Review of Standard Terms and Conditions

Stages of Review of Standard Terms

Although the review of standard terms and conditions has been classified in different ways in legal scholarship, in this study we will examine the review of standard terms and conditions by dividing it into three:

1. Incorporation review
2. Interpretation review
3. Content review.

Incorporation review is set out in Articles 21 and 22 TCO. At this stage, an assessment is made as to whether the standard terms and conditions have become part of the content of the contract. Interpretation review is regulated in Article 23 TCO. Interpretation review refers to the review, by way of interpretation, of contractual provisions that have passed the incorporation review. In the content review regulated in Articles 24 and 25 TCO, the validity of a standard term is reviewed where the incorporation and interpretation reviews have proved ineffective[1].

Stages of review and the articles regulating them

Incorporation Review and Terms Deemed Not Written

As its name suggests, incorporation review, the first stage of review of standard terms and conditions, is the stage at which it is determined whether the standard terms and conditions will form part of the contract. Under the provision of the Code of Obligations, a contract is formed by the concurrence of mutual declarations of intent. However, owing to the ambiguity of that provision, it is not entirely clear whether what is required is the concurrence of the parties’ declarations or of their actual intentions, and this is debated in legal doctrine. Nevertheless, under the reliance theory[2] , the meaning attributed by the other party to a party’s declaration is taken as the basis. In short, the reliance theory will be important in determining whether a term can become part of the contractual provisions as a standard term[3].

“The incorporation into the contract of standard terms that are contrary to the interests of the other party depends on the drafting party, at the time of conclusion of the contract, expressly informing the other party of the existence of those terms and giving it the opportunity to learn their content, and on the other party accepting those terms. Otherwise, the standard terms shall be deemed unwritten.”

Turkish Code of Obligations, Art. 21/1

Article 21(1) TCO provides: “The incorporation into the contract of standard terms and conditions that are contrary to the interests of the other party depends on the drafter expressly informing the other party, at the time the contract is concluded, of the existence of such terms, giving that party the opportunity to learn their content, and the other party accepting them. Otherwise, the standard terms and conditions shall be deemed unwritten.” Under this provision, for terms in a contract that are contrary to the interests of the other party to be incorporated into the content of the contract and thus take effect, the following conditions must be met[4]:

• The drafter must expressly inform the other party, at the time the contract is concluded, of the existence of such terms,
• The drafter must give the other party the opportunity to learn their content,
• The other party must accept those terms.

Terms alien to the nature of the contract

The fate of terms that are alien to the nature of the contract and the characteristics of the transaction is regulated in paragraph 2 of Article 21 of the Turkish Code of Obligations. Accordingly, where there are terms alien to the nature of the contract and the characteristics of the transaction, the fact that the other party was informed and given the opportunity to learn of them has no significance, and such terms will be deemed unwritten[6].

Legal nature of being deemed unwritten

Being deemed unwritten is a term formulated for the first time in Turkish law. Treated as a new type of invalidity, being deemed unwritten has been widely debated in legal scholarship and doctrine. The prevailing view in Turkish law is that being deemed unwritten amounts to “non-existence”[7]. If we accept that being deemed unwritten is subject to the sanction of non-existence, no claim, declaration of intent or action is required for a term to be deemed unwritten[8].

Effect on the Contract of Terms Deemed Not Written

“The provisions of the contract other than the standard terms deemed unwritten shall remain valid. In this case, the drafting party may not claim that it would not have concluded the contract with the other provisions had the terms deemed unwritten not existed.”

Turkish Code of Obligations, Art. 22

The effect on the contract of standard terms being deemed unwritten under Article 21 TCO is regulated in Article 22 as follows: “The provisions of the contract other than the standard terms and conditions deemed unwritten shall remain valid. In this case, the drafter may not claim that it would not have concluded the contract on the basis of the other provisions had the terms deemed unwritten not existed.” The institution this provision seeks to exclude is the neutralisation of the sanction of being deemed unwritten by the provision of Article 27(2) TCO, which reads: “The invalidity of some of the provisions contained in a contract shall not affect the validity of the others. However, if it is clearly understood that the contract would not have been concluded without those provisions, the entire contract shall be null and void.” Article 22 TCO was enacted in order to keep the party presenting the standard terms away from the aforementioned institution of partial invalidity and to make clear that the party drafting the standard terms is bound by the other provisions of the contract[9].

Where it is decided that a standard term is deemed unwritten, the drafting party may in no way claim that the remaining provisions of the contract are also invalid. As is clear from the wording of the Code, provisions deemed unwritten will be treated as if they had never been included in the contract. If, after the provisions deemed unwritten are removed from the content of the contract, the contract contains its essential elements and qualifies as a contract, the contract will be valid and any gaps will be filled by the judge. In any event, if the contractual provisions do not contain the essential elements of a contract, there can be no contract at all[10].

Interpretation Review of Standard Terms

“Where a provision contained in standard terms is not clear and comprehensible or has more than one meaning, it shall be interpreted against the drafting party and in favour of the other party.”

Turkish Code of Obligations, Art. 23

The review by way of interpretation of standard terms that have passed the incorporation review is regulated in Article 23 TCO as follows:” Where a provision contained in the standard terms and conditions is not clear and comprehensible or is capable of more than one meaning, it shall be interpreted against the drafter and in favour of the other party.” The legislative reasoning of the article is based on the view that: “Since the person drafting the contract or a provision of it is able to express it as they wish, they must accept that the text they have drafted will be interpreted against them. A subsequent interpretation by a person who did not draft a provision as they intended, to the effect that ‘this provision should be understood as follows’, shall not be regarded as justified.”[11].

As is clear from the above provision and its legislative reasoning, a rule of interpretation against the drafting party (contra proferentem) has been introduced. For this legal institution to come into play, the standard term must not be clear and comprehensible or must be capable of more than one meaning. For example, if the drafting party includes a provision stating that “the other party may claim its damage arising from delays (the rediscount interest rate) in the event of a breach of the contract”, this provision is not clear and comprehensible, since damage arising from delay and the rediscount interest rate do not have the same meaning. The provision will therefore be interpreted against the drafting party. This is because compensation for damage arising from delay refers to the creditor’s damage arising from delay where the debtor acts in breach of its obligation; it has nothing whatsoever to do with the rediscount interest rate. In this example, whichever provision is to the detriment of the drafting party will be applied, and the other will be deemed unwritten.[12]

Content Review of Standard Terms

Where, as regulated in the Turkish Code of Obligations, some or all of the standard terms that have passed the incorporation and interpretation reviews become part of the content of the contract, they may, contrary to the principle of good faith[14] , fail to serve the interests of one of the parties, in particular the party facing the drafter. In such a case, content review refers to the judge deeming invalid standard terms that upset the balance, so that a contract in need of review contains fair contractual provisions for both parties and serves the interests of both.[15]

“Standard terms may not contain provisions that, contrary to the rules of good faith, are to the detriment of the other party or aggravate its position.”

Turkish Code of Obligations, Art. 25

In Turkish law, until 2003 there was no statutory regulation, either in the Code of Obligations or in the Law on Consumer Protection, of the institutions of protecting the parties to a contract, and in particular the consumer, against unfair terms and of content review. The amendment made in 2003 did not introduce a detailed regulation of content review under the heading of unfair terms in Article 6 of the Law on Consumer Protection; it merely defined unfair terms and set out the conditions of content review. Although Article 25 of the Turkish Code of Obligations addresses the content review of standard terms, it appears insufficient in terms of determining the limits and the criterion of content review. By stating in Article 25 that “Standard terms may not contain provisions that, contrary to the rules of good faith, are to the detriment of the other party or aggravate its position.”, it adopted the principle of good faith as the criterion for the content review of standard terms. However, unlike Article 307 of the German Civil Code, there is no provision as to the cases in which a breach of the principle of good faith will arise. Apart from this, it is not specified what the sanction will be where, as a result of content review, there are standard terms that, contrary to the principle of good faith, are to the detriment of the other party or aggravate its position. It cannot be understood from the wording of the law whether standard terms encountered in this way will be subject to the sanction of being ‘deemed unwritten’, as in the incorporation review, or to the sanction of ‘absolute nullity’. Since the preamble to Article 25 of the TCO provides that a provision deemed null as a result of content review will have effect within the meaning of the first sentence of paragraph 2 of Article 27 of the TCO, that is, that the remainder of the contract will remain valid, it must be accepted that the invalidity here is subject to the sanction of absolute nullity. Indeed, no other conclusion can be reached when the wording, spirit and purpose of the provision are taken into account.[16]

Prohibition of Unilateral Amendment

“Clauses contained in a contract containing standard terms, or in a separate contract, that give the drafting party the power unilaterally to amend a provision of the contract containing standard terms, or to introduce a new provision, to the detriment of the other party shall be deemed unwritten.”

Turkish Code of Obligations, Art. 24

Provisions that authorise the drafting party to amend some or all of the standard terms solely in its own favour are frequently encountered (particularly in practice). To counter such provisions granting the drafting party a right of amendment in its favour, Article 24 of the Turkish Code of Obligations lays down a prohibition on amending standard terms. By providing that “Clauses contained in a contract containing standard terms and conditions, or in a separate contract, that authorise the drafter unilaterally to amend, to the detriment of the other party, a provision of the contract containing standard terms and conditions or to introduce a new provision shall be deemed unwritten”, this provision establishes that such clauses will be deemed unwritten where any provision of a contract containing standard terms is amended by the drafting party in its own favour. In other words, the sanction for breach of the prohibition of amendment is also being deemed unwritten, as in the incorporation review.[17] Consequently, provisions amended in favour of the drafting party are null and void. The provisions other than those deemed non-existent will continue to form part of the contract. The legislature has adopted the sanction of partial non-existence in the event of a breach of the prohibition of amendment in standard terms.[18] For example, clauses granting a credit institution the unilateral right to increase the interest rate will be deemed unwritten.

The sanction for breach of the prohibition of amendment, which is subject to content review, has also been regulated as being deemed unwritten, by reference to the sanction applied as a result of the incorporation review. However, the prohibition of amendment is subject not to incorporation review but to content review. The content review of standard terms should be subject to the sanction of absolute nullity under Article 27 of the Turkish Code of Obligations.[19] In our view too, subjecting the prohibition of amendment, which falls within content review, to the sanction of incorporation review is erroneous.

Fate of Provisions Contrary to the Principle of Good Faith

Where a provision is found to deviate from the criterion for the content review of a standard term, the last thing the judge must do is determine whether this deviation makes any difference to the matters detrimental to the other party in the terms arising from the contract. Merely deviating from the review criterion is not decisive. The degree of this deviation is also important for content review. The German Civil Code and the Swiss Federal Act against Unfair Competition use expressions such as the other party being disproportionately disadvantaged, or the term being significantly contrary to the nature of the contract. In fact, the essence of content review is not the elimination of every kind of imbalance between the parties. Up to a point, accepting imbalances is in any event a necessity in order to safeguard freedom of will and not to weaken legal certainty. Indeed, Article 55 of the Turkish Commercial Code expressly addresses this situation and provides for review of standard terms that ‘deviate significantly from the statutory regulation’ and provide for ‘a distribution of rights and obligations significantly contrary to the nature of the contract’. Although Article 25 of the Turkish Code of Obligations does not state this expressly, the reference to the principle of good faith, together with the relevant legislative provisions listed above, makes it possible to reach the same interpretation.[21]

Article 25 TCO provides: “Standard terms and conditions may not contain provisions that, contrary to the rules of good faith, are to the detriment of the other party or aggravate its position.” Under this article, there is a special provision for standard terms of the obligation to act in accordance with the principle of good faith regulated in the Turkish Civil Code. Under this special provision, where a contract having the characteristics set out in Article 20 TCO contains provisions that are to the detriment of the other party or aggravate its position within the meaning of Article 25 TCO, it will be examined whether those terms were drafted contrary to the principle of good faith. If a provision contrary to good faith has been included, such provisions will be deemed unwritten. Before these terms are assessed, each specific case must be evaluated on its own merits. Matters such as whether the provision is surprising, the positions of the parties, whether the provision is customarily used in comparable contracts, and whether one party is in a dominant position vis-à-vis the other must be taken into account.[22]

The matters to be taken into account in the specific case are as follows:

• Whether the provision is of a surprising nature
• The positions of the parties
• Whether the provision is customarily used in comparable contracts
• Whether one party is in a dominant position vis-à-vis the other

Bibliography

[1] Sirmen, A. Lâle, Tüketici Sözleşmelerindeki Genel İşlem Şartlarının Denetlenmesi, Türk Hukukunda Genel İşlem Şartları Sempozyumu, Ankara, 2011, p. 112; Reisoğlu, op. cit., p. 77 addresses the judicial review of standard terms through a twofold classification of ‘binding-effect review’ and ‘content review’. For details, see

[2] Since the declaration and will theories involve a one-sided interpretation, the reliance theory was put forward in order to find a method of interpretation that strikes a fair balance between the conflicting interests of the parties and thus to reach a fair solution. This theory was developed because the other theories fell short of establishing a balance of interests between the parties. The reliance theory is essentially based on trust; although there is no rule in the Code of Obligations indicating that the reliance theory is to be adopted, our private law contains the principle of good faith. Everyone must act in accordance with the rules of good faith in exercising their rights and performing their obligations. Good faith is the fundamental rule in claiming rights and performing obligations. It is based on legal certainty, stability and equity, and it is also the primary basis in interpreting declarations of intent. When good faith is taken as the basis, it becomes possible to strike a fair balance between the conflicting interests of the parties. For detailed information on the reliance theory, see Osman Alpar Olgun

[3] Atamer, op. cit., pp. 26-27

[4] Eren, op. cit., p. 221

[5] Oğuzman, Kemal, Borçlar Hukuku Genel Hükümler, Vol. 1, 10th ed., Istanbul, 2012, p. 165

[6] Kılıçoğlu, op. cit., p. 118; Eren, op. cit., p. 222

[7] Kılıçoğlu, op. cit., p. 117; Oğuzman: …it appears to have been used in the sense that the other party’s declaration of acceptance did not cover these provisions, in other words, that the parties did not agree on the inclusion of these standard terms in the contract. In this case, the invalidity rises to the level of “non-existence”, since matters on which there is no concurrence of intent between the parties are deemed non-existent (see op. cit., p. 166).

[8] Akçaal, Mehmet, Borçlar Kanununun Genel İşlem Koşullarına Dair Hükümleri Hakkında Bir İnceleme, Gazi Üniversitesi Hukuk Fakültesi Dergisi, Vol. 18, Ankara, 2014, p. 57

[9] Yeniocak, op. cit., p. 89

[10] Eren, op. cit., p. 221

[11] Reisoğlu, op. cit., p. 77

[12] Kılıçoğlu, op. cit., p. 118

[13] Yeniocak, op. cit., p. 91

[14] Before the statutory provisions were introduced, certain legal tools were used in content review alongside the principle of good faith:

• Immorality
• The right to determine performance unilaterally
• Culpa in contrahendo (C.I.C.)

[15] Havutçu, op. cit., p. 154

[16] Çınar, Ömer, Tüketici Hukukunda Haksız Şartlar, Istanbul, 2009, p. 122

[17] Kılıçoğlu, op. cit., pp. 118-119; Eren, op. cit., p. 215; Reisoğlu, op. cit., p. 78.

[18] Reisoğlu, op. cit., p. 221

[19] Yelmen, op. cit., p. 108

[20] Yeniocak, op. cit., p. 93

[21] Atamer, op. cit., p. 50

[22] Kılıçoğlu, op. cit., p. 119