doctrine and resulted in divergent practices among the Chambers of the Supreme Court. Within the scope of this article, the definition of general terms and conditions and the criteria to be considered regarding whether general terms and conditions will be applied to merchants will be examined in light of doctrinal opinions and case law of the Supreme Court.

Ⅰ. General Terms and Conditions within the Scope of the Turkish Code of Obligations

A contract established as a result of mutual and corresponding expressions of intent by at least two parties in a legal transaction is regulated within the scope of the TBK. Freedom of contract is recognized within Turkish law, allowing parties to enter into contracts in any manner they wish, provided that they comply with the regulations regarding the validity of the contract. As a matter of fact, this issue is guaranteed by article 26 of the TBK, which states that "The parties may freely determine the content of a contract within the limits stipulated by law". However, it is observed that as a result of economic development and changes in today's world, one party of the contract enters into similar qualified contracts with multiple individuals through provisions prepared unilaterally in advance. Bank loan contracts, contracts concerning durable consumer goods, insurance policies, transportation contracts, as well as contracts such as electricity, natural gas and water subscriptions, etc. are examples of these contracts. In these contracts, referred to as standard contracts, one party prepares provisions of a general and abstract nature in advance for use with multiple unspecified individuals, while the other party enters into the contractual relationship without any bargaining power against the existing conditions, either by participating or not participating. This type of provision in such a contractual relationship is referred to as general terms and conditions.

General terms and conditions are regulated in various laws, primarily in the TBK, and within the scope of Article 20/1 of the TBK, these provisions are defined as contractual provisions presented by the drafter to the counterparty in advance, prepared individually with the aim of using them in numerous similar contracts in the future. In contracts containing general terms and conditions, there is no opportunity for negotiation or bargaining, and individuals are known to be in a position to either accept or reject the contract under the existing terms. Therefore, in a contract validly established and characterized by the nature of general terms and conditions, the inclusion and enforceability of non-negotiated provisions, whether in whole or in part, are subject to scrutiny under the term "validity control."

In this respect, in accordance with article 21 of the TBK, for non-negotiated general terms and conditions to be deemed as part of the contract's content, the drafter must warn the counterparty about these conditions, allow the counterparty to become aware of the content of these conditions, and require the counterparty to express their acceptance of these conditions being included in the content of the contract. If the counterparty expressly states their acceptance of the text containing the general terms and conditions provided by the drafter in a manner that leaves no room for interpretation or debate, or if such acceptance is directly discernible from their statement, then the acceptance of the general terms and conditions through explicit declaration of intent is established. If the counterparty, despite being provided with the opportunity to become informed with the general terms and conditions provided by the drafter, declares their acceptance without reading or comprehending the content, it constitutes acceptance through general conscious acknowledgment. However, it is sufficient for the contract to afford the counterparty the opportunity to learn the content of the general terms and conditions, and it is not necessary for the counterparty to be aware of the specific content of these terms and conditions. As a result of the validity review of the general terms and conditions, if it is determined that the drafter did not clearly inform the counterparty about the general terms and conditions and did not provide an opportunity to learn their content, then these conditions will be deemed unwritten and will not be considered part of the contract content. The provisions of the contract other than these conditions will remain valid and enforceable. Indeed, Article 25 of the TBK stipulates that "Standard terms cannot contain provisions, contra bonos mores, which are in the disadvantage and in the detriment of the other party." Accordingly, if provisions are deemed invalid as a result of the validity review in this regard, the sanction of "absolute nullity" will be applied; however, the provisions of the contract other than those deemed invalid will continue to remain valid.

On the other hand, Article 23 of the TBK introduces a rule regarding the interpretation of general terms and conditions. According to this provision, if a provision in the general terms and conditions is unclear, understandable or if it has multiple meanings, it shall be interpreted to the detriment of the drafter and in favour of the counterparty. In this case, when giving meaning to a provision in the general terms and conditions or choosing among possible meanings, the outcome that is against the drafter and in favor of the counterparty is adopted.

The provisions regarding general terms and conditions in the TBK are regulations with mandatory characteristics that can be applied in all types of contractual relationships, particularly aiming to ensure social justice, subject to the provisions in special laws. Additionally, in accordance with Article 20/4 of the TBK, provisions related to general terms and conditions are applied to all parties regardless of whether the contracts involve public legal entities. In the remainder of the article, the application of general terms and conditions to merchants is analysed.

Ⅱ. Application of General Terms and Conditions for Merchants

In the provisions of Articles 20 and subsequent articles of the TBK, no limitation regarding the application scope of general terms and conditions to any specific person type is stipulated. In Turkish legislation, including the Turkish Commercial Code numbered 6100 ("TTK") and the TBK, there is no direct legal regulation indicating the application of general terms and conditions to merchants. Therefore, the issue of whether general terms and conditions apply to merchants, and if so, under what conditions and limitations, is a matter of debate, and there is no consensus among in the doctrine and among the Civil Chambers of the Supreme Court. It would be appropriate to examine this issue by making a distinction between situations where unfair competition arises through the use of general terms and conditions contrary to the principle of good faith, as stipulated in Article 55/1-f of the TTK and other cases. As follows;

a. Evaluation within the Scope of Article 55 of the Turkish Commercial Code

Article 55, paragraph 1, subparagraph (f) of the TTK lists general terms and conditions that constitute unfair competition. According to this provision, it is stipulated that using transaction terms contrary to the principle of good faith constitutes unfair competition, particularly when it is misleadingly against the other party, significantly deviates from the legal regulations to be directly or indirectly applied, or envisages a distribution of rights and obligations significantly contrary to the nature of the contract, by employing pre-written general terms and conditions. In Article 55, paragraph 1, subparagraph (f) of the TTK, the general terms and conditions constituting unfair competition are listed as follows:

"Dishonesty in general terms and conditions by using terms that violate the principle of good faith, especially to the detriment of the other party, entails;

1.Departing significantly from statutory regulations to be directly or indirectly applied, or

2.Employing pre-written general terms and conditions that significantly deviate from the nature of the contract in terms of rights and obligations, constitutes dishonest conduct.''

For the application of the provision, it is necessary for the contract terms unilaterally determined by one party to be used without negotiation between the parties. Even if prepared in advance by one party, contract terms that have been negotiated by the parties are no longer considered general terms and conditions but are evaluated as individual contract terms. However, from the perspective of unfair competition, making an offer for a contract that includes general terms and conditions significantly deviating from legal regulations, for example, misleadingly against the other party's interests, with the intention of entering into a contract, can also constitute unfair competition. Therefore, the use of general terms and conditions during contract negotiations can also constitute unfair competition. Consequently, in determining the unfairness of the general terms and conditions, all facts accompanying the establishment or negotiation of the contract, as well as all other terms of the same contract or of another contract to which the general transaction term is connected must be taken into account.

As can be seen, two criteria are introduced in the provision for determining the inconsistency of the general terms and conditions with the principle of good faith. The first criterion is the significant deviation of the general terms and conditions from the legal regulation to be directly or indirectly applied, where the scope of legal regulation includes both mandatory or non-mandatory provisions. As a rule, all legal rules concerning contracts are included in the concept of legal regulation. Every legal norm that will be directly or indirectly applied to the relevant contractual relationship, both through direct application and by analogy is considered within this framework.

The second criterion for determining the inconsistency of general terms and conditions with the principle of good faith is that they envisage a distribution of rights and obligations significantly contrary to the nature of the contract. Conversely, the distribution of rights and obligations to the detriment of the other party must be significantly contrary to the purpose of the contract. In this manner, the legal situation of the other party should be significantly impaired by the limitation of their rights or the extension of their obligations, and as a principle, the overall distribution of rights and obligations in the contract should be considered.

Finally, the article of the TTK referred to above stipulates that those who use pre-written general terms and conditions "especially in a misleading manner to the detriment of the other party" will be in breach of good faith. Therefore, according to the above-mentioned criteria, unfair general terms and conditions must also be suitable to objectively mislead the other party to the contract. The intention to mislead of the party using the general terms and conditions is not important; it is the content of the general terms and conditions that should be misleading. For example, if the counterparty has accepted a general terms and conditions that provides for a distribution of rights and obligations that is significantly contrary to the nature of the contract, due to the indefinite drafting of the general terms and conditions.

According to Article 56/1 of the TTK, the civil lawsuits that may be filed due to unfair competition are listed as actions for determination, prohibition, elimination of the material situation resulting from unfair competition and lawsuits for compensation. In addition, Art. 61/1 also stipulates that the person who has the right to file a lawsuit due to unfair competition may request the court to preserve the current situation as it is, and to take other necessary measures. These measures also encompass requests for injunctions against the future use of such terms in contracts to be concluded with customers, in case it is determined that dishonest general terms and conditions have been used within the text of the general terms and conditions.

b. Evaluations Within the Scope of Turkish Code of Obligations in Terms of Other Circumstances That Do Not Constitute Unfair Competition

In cases of commercial contracts where general terms and conditions exist but do not constitute unfair competition, the question of whether the provisions of Articles 20-25 of the Turkish Code of Obligations will be applied for the protection of the merchants is subject to debate. According to the prevailing view in doctrine, in commercial contracts containing general terms and conditions that do not qualify as unfair competition, merchants, owing to their obligation to act as prudent businesspersons are not subject to the application of Articles 20-25 of the TBK. However, in limited circumstances specific to the concrete case (such as situations where a small-scale merchant is involved as opposed to medium or large-scale merchants, etc.), it is possible for the merchants to benefit from the protection envisaged by Articles 20-25 of the TBK, as an exceptional measure. This interpretation predominates in doctrine.

The Supreme Court primarily emphasizes that merchants are obliged to act as prudent businesspersons, that general terms and conditions cannot be directly applied to merchants, and that an evaluation should be made considering the specific characteristics of each case and market conditions, such as whether the general terms and conditions would cause economic ruin for the merchant. For instance;

"As accepted by the court, the dispute arises from a commercial credit relationship and falls outside the scope of consumer law. The court recognized the contract between the parties as a typical commercial agreement, indicating that various expenses imposed against the plaintiff, such as early closure commission fees and file expenses should not be considered as unwritten under the general terms and conditions. However, both parties are merchants, and pursuant to Article 18/2 of the Turkish Commercial Code No. 6102, every merchant is required to act as a prudent businessman in all of their commercial activities. Although the provisions regarding general terms and conditions stipulated between Articles 20 to 25 of the Turkish Code of Obligations No. 6098 can be applicable to merchants, in light of Article 18/2 of the Turkish Commercial Code, caution must be exercised in the application and evaluation of general terms and conditions concerning merchants, depending on the specific circumstances of each case (...)" [19th Civil Chamber of the Supreme Court, Case No: 2016/15462, Decision No: 2018/713, Date: 19.02.2018]

"...the contract between the parties is a general credit agreement, the plaintiff is a merchant and is required to act as a prudent merchant, the credits used by the plaintiff have a commercial credit nature, and it is not possible to consider the expense items stipulated in the contract as unfair terms." [11th Civil Chamber of the Supreme Court, Case No. 2019/4467, Decision No. 2020/3054, Date 22.6.2020]

However, there are also decisions by the Supreme Court indicating that general terms and conditions will be applicable to merchants based on the absence of any distinction between merchants and consumers in the provisions of the TBK regarding general terms and conditions."

"In accordance with recognition, for a contract to be subject to the scrutiny of general terms and conditions under Articles 20 et seq. of Law No. 6098, the criteria specified in the Law must be applied. Like in the repealed Civil Code No. 818, Law No. 6098 also stipulates freedom of contract as the main rule; however, Law No. 6098 introduces the requirement that contracts must not contain unlawful general terms and conditions for their validity. The general terms and conditions audit, which applies to both consumers and merchants, aims to protect the party to the contract in a disadvantaged position at the time of signing the contract within the scope of the principle of good faith. For a contractual provision to be deemed unwritten due to general terms and conditions, it must first be determined whether that provision has the nature of general terms and conditions. In this regard, the type, kind, and nature of the contract are not relevant. The contract may relate to property law, procedural law, commercial sale, insurance law, banking law, etc.In order for a contractual provision to qualify as a general terms and conditions, the provision must have been prepared unilaterally by the party using the general terms and conditions before the conclusion of the contract with the intention of using it not only for that particular contract but also for a large number of similar contracts and the contract must have been signed without allowing the other party to negotiate this provision. The nature of a general terms and conditions in a contract should be determined based on objective elements, where the professions and statuses of the parties, whether they are merchants or consumers, are irrelevant." [11th Civil Chamber of the Supreme Court, Case No. 2016/4676, Decision No. 2017/3160, Date 29.05.2017]

"The commercial nature of the subject loan secured by a mortgage is evident from the file contents. General terms and conditions are regulated in accordance with the provisions of Law No. 6098, including merchants, in Articles 20 et seq. (...)" [19th Civil Chamber of the Supreme Court, Case No. 2014/5865, Decision No. 2014/10353, Date 02.06.2014]

Given all the explanations and the Supreme Court decisions above;we are of the opinion that evaluating the obligations contained in each contract's content, while paying attention to the general distribution of all rights and obligations in the contract, and refraining from attributing overly burdensome obligations to one party in a manner contrary to the principle of good faith, is crucial in terms of the validity of general terms and conditions included in contracts to be concluded among merchants.

Conclusion

As a result, considering all the reasons stated above and the referenced Supreme Court decisions, it should be emphasized that general terms and conditions are contracts prepared unilaterally by one of the contracting parties using unilateral and abstract expressions, without giving the other party the opportunity to negotiate or engage in bargaining discussions. The inclusion of general terms and conditions contrary to the interests of the counterparty in the scope of the contract is contingent upon the drafter providing explicit information to the counterparty about the existence of these terms and affording them the opportunity to learn their content during the formation of the contract, and the counterparty subsequently accepting these terms. In contrast, the provisions other than the general terms and conditions deemed unwritten maintain their validity. Within the scope of doctrine, it is debated whether merchants, who bear the obligation of prudence in all their business and transactions, can benefit from the review of general terms and condition. In some decisions of the Supreme Court, it has been stated that there is no distinction made regarding individuals within the framework of the provisions of the TBK concerning general terms and condition, suggesting that merchants could also rely on the scrutiny of general terms and condition. However, the Supreme Court predominantly evaluates merchants under the unfair competition provisions regulated within the TTK, considering them to be obliged to act as prudent businesspersons, and therefore, general terms and condition cannot be directly applied to merchants except under conditions that do not constitute unfair competition; thus, these provisions are only applied when necessary. Within the framework of the opinions of the doctrine and the Supreme Court decisions, we believe that considering these aspects in contracts entered by merchants would be beneficial in terms of pre-empting potential disputes regarding the legal validity of general terms and condition in the future.

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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