WEEK 4
INTRODUCTION TO CONTRACT LAW1
Contracts are the most important legal tool in the business world. Every
person, either real or legal, dealing with business, should have a relation
with other persons who are dealing with business. The best way to
regulate these relations and even to start these relations is to conclude a
contract.
In Turkish legal system contracts, are a part of law of obligations. Actually,
they are one of the sources of an obligation. The field of law of obligations
is regulated by the Code of Obligations (Türk Borçlar Kanunu).
Code of Obligations is taken from Switzerland by way of reception in 1926,
and in 2012 it has been changed according to the needs of the developing
law and country, but again mostly the Swiss model was followed. Code of
Obligations is formed of two main parts, “general provisions” and “specific
types of contracts”. In the general provisions part, the concept of
obligation, sources of obligation, conclusion of contracts, form of contracts,
simulation, defective intentions, agency, tort, unjust enrichment,
performance of an obligation, non-performance, default of the debtor and
the creditor, special modalities of an obligation and discharge of
obligations are regulated. In the specific types of contracts part, different
types of contracts are regulated in detail.
CONCEPT OF OBLIGATION AND CONTRACTS AS A SOURCE OF
OBLIGATION
Law of obligations is the branch of civil law particularly concerned with the
relations that create obligations. These relations are very important for
everyone and even in our daily lives, nearly every day we enter into these
kinds of relations but mostly we do not understand the legal meaning and
significance of them. The main legal source of law of obligations is the
Code of Obligations.
*Make a list of the three things you did yesterday and write them down. 1.
2. 3. Take a look at your list and try to find out whether you have actually
concluded a contract or not. For example if you took a bus to school you
made a contract, you paid your fare and bus driver took you to the school
and both parties performed their obligations.
The Code of Obligations is composed of two main parts. The first part is
named as “General Provisions” and the second part is named as “Specific
Types of Contracts”. General provisions part is concerned with the
formation, the effects and the discharge of obligations, obligations with
special modalities, the assignment of claims and the assumption of
obligations. Specific types of contracts part contains provisions affecting
various types of contracts, such as sale, loan, rental, service, surety, etc.
1
AKİPEK ÖCAL, Şebnem, Business Law, Anadolu University, Open Educatıon Faculty
Publication No: 2528, s.53 vd.
Concept of Obligation
The law of obligations deal with the relations that create obligations. The
term ‘obligation’ comes from the Latin word obligare and means ‘to bind’.
Though in our daily lives mostly we use the term obligation in a narrow
sense, just meaning a money debt, legally it has a wider meaning.
Obligation refers to any kind of relation between the creditor and the
debtor. Obligation is a legal tie between two persons, namely the creditor
and the debtor, which binds one of them to do or to forbear from
something in the benefit of the other. It can be stated that an obligation
has three elements: Creditor, debtor and consideration.
Sources of an Obligation
According to Turkish Code of Obligations there are three sources of
obligations. These are:
1. Contracts
2. Torts
3. Unjust Enrichment
It should be mentioned that these sources are not limited in number.
These are the sources that very frequently create an obligation, but
besides them there are other sources as well. For example an obligation
may be created directly from the law itself. As can be seen, the first source
of an obligation is named as the contracts in the Code of Obligations. But
the Code actually means not only the contracts, but all legal transactions
as the source of an obligation. Since nearly 95% of all legal transactions
are contracts, in other words contracts form most of the legal transactions,
the law-maker named only the contracts.
The second source of an obligation is torts. Every person has
freedom of activity within the limits of law. Law restricts this freedom by
the rights of the other persons. When a person acts beyond the
restrictions of law, the acts become wrongful and such wrongful acts are
named as “torts”. Torts are actually civil wrongs and most of the torts also
give rise to criminal liability as well.
According to article 49 of the Code of Obligations, any person who
unlawfully causes loss or damage to another, whether willfully or
negligently, is obliged to provide compensation. This liability is named as
tortuous liability. For a person to have tortuous liability, first of all there
must be an act. This may be a positive act (for example to fire a gun to
another person) or an act of omission (for example a nurse on a night shift
sleeping and not giving the medicine and care to the patients). An act of
omission can only be a basis for liability if there is duty to act. Secondly
this act must be an unlawful act. Unlawfulness is the avoidance of the
compulsory legal rules that safeguard a person in his/her person and/or
property. Thirdly the person who is committing this unlawful act should
have fault. Fault is either a willful act or a negligent act. For a person to
have fault, being able to make fair judgments is a necessity. Fourthly there
must be damage. Damage is the loss either given to a person or to his
property or both. Lastly, for tortuous liability there should be a proximate
causal relation between the unlawful act and the damages. In other words,
the damage must be result of the unlawful act.
Third source of an obligation is unjust enrichment. It is a gain
acquired in an unjustifiable manner out of the property of another person.
According to article 77 of the Code of Obligations, a person who has
enriched himself without just cause at the expense of another is obliged to
make restitution.
Legal Transactions and Contracts as a Legal Transaction
As the first source of obligation, contracts are regulated in the Code of
Obligations. But actually it is obvious that the Code does not only refer to
the contracts, but to all the legal transactions. A legal transaction can be
defined as a declaration of intention to which the legal order binds legal
effects. A legal transaction is directed to a specific legal result.
Legal transactions may be classified into several different groups; but the
best classification is made with regard to the intention declared, since
declaration of intention is the most important point of a legal transaction.
According to this classification there are three types of legal transactions:
1. Unilateral legal transactions: These legal transactions are formed by
the assent of a single person. In other words, in unilateral legal
transactions, there is only one intention declared. The legal order binds
effect only to this single declaration of intention. The best and known
example to that is a will. A will is the last wishes of a person. Some other
examples are recognition of a child, withdrawal from a contract,
resignation, and establishment of a foundation.
2. Bilateral legal transactions: If at least two intentions are declared
mutually, they are named as bilateral legal transactions. All contracts are
bilateral legal transactions. These transactions are concluded by two or
more persons. In bilateral legal transactions, the assents of the parties
must be declared in accordance with each other, but towards a contrary
legal interest or benefit.
3. Decisions (Multilateral legal transactions): There are several
declarations of intentions that are declared in the same direction. In these
legal transactions the assents of more than two persons are declared
towards a common legal interest.
As an example, a resolution in the general assembly of an association or a
decision taken by the general assembly of a corporation or a limited
liability company can be given. As mentioned above among the whole
groups of legal transactions, contracts form the largest and most
important group. Because of that reason, the law-maker in the Code of
Obligations mentioned contracts as the source of obligations. Actually,
even compared with the other main sources of obligations, namely torts
and unjust enrichment, contracts occupy the largest place.