Turkey: Turkey Invalidates Use Of Unilateral Terms And Conditions

Recent development

The Turkish Court of Appeals has taken a hard line against standard terms and conditions presented as part of a "take-it-or-leave-it" contract. In February 2013, the court held that standard terms and conditions which have not been prepared for a single, specific transaction will be deemed "nonexistent."

In the case, a bank and its customer executed a general loan agreement; the third party defendant mortgaged its property to secure the customer's repayment obligation. The bank included a general transaction term in the mortgage providing that the mortgagor was also a joint guarantor of the amounts due under the loan agreement. The Court of Appeals declared this clause invalid, "nonexistent" to use the court's term, as it did not conform to the nature of the mortgage transaction.

The legal standpoint

Under Turkish Code of Obligations (No. 6098) (the "TCO"), the provisions of template agreements drafted by one party for use in multiple transactions are considered "standard terms and conditions." The drafting party must inform the other party of each of these terms and conditions, and the non-drafting party must have negotiated and accepted each of them, absent which the standard terms and conditions are deemed "nonexistent." Standard terms and conditions that do not conform to the nature of the agreement or transaction are also deemed "nonexistent."

The Court of Appeals' approach to general terms and conditions is clear — terms that are contrary to good faith, weaken the counterparty's position and do not specifically relate to the transaction are non-existent.

Conclusion

While it is helpful that the Court of Appeals has delivered a decision on this crucial issue which has been debated since the TCO entered into force in July 2012, the Court of Appeals has not yet established a consistent approach. Still, the decision sheds light on how the Court of Appeals interprets "general terms and conditions." Consequently, those drafting template agreements should be careful in how the content of these agreements is communicated to their customers, and ensure that the customer reviews, and is duly advised on, the agreement's content, especially provisions detrimental to the customer's interests.

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.