BUSINESS LAW (BLAW 202) – Lecture Notes
law and other social rules and conventions 2 I-‐ Law as Social Order 2 A) Relationship between law and morality 3 B) Law As A Cultural Construct 4
II-‐ Sources of Law 4 Legal Sources of Turkish Law 4
III) LEGAL SYSTEMS 8 A) Common Law & Civıl Law 8 Differences between common law and civil law 9 B) Islamic Law 11 C) Socialist law 12
Private law and public law 13 I) In general 13 III) Areas of Public Law 17 A) Constitutional law 17 B) Administrative law 20 C) Criminal Law 21
II) Areas of Private Law 23 A) CIVIL LAW 23 B) Law of Obligations 30
Contract and TORT 32 I) Law of contracts 32 A) Principle of Freedom of Contract 32 B) Formation of Contracts 33 C) Representation (Temsil) 35 D) Classification of Contracts, in terms of the degree of their enforceability 35 E) Termination of Contracts 36
II) Tort 36 A) Elements of an action in tort 37 B) Strict liability 38
SECURITY CONTRACTS 39 I) Personal Securities 39 A) Suretyship (Kefalet) 39 B) Guarantees (Garanti) 43 C-‐ Bills of Exchange Guarantees (Avals) 43
II) Real Securities 44 A) Real Security over Immovable Property 44 B) Real Security over Movables 46
LAW OF SALES CONTRACTS 47 I) Sales contracts ın general 47 II) United Nations Convention on Contracts for the International Sale of Goods (CISG) 48
A) In general 48 B) Sphere of Application and General Provisions (Articles 1-‐13) 50 B) Formation of the Contract (Articles 14–24) 54 C) Sale of Goods (Articles 25–88) 55
III) BASIC ELEMENTS OF AN INTERNATIONAL SALES CONTRACT 62 A) Preamble & Recital 62 B) The delivery method-‐ Incoterms 63
IV) ICC MODEL SALES CONTRACT 71 Gaps in the Model Contract 88
WEEK 1-‐2 LEARNING OUTCOME ¢Distinguish between law and other social rules and conventions ¢ Distinguish between civil law and common law
LAW AND OTHER SOCIAL RULES AND CONVENTIONS LAW: Oxford English Dictionary The body of rules, whether formally enacted or customary, which a particular State or community recognizes as governing the action of its subjects or its members and which it may enforce by imposing sanctions. I-‐ LAW AS SOCIAL ORDER
One of the prominent characteristics of every social structure is that, some degree of order is needed in order to enable individuals to interact and organize their relationships. In today’s modern society law plays an important role in establishing and maintenance of social order. However law is not the only means to institute order in human relations.
• You shall not make for yourself an idol • You shall not kill • You shall not commit adultery • You shall not steal • You shall not bear false witness against your
neighbor • You shall not covet anything that belongs to your
neighbor. from the “Ten Commandments”
Legal rule, moral rule, religious rule and social conventions altogether make up the social order. Difference is: Failure to adhere to legal rules may result in sanctions imposed by the state. Law and power are closely connected. In a lawless society, power will reign supreme, while in a society of rule of law, power is reigned by the law.
To sum up: Laws are –enforceable-‐ rules regulating the activities of societies and a set of such rules regulating a particular society at a particular time is called a legal system. “Law” means objective rules, but “Right” is a subjective authority given to a person for use of the rules of Law.
Some examples of non-‐binding social rules, which still design the social structure and social interactions: -‐-‐Religious Rules (Dini Kurallar) -‐-‐ Moral Rules (Ahlak Kuralları) -‐-‐Customary Practices (Örf ve Adet) -‐-‐Rules of Conduct-‐Etiquette (Davranış Kuralları) A) RELATIONSHIP BETWEEN LAW AND MORALITY
-‐ Morality and law are not identical and do not coincide. The proof is the
existence of unjust laws, such as those enforcing slavery. For example, the issue of same sex marriage creates some tension between moral rules and constitutional right of personal freedom.
-‐ Law and morality have a strong tendency to overlap. The existence of laws that serve to defend basic values-‐-‐such as laws against murder… -‐-‐prove that the two can work together. Morality can influence the law in the sense that it can provide the reason for making certain groups of immoral actions illegal.
-‐ Law and morality are different in the manner that each achieves
obedience. For laws, people obey “at least partly through fear of punishment” 1 whereas with morality, people obey because what is morally correct is “habit-‐like or second nature. Social norms are the motley of informal, often unspoken rules, guides and standards of behavior the authority for which is vague if not diffuse, and the communal sanction for which can be swift and cutting. These nonlegal rules and
1 Garrett, J. Basic Observations on Law and Morality. http://www.wku.edu/~jan.garrett/320/320lawmo.htm
obligations are followed and fulfilled in part because failure to do so brings upon the transgressor such social sanctions as induced feelings of guilt, shame or threat of condemnation from the society.2
B) LAW AS A CULTURAL CONSTRUCT
Each society develops and implements a system of justice based upon, and reflective of, the perceived values and needs at a given time. Law is a reflection of the cultural beliefs of dominant groups within society, with the administration of justice and the application of law as a function of the worldview of a community in time and place. Subsequently, the approach of one cultural group toward legal and justice issues may be very different from that of another. In any society, something is an offence under law only because the society has deemed it to be so.
II-‐ SOURCES OF LAW
The sources of Turkish domestic law, in descending order of importance, are • The Constitution of Turkey (Anayasa) • Laws (Codes or Statutes) (Kanun) • International treaties (Milletlerarası Anlaşmalar) • Decree Laws (statutory decrees) (Kanun Hükmünde Kararname) • Regulations (Tüzük) • By-‐laws (Yönetmelik) LEGAL SOURCES OF TURKISH LAW The primary sources of Turkish law are the constitution, laws, statutory decrees, international treaties, regulations, and by-‐laws.
1-‐The Constitution The highest source of Turkish legal order is the constitution. According to Article 11 of the Constitution:
“The provisions of the Constitution are fundamental legal rules binding upon legislative, executive and judicial organs, and
2 Patrick S. O’Donnell, Social Norms & Law: An Introduction
administrative authorities and other institutions and individuals. Laws shall not be in conflict with the Constitution.”
2-‐Statutes The Turkish Grand National Assembly holds the power to make, amend, and abrogate laws as authorized by article 87 of the Constitution. Article 88 holds that legislative bills shall be proposed by the Council of Ministers and individual deputies. Such bills are debated and adopted by the Parliament in its plenary session with a simple majority as regards with ordinary bills. According to Article 96 of the Constitution:
“Unless otherwise stipulated in the Constitution, the Turkish Grand National Assembly shall convene with at least, one-‐third of the total number of members and shall take decisions by an absolute majority of those present; however, the quorum for decisions can, under no circ*mstances, be less than a quarter plus one of the total number of members.
Members of the Council of Ministers may delegate a minister to vote on their behalf in sessions of the Turkish Grand National Assembly which they are unable to attend. However, a minister shall not cast more than two votes including his or her own.”
According to article 89 of the Constitution, legislative bills adopted by the Grand National Assembly shall be submitted to the President of the Republic for their promulgation. He shall, within the same period, refer to the Turkish Grand National Assembly for further consideration, laws which he deems wholly or in part or unsuitable for promulgation, together with a statement of his reasons. In the event of being deemed unsuitable by the President, the Turkish Grand National Assembly may only discuss those articles deemed to be unsuitable by the President. After that if the Grand National Assembly readopts the bill without a change, the bill shall be promulgated by the President. Due to time considerations bills concerning the budget are excluded from this scrutiny of the President. Laws are only enacted by publication in the Official Gazette.
3. Statutory Decrees The Turkish Grand National Assembly may empower the Council of Ministers with a legislation to issue decrees having the force of law. However, the fundamental rights, individual rights and duties included in the First and Second Chapter of the Second Part of the Constitution and the political rights and duties
listed in the Fourth Chapter, cannot be regulated by decrees except during periods of martial law and states of emergency. In addition to that; the purpose, scope,principles and operative period of the decree shall be defined in the empowering legislation. Such statutory decrees have the same legal effects as laws. As mentioned above the 1982 Constitution makes a distinction between the two categories of statutory decrees: decrees adopted under normal circ*mstances as stated in Article 91; and those adopted under circ*mstances of state of emergency and martial law.
4-‐International Treaties According to Article 90 of the Constitution, international treaties are another source of Turkish law.
“The ratification of treaties concluded with foreign states and international organizations on behalf of the Republic of Turkey, shall be subject to adoption by the Turkish Grand National Assembly by a law approving the ratification.
Agreements regulating economic, commercial and technical relations, and covering a period of no more than one year, may be put into effect through promulgation, provided they do not entail any financial commitment by the state, and provided they do not infringe upon the status of individuals or upon the property rights of Turkish citizens abroad. In such cases, these agreements shall be submitted to the Turkish Grand National Assembly for information within two months of their promulgation.
Agreements in connection with the implementation of an international treaty, and economic, commercial, technical, or administrative agreements which are concluded depending on the authorization as stated in the law shall not require the approval of the Turkish Grand National Assembly. However, agreements concluded under the provision of this paragraph and affecting economic or commercial relations and the private rights of individuals shall not be put into effect unless promulgated.
Agreements resulting in amendments to Turkish laws shall be subject to the provisions of the first paragraph.
International treaties which are duly put into effect have the same effect as domestic laws. No appeal to the Constitutional Court shall be made with regard to these agreements, on the grounds that they are unconstitutional. In case of conflicts between international agreements duly put into effect regarding basic rights and freedoms
and domestic laws, due to different provisions on the same issue, the provisions of international treaties shall be prevail.”
As seen in the last paragraph of article 90, in case of a conflict between domestic law and an international treaty regarding issues on basic rights and freedoms; the provisions of the relevant international treaty will be applied. Thus, it is not wrong to say that the status of such treaties (treaties regarding basic rights and freedom) is somewhere between the Constitution and ordinary domestic law.
5-‐Regulations Regulations are written explanations of a particular law on how the law will be interpreted, applied or enforced. The article 115 of the Constitution authorizes the Council of Ministers to issue regulations in accordance with the constitution and laws:
“The Council of Ministers may issue regulations governing the mode of implementation of laws or designating matters ordered by law, provided that they do not conflict with existing laws and are examined by the Council of State. Regulations shall be signed by the President of the Republic and promulgated in the same manner as laws.”
As seen in the article regulations are subject to the examination of the Council of State and cannot be contrary to the law itself. They are also subject to the legality review of the administrative courts as stated in the Article 125.
6-‐By-‐laws By-‐laws are written instructions regarding relevant laws and regulations. By-‐laws are regulated in the Article 124 of the Constitution:
“The Prime Ministry, the ministries, and public corporate bodies may issue by-‐laws in order to ensure the application of laws and regulations relating to their particular fields of operation, provided that they are not contrary to these laws and regulations. The law shall designate which by-‐laws are to be published in the Official Gazette.”
7-‐Jurisprudence (Hukuk Öğretisi)
The Constitution grants the Grand National Assembly the sole authority to make law and prohibits the delegation of legislative power to any governmental agency. However, judicial decisions are not entirely without a binding effect in Turkish law. Decisions of the supreme courts have a binding effect on the decisions of lower courts within their jurisdiction.
The prominent legal traditions in the contemporary world are: civil law, common law, Islamic law and socialist law . A legal tradition is a set of deeply rooted, historically conditioned attitudes about the nature of law, about the role of law in the society and the polity, about the proper organization and operation of a legal system, and about the way law is or should be made, applied, studied, perfected, and taught.3 III) LEGAL SYSTEMS A) COMMON LAW & CIVıL LAW The term ‘common law’ refers to legal systems which have adopted the historic English legal system. Amongst these is, the United States (except from Louisiana) together with many other Commonwealth and former Commonwealth countries such as India, Pakistan, Malaysia or Jamaica. Common law tradition evolved in England from the 11th Century onwards. William the Conqueror arrived in 1066 and combined the best of the Anglo-‐Saxon law (the law of the Britons, Angles and Saxons) with Norman law, which resulted in the English common law, much of which was by custom and precedent rather than by written code. The American colonies followed the English Common Law with minor variations, and the four-‐volume Commentaries on the Laws of England by Sir William Blackstone (completed in 1769) was the legal "bible" for all American frontier lawyers and influenced the development of state codes of law. Today to a great extent, common law has been replaced by written statutes, and a gigantic body of such statutes have been enacted by federal and state legislatures supposedly in response to the greater complexity of modern life. The same can be said about the Common Law in England. Common Law is still the basis of modern English Law and although it is constantly developing by means of the doctrine of precedent (which can be described roughly as judge-‐made law), with the parliament developing in strength legislation gradually overtook judicial law-‐making. There is a strong tendency in English Law, especially starting from 70s, to introduce bills and acts
3 Prof. William Tetley, Q.C Mixed Jurisdictions: Common Law vs. Civil Law (Codified and Uncodified)
which hindered the judges’ ability to innovate and confined their activities in certain areas. The term ‘civil law’ refers to those other jurisdictions which have adopted the European continental system of law derived essentially from ancient Roman law, but owing much to the Germanic tradition. Civil law has its origin in Roman law, as codified in the Corpus Juris Civilis of Justinian*, and as subsequently developed mainly in Continental Europe. The civil law legal tradition can be categorized the Romanic laws, influenced by French law4, and the Germanic family of laws, dominated by German jurisprudence. In civil law systems, law is principally codified and premised on general principles, which are systemised in a written regulation. Reality is that it is increasingly difficult to identify countries with solely one legal tradition or the other. The cross-‐pollination between these legal cultures has enriched both traditions, creating a global legal mosaic. The conceptual distinctions between Civil Law and Common Law systems are noteworthy in certain areas, but at the same time, there appears to be growing agreement that the substantive differences are becoming increasingly less significant.5
DIFFERENCES BETWEEN COMMON LAW AND CIVIL LAW Prior to the 19th century, There was no sharp distinction between Continental law and the common law. Common law and civil law legal traditions share similar social objectives (individualism, liberalism and personal rights) and they have in fact been joined in one single family, the Western law family, because of this functional similarity. Civil law is the dominant legal tradition today in most of Europe, all of Central and South America, parts of Asia and Africa, and even some discrete areas of the common-‐law world (e.g., Louisiana, Quebec, and Puerto Rico).
1) The role of the legislator : French civil law adopts Montesquieu’s theory of separation of powers (kuvvetler ayrılığı), whereby the function of the legislator is to legislate, and the function of the courts is to apply the law. Common law, on the other hand, finds in judge-‐made precedent (İçtihat) the core of its law.
4 French Code Civil from 1804 (Code Napoleon) 5 INTRO TO CIVIL LAW LEGAL SYSTEMS, INPROL Consolidated Response (09-‐002), May 2009
2) Source of law is another distinguishing feature: Civil law codes provide the core of the law -‐ general principles are systematically and exhaustively exposed in codes and particular statutes. Common law statutes, on the other, complete the case law, which latter contains the core of the law expressed through specific rules applying to specific facts.Ω Case law, which is commonly referred to as common law, is based on decisions made by judges in court trials. These decisions by courts that are used for guidance are called precedent.6 To sum up, it is clear that in both legal traditions codes do exist and are applied by practitioners, but that these codes differ in their style: While civil law codes and statutes are mostly concise and do not provide definitions but state principles in broad, general phrases, common law codifying statutes provide detailed definitions and each rule sets out lengthy enumerations of specific applications or exceptions
3) Legal effect of earlier judgments Principle of precedents and doctrine of stare decisis is the the method of common law to analyze previous court decisions, to find a general principle in each of them and to transfer these principles to a current dispute that needs to be decided. Common law judges are subject to the so called doctrine of stare decisis and thus in the first instance are bound by precedents rendered by higher courts. A precedent is binding until it is overruled by a decision of a higher court or until it is overridden through a statute. A higher court can also reconsider and overrule its own previous decision. Civil law judges are be primarily bound to codes and reason. However it is not entirely correct to assume that common law judges are strictly bound to the authority of higher courts while civil law judges are only bound to codes and reason. The civil law focuses rather on legal principles. Judge traces their history, identifies their function, determines their domain of application, and explains their effects in terms of rights and obligations. In civil law jurisdictions, the first step in interpreting an ambiguous law is to discover the intention of the
Ω English word “law” means all legal rules whatever their sources, while the French word “loi” refers only to written statutory rules. The word “droit” in the French civil law is the equivalent of “law” in English common law. 6 Ha Nguyen & Megan Gatley, Chapter 1a: Introduction to Law
legislator by examining the legislation as a whole, including the “travaux préparatoires”, as well as the provisions.
4) Appointment / selection of judges Judges in the common law countries, particularly judges of the higher courts, are typically selected and appointed only from among experienced practicing lawyers. It is quite usual in civil law to appoint young highly skilled but inexperienced graduates to judgeships.
5) Procedural differences – adversarial vs. inquisitorial/proceedings Court proceedings in common law may be described – at least in private law – as strictly adversarial where parties in a dispute have the responsibility for finding and presenting evidence. In this system the attorneys are responsible for presenting the facts of the case, the positions of each party and the legal views including all relevant precedents. In an ideal common law procedure the judge has the function only to manage the proceeding, to review all facts of the case and legal views presented to him and finally to decide the case on that basis, or when the case is tried by a judge and jury, to sum up the evidence and the legal principles for the assistance of the jury. In proceedings of civil law, judges have a much more active part to play than judges in common law. That is why civil law proceedings – apart from public and criminal proceedings – may be described as inquisitorial in contrast with common law proceedings. Thus civil law judges have many functions which in common law the attorneys are responsible. In civil law, judge is generally responsible for the oral questioning of the witnesses in taking evidence. Thereby the judge asks the witnesses about the factual issues of the case, In common law, each party can bring forward and question its ‘own’ expert and the judge only has to decide which expert is more convincing, in civil law it is the judge who in most cases appoints the expert, often a sole witness, and then accepts his opinion. B) ISLAMIC LAW
As to Islamic Law (Shari’a) the sources of law are very different compared with the other legal families. Islamic law is primarily a religious law. All the schools and sects of Islam accept that the two main sources of the Shari’a are the Qur’an and the Sunna. C) SOCIALIST LAW Socialist law is the official name of the legal system used in Communist states. It is based on the civil law system, with major modifications and additions from Marxist-‐Leninist ideology. Marxists explain that law and human rights arise from the interactions of human beings within social structures that contain economic class distinctions. Class divisions within societies create conflict and disorder and therefore law (and the state) comes into existence to deal with this conflict. According to Engels, “In order that these . . . classes with conflicting economic interests, may not annihilate themselves and society in a useless struggle, a power becomes necessary that stands apparently above society and has the function of keeping down the conflicts and maintaining ‘order.’ Lenin explains, “The State is an organ of class domination, an organ of oppression of one class by another; its aim is the creation of ‘order’ which legalizes and perpetuates this oppression by moderating the collisions between the classes.” Laws are thus imposed by the state to quell these disturbances. Howard Selsem explains, “Marxism, which has been so often accused of seeking to eliminate moral considerations from human life and history emphasizes rather the moral issues involved in every situation. It does so, however, not by standing on a false platform of absolute right, but by identifying itself with the real needs and interests of the workers and farmers.7
7 http://www.allaboutworldview.org/marxist-‐law.htm
WEEK 3-‐4 ¢Explain the difference between public and private law ¢Explain branches of public and private law ¢ Explain the sub-branches of Civil Law ¢Explain the three categories of capacity
PRIVATE LAW AND PUBLIC LAW Law can be divided into different types, depending on the purpose of the classification:
♦ DOMESTIC LAW (İç Hukuk) § only applies within the territory of a sovereign state § established and enforced by the governing authorities of the sovereign
state ♦ INTERNATIONAL LAW (Uluslararası Hukuk)
§ applies in more than one sovereign state § established by treaty, i.e., written agreement among two states, i.e.,
Bilateral Treaties or more than two states, i.e., Multilateral Treaties
♦ PUBLIC LAW (Kamu Hukuku) § regulates the relationship between states, governmental agencies and
private individuals and entities, e.g., criminal law ♦ PRIVATE LAW(Özel Hukuk)
§ regulates the relationship between private individuals and entities, e.g., contract law
♦ MIXED LAW (Karma Hukuk) contains elements of public and private law, e.g., labor law, social security law
I) IN GENERAL Private law is usually defined as the law which governs relationships between citizens/individuals as opposed to public law, which is the law which deals with the relationships between citizens and the state, or among state institutions. Continental European law in the Roman-‐Germanic tradition is heavily influenced by the sharp distinction between private law and public law. 8 Romans
8 Andre an der Walt,, "Private Law, Public Law, Civil Law" Paper presented at the annual meeting of the The Law and Society Association, Chicago, Illinois, May 27, 2004
categorised law in terms of relationships between person and person, person and a thing and person and the state. 9 Relationship between a statutory authority and an individual should be approached as a relationship existing between the state and the individual rather than an individual and an individual. On the other hand, within the English legal system there has never been a strong tradition of distinguishing private law and public law. Private Law is the body of rules which recognize and provide enforcement of individual (private) rights. Private Law affects matters between individuals (whether people, groups of people or companies). Examples of this would be commercial codes and civil codes. Most civil codes in Europe were conceived in the 19th Century when the Liberal laissez-‐faire ideology was dominant in Europe. In the first wave of codifications most continental European legal systems adopted both a civil code and a commercial code. Main pillars of private law have been absolute property, binding force and freedom of contract and fault-‐based liability in tort. However, the main institutions of the 19th century private law construction were never undermined as such. Rather, the desire for change was internalized within the system. New institutions were added in order to moderate their effect. Abuse of right, good faith, strict liability, and unjust enrichment operated as safety valves that removed the pressure on the system. Private law consists of Default and Mandatory Rules as a result of party autonomy. A free market mainly needs rules on contacts and that the basic rule of contract law (and indeed the basic prerequisite of a well functioning market) is freedom of contract. However, the market must be regulated and therefore mandatory rules are also needed. Mandatory rules are the rules that the parties cannot contract around.10 Public Law: norms that regulate the organization and function of public authorities and the relationship between public agencies and individual citizens. Public Law deals with the relationships between government organisations and ordinary citizens and also between different government organisations. Public law consists of various statutes, —Constitutional law: e.g. role and power of the institutions within the state
9 G Samuel, ‘Public and Private Law: A Private Lawyer’s Response’ (1983) 46 The Modern Law Review at 558 ; Anne Deegan, The Public/Private Law Dichotomy And Its Relationship With The Policy/Operational Factors Distinction In Tort Law, Vol 1 No 2 QUTLJJ . 10 Martijn W. Hesselink, The Structure Of The New European Private Law, http://www.ejcl.org/64/art64-‐2.html
—Administrative law: e.g. regulates public authorities, their accountability —Criminal law: state responsible for prosecution of crimes -‐-‐-‐-‐ International law :International law relates to issues that arise between nations, international or intergovernmental organisations. PRIVATE LAW PUBLIC LAW * Civil Law * Constitutional Law -‐Law of Persons * Administrative Law -‐ Family Law * Criminal Law -‐Law of Inheritance * International Law -‐Law of Property * Law of Taxation -‐ Law of Obligations *Law of Civil Procedure* *Law of Enforcement
&Bankruptcy * Commercial Law * International Private Law However, this clear-‐cut distinction between private and public law does give rise to some doubt. In many countries the cases where the state acts as a private person are problematic. Classical examples include the case where a municipality buys new office equipment. Law of Property The proper classification of other areas is often disputed. Civil procedure, for example, is treated as public in some countries and as private in others. Labor law, social security, and various topics of government regulation(competition law) are often referred to as “mixed” public and private areas. Even more problematic in this respect is that, in many countries private law is rapidly disintegrating into functional fields of law. Usually, these functional fields are the most dynamic branches of the law: labour law, medical law, environmental law, information law, and construction law, to name but a few. Their main characteristic, apart from their functional, pragmatic and non-‐dogmatic approach, is that they usually contain a mix between private and public law aspects. 11
11 ibid.
As said, private law is usually defined as the law, which governs relationships between citizens as opposed to public law, which is the law that deals with the relationships between citizens and the state, or among state institutions. This definition is quite descriptive. However, there is another recurrent definition of private law which is much more political. In this definition private law is the law relating to the private area, which is free from State intervention. In the latter view the only function of private law is allocation. In that view private law has an internal logic of its own which is politically neutral and is only concerned with giving every person what she or he is entitled to.12 Especially, private law in that view has neither distributionist nor any other paternalistic function: rather it is held that private law should not be instrumentalised for political aims.
12 ibid.
III) AREAS OF PUBLIC LAW A) CONSTITUTIONAL LAW Constitutional law defines the rules and code of conduct for the government and its various departments as well as the governmental system of the country. It also states the most basic rights of the individuals. These rights such as freedom of speech, are guaranteed to all citizens and or residents of that country. Constitution also provides the framework for the government system of a country
Government systems: Parliamentary (Parlamenter Sistemi) and Presidential (Başkanlık Sistemi)Systems In the system of parliamentary governance, the parliament is a political body that includes government. In parliamentary democracies the executive derives its mandate from and is politically responsible to the legislature. This implies that who forms the government is not determined by an election alone, but is the outcome of a bargaining process among the parties represented in the parliament.13 The executive governance is divided between the head of the government, cabinet, i.e. prime minister, chancellor and head of state. Head of state, president or a king, approves the head of government. Concerning the structure, the government or English cabinet, is a «collective body» in which the prime minister is the «first among equals» (Primus inter pares)(Eşler arası birinci).14 In the system of parliamentary governance, the head of the government, (chancellor, prime minister) and the government as a whole, rest on the trust of the legislative body, i.e. «they rely on the trust of the legislative body and they can be dismissed by voting or by giving a vote of unconfidence from the part of the legislative body. European countries have adopted versions of the English parliamentary system, which made use of both a prime minister responsible to parliament and a 13 Daniel Diermeier, Hülya Eraslan, Antonio Merlo, A Structural Model of Government Formation, Econometrica, Vol. 71, No. 1 (Jan., 2003), pp. 27-‐70 http://www.jstor.org/stable/3082040 . 14 Anđelko Milardović, Presidentialism or Parlamentarism in Central and Eastern Europe in the Age of Globalisation?, http://www.cpi.hr/download/links/en/6638.pdf
ceremonial head of state (who might be either a hereditary monarch, as in the Scandinavian countries, the Netherlands, and Spain, or a president chosen by parliament or by another body convoked specially for the purpose). A notable exception is France, which in its fifth constitution, adopted in 1958, combined its parliamentary system with a presidential one. The origin of the presidential system is visible from the theory of separation of powers in the 18th century. The executive power is undivided, while «in the presidential system the head of government becomes a head of state». The systems of parliamentary governance rest on the «collective or plural executive power, while the presidential systems rest on «uncollective executive power consisting of one person» concerning the heads of ministries, they are appointed by the president, to whom they are directly subordinated. There is no merging of the executive and the legislative power, as it is the case in parliamentarism. The presidential system rests on the election of the president with constitutional powers of presidentialism, for a fixed period of time. He cannot be superseded or revoked by the legislative power.
-‐ Critique of systems :
In presidential systems, both presidents and Assembly members are chosen by popular vote and they are not dependent on each other. This creates a problem of governance in presidential systems especially when there are problems between the President and the Assembly. The party of the president may not constitute the majority in the Parliament. However, in parliamentary systems the prime minister is a member of the parliament and the parliament has the right to change the prime minister by giving no confidence vote. Secondly in presidential systems, the fixed term of the president’s office is critisized for its rigidity, which is less favorable to democracy. President is elected and should stay in power during his term; the Assembly does not have the power to remove the president. The presidentialism means the identification of the entire nation and national interest with a man. By many thinkers this is found not to be in conformity with the idea of democracy and in addition, the president may act more intolerantly towards the opposition in this kind of a system. Because of the loose ties between political parties and presidents, presidents may govern the country in a populist, anti-‐institutionalist fashion in presidential systems. 15 Thinkers who are critical of parliamentarism assert that parliamentary governments do not necessarily produce majority governments. Moreover, they claim that due to the high party discipline in parliamentary system, many
15 Ozan Örmeci, PRESIDENTIAL VERSUS PARLIAMENTARY DEMOCRACY, http://ydemokrat.blogspot.com/2010/11/presidential-‐versus-‐parliamentary.html
decisions are taken from the party center and deputies are expected to give consent to these decisions. They think that dual legitimacy exists in many parliamentary systems too and crises take place between upper and lower houses of a bicameral legislature. Moreover, they assert that prime minister using their decree powers do not have less autonomy than presidents. 16
-‐ Semi presidential Systems
There is also third hybrid regime, which is called semipresedential system. A semipresidential regime has three basic characteristics: the popular election of the president, presidential constitutional powers, and the separate office of a prime minister.
Founding principles of Turkish Constitution17 The Constitution asserts that Turkey is a secular and democratic republic that derives its sovereignty from Turkish Nation, who delegates its exercise to an elected unicameral parliament, the Turkish Grand National Assembly. Part Two of the constitution is the bill of rights. Article Twelve guarantees "fundamental rights and freedoms", which are defined as including the: Article 17: Personal Inviolability, Material and Spiritual Entity of the Individual (right to life) Article 18: Prohibition of Forced Labour Article 19: Personal Liberty and Security (security of person) Article 20: Privacy of Individual Life Article 21: Inviolability of the Domicile Article 22: Freedom of Communication Article 23: Freedom of Residence and Movement Article 24: Freedom of Religion and Conscience Article 25: Freedom of Thought and Opinion Article 26: Freedom of Expression and Dissemination of Thought Article 27: Freedom of Science and the Arts Article 35: Right to property Part Three deals with fundamental organs of the state. With regard to Legislative Power, Articles 75-‐100 sets the rules for the election and functioning of the Turkish Grand National Assembly as the legislative organ, as well as the conditions of eligibility, parliamentary immunity and general legislative procedures to be followed. Per Articles 87 and 88, both the government and the
16 ibid. 17 This part is taken from Vikipedia
parliament can propose statutes, however it is only the parliament that has the power to enact laws. B) ADMINISTRATIVE LAW Administrative law exists as a separate branch in civilian law tradition. It defines the structural position of administrative agencies within the governmental system, specifies the decisional procedures those agencies must follow, and determines the availability and scope of review of their actions by the independent judiciary. The traditional core of administrative law has focused on securing the rule of law and protecting liberty by ensuring that agencies follow fair and impartial decisional procedures, act within the bounds of the statutory authority delegated by the legislature, and respect private rights.18 The legitimating principles of any Western administrative law system are found in the twin ideals of democracy and the rule of law (hukuk devleti ilkesi). The rule of law ideal forms the central background theory against which the principles of administrative law operate, while at the same time acting as a governing principle. Administrative law is the law relating to the control of governmental power. The primary purpose of administrative law is to keep the powers of government within their legal bounds, so as to protect the citizen against their abuse. It gives rise to a further set of principles, which form the body of administrative law. The primary function of administrative law is the control of public power. Administrative law established itself during the 19th century, usually in the context of constitutions that placed much emphasis on functional separation of powers. Administrative law has played an important part in the struggle for limited government, which established judicial control over ministerial actions. Throughout the common law world, administrative law has evolved as part of a system of ‘checks and balances’. Administrative law requires government and administration to stay within the boundaries of legality or, in American administrative law in particular, not to exceed their powers as delegates. Administration must act within the powers vested by the law.19 The Rule of Law
18 RICHARD B. STEWART, ADMINISTRATIVE LAW IN THE TWENTY-‐FIRST CENTURY, 78 N.Y.U. L. Rev. 437 2003 19 Carol Harlow, Global Administrative Law: The Quest for Principles and Values , The European Journal of International Law Vol. 17 no.1 © EJIL 2006
The rule of law normally requires that the government acts always within its powers; follows the proper procedures; and provides equality of access to courts and other machinery for adjudication. The key requirement of the rule of law is a legal order with fixed and stable general principles, together with formal rights of access to courts for the resolution of disputes. C) CRIMINAL LAW Criminal law, also known as Penal law, is the law under which the state prosecutes individuals for committing a crime. Criminal law is used to punish individuals for their acts, which are deemed to be anti-‐social by law. Certain criminal offences may also be committed by legal persons. An act of crime must be expressly described and certain “penalty” must be provided for it by a statute .20 There can be no crime and no punishment without law/statute” (kanunsuz suç ve ceza olmaz, Nulla poena sine puts)è for the stability + and for avoiding arbitrary accusation and punishment. Parliament/TBMM must define in detail è every crime and the relevant penalty in the statutory law21 è Interpretation by analogy is prohibited. German Criminal Law of 28 June 1935 (RGBl. I 838) reads as : “One punishes, who commits an act, which the law for punishable avowedly or which earns punishment after the basic idea of the penal law and after healthy people feeling. If no certain penal law applies direct to the act, then the act is punished after the law, whose basic idea to it best applies “1 Analogical interpretation is permitted if it is in favor of the defendant. However, expanding the scope of the criminal statutes by way of interpretation to fill the loopholes of law is not permitted. Categories of crimes: In Turkish Criminal Law there exist two categories of criminal offences: felonies (cürüm) and misdemeanors (kabahat).
20 Kudret Özersay, Criminal Law, www.emu.edu.tr 21 TCK MADDE 2. -‐ (1) Kanunun açıkça suç saymadığı bir fiil için kimseye ceza verilemez ve güvenlik tedbiri uygulanamaz. Kanunda yazılı cezalardan ve güvenlik tedbirlerinden başka bir ceza ve güvenlik tedbirine hükmolunamaz. (2) İdarenin düzenleyici işlemleriyle suç ve ceza konulamaz. (3) Kanunların suç ve ceza içeren hükümlerinin uygulanmasında kıyas yapılamaz. Suç ve ceza içeren hükümler, kıyasa yol açacak biçimde geniş yorumlanamaz.
II) AREAS OF PRIVATE LAW
Introduction of Western Law in Turkey22 Mustafa Kemal and the founders of the Turkish Republic regarded secularization as an uncompromising principle. In 1926 Turkish government introduced new civil and criminal codes in Turkey, which were based on Western models. Western thought had earlier influenced, 19th century Ottoman law, first in the mixed commercial courts and later in criminal codes. But Western jurisprudence had hardly challenged the Shari'a-‐-‐the sacred body of the Islamic law-‐ in its control of betrothal, marriage, divorce, inheritance, and adoption. Thus, when the Shari'a courts were abolished in 1924 and the entire court system was transferred to the Ministry of Justice, the whole judiciary became legally independent of religious control for the first time in Turkish history. The replacement of the Shari'a by the Swiss civil code in 1926 abolished the jurisdiction of Islamic law in its sacred sphere of family relations and brought all legal aspects of family life under the domain of secular law. In addition to the new civil and criminal codes of 1926, committees of jurists produced new codes of obligation, commerce, maritime law, and civil and criminal procedure. A) CIVIL LAW Civil law covers a vast area of relations such as personality, family relations, rules of succession(inheritance) property rights, and law of obligations , which are all sub-‐branches of civil law.23 Civil law in Turkey is regulated under Turkish Civil Code24.
22 June Starr and Jonathan Pool, The Impact of a Legal Revolution in Rural Turkey Law & Society Review, Vol. 8, No. 4 (Summer, 1974), pp. 533-‐560 http://www.jstor.org/stable/3052883 . 23 Zeynep Şişli, Branches Of Private Law, http://homes.ieu.edu.tr/~zsisli/BA100/Fundamentals%20of%20Law(4)-‐2010.pdf 24 A code is presumed to be coherent in the sense that there is no contradiction between the rules contained in it, that each rule has one true meaning, and that it provides only one right answer to each legal question. Other characteristics of a classical code include its systematic character and its use of abstract rules and concepts.
1) Law of Persons a) Person The word ‘‘person’’ is derived from the Latin word ‘‘persona’’ which originally referred to a mask worn by a human who was conveying a particular role in a play. With the era of enlightenment, and the rise of liberal individualism in Western societies, legal system has abandoned clan or family responsibility, and individuals are seen as primary agents, where the class of persons coincide with the class of human beings.25 Person may be defined as any being that can be subject of legal relations. Personality is the aptitude to become a subject of rights and obligations. Personality, however, is not a right (subjective), but a juridical quality, one that constitutes the prerequisite for all rights and duties; it is equivalent to ‘legal capacity’. The subdivision of the category “persons” into the two sub-‐categories of “human beings” and “associations of human beings” is a nearly universal feature of modern civil-‐law doctrine.26 b) Real (Natural) Persons (Gerçek Kişiler) :
The ‘natural person,’ sometimes called a physical person (or a man – or woman –, a human entity, a human being). Every real person is the holder of personality rights, such as the right to life, the right to own property, the right to bodily integrity, the right to the inviolability and integrity of personhood, and the right to the respect of his name, reputation and privacy. These rights are inalienable. 25 David J. Calverley, Imagining a non-‐biological machine as a legal person, AI & Soc (2008) 22:523–537 DOI 10.1007/s00146-‐007-‐0092-‐7. The international “Great Ape Project” seeks to imbue non-‐human primates with attributes of legal personhood—specifically “protections of the right to life, the freedom from arbitrary deprivation of liberty, and protection from torture.” The Defense Advanced Research Projects Agency (DARPA) is pushing the limits of human-‐machine interfaces in an attempt to create better persons, or even replacement “persons” that can perform jobs in lieu of human beings. One might easily imagine the creation or discovery, in the near future, of an entity that is of equal moral status with human beings, but not genetically human. Bkz. Jessica Berg, Of Elephants and Embryos: A Proposed Framework for Legal Personhood, HASTINGS LAW JOURNAL,Vol. 59 26 J.-‐R. Trahan, http://faculty.law.lsu.edu/jrtrahan/Persons/Supp/course_outline-‐IV-‐rev.pdf
i) Legal Capacity (Hak ehliyeti): Every person has legal capacity to acquire rights and assume obligations. The legal capacity of a person commences from the moment of live birth and terminates at death. Such capacity is inherent in every natural person. ii) Capacity to Act (Fiil ehliyeti) : Capacity to Act determines whether a real person may conclude binding amendments to his/her rights, duties and obligations, such as getting married or merging, entering into contracts, making gifts, or writing a valid will. A person who has full capacity to act has the capacity to create rights and obligations through his/her actions. Capacity to act does not arise with birth, but will unfold in a progressive manner. For this reason, the legal system has established distinctive norms for the adult and the juvenile. The law distinguishes majors and minors in this way on the basis of eighteen (18) years. -‐ Full Capacity (Tam ehliyet): A person who is at the age of majority and has capacity to consent (power of discernment) has the full capacity to act as long as he/she is not interdicted by court. A person is at the age of majority when he/she has reached the age of 18. -‐ Limited Incapacity (Limited interdiction) (Sınırlı Ehliyetsiz): Minors or wards of court with the capacity to consent are regarded as having limited incapacity. Persons who are at the age of majority may be made ward of court and accordingly become interdicted. Interdiction is the procedure under Civil Law by which a judge appoints a guardian to handle some or all of the affairs of a person. The grounds for interdiction are: mental illness, infirmity, prodigality, imprisonment exceeding 1 year. The rule applicable to persons with limited incapacity is that a contract signed by those is voidable at the instance of the legal representative of, although it is binding on the other party. They may assume obligations by their own acts only with the consent of their legal representatives. Without such consent, they may acquire only benefits which are free of charge. They are liable in damages for the torts they commit. Where one of the parties is incapable of giving consent to a contract, the contract becomes voidable or annullable even though there was no damage to the contracting party. The
contracting party cannot allege the incapacity of the minor with whom he/she contracted. -‐ Full Incapacity (Tam ehliyetsiz): A person lacking capacity to consent cannot create legal effect by his or her actions. A person who does not have the mental capacity to understand the consequences of a transaction to be entered are regarded as totally incapacitated. c) Legal Persons (Tüzel Kişiler) In contrast to “natural person,” the designation “juridical/legal person” is used to refer to an entity that is not a human being, but for which the legal system chooses to afford some of the same legal protections and rights as accorded natural persons.27 Legal system accords legal capacity to acquire rights to certain organizations, deeming them to be subjects of the law as “legal” persons. Legal person is separate and distinct in law from its members. It is an independent legal entity with the capacity to act and can thus acquire rights and create obligations with binding effect. In reality, the legal person is not a separate entity besides ‘its’ duties and rights, but only their personified unity.28 A legal person is either an organization of persons(e.g.: associations, companies) or special-‐purpose fund (e.g. a foundation) that is recognized by law as having legal personality. It differs from other organisations in that it possesses legal capacity and can appear before the courts as plaintiff or defendant. (i.e. capacity to be a party in court).29 Legislature has broad discretion to designate legal persons and to define the extent of their powers under the law. In order for a group of natural persons to be considered as a legal person, some prerequisites are: organization (a legal person shall be organized in organs for the realization of its purpose. e.g., board of directors. In Turkish Law an association needs to form its board of directors and general assembly to be considered as a legal person. The foundations are only required to form their board of directors and thus they assume legal personality); Perpetual purpose (legal persons are required to have a perpetual purpose; a group of natural persons targeting a one-‐time purpose cannot assume personality); Legal permission (The legislator decides which group of natural persons will be granted a legal personality). The legal person acts through its organs and legal representatives. The acts of the representative – provided that they have been executed in the name of the
27 Jessica Berg, a.g.e. 28 Hans Kelsen, GENERAL THEORY OF LAW & STATE (Anders Wedberg tr. 1945) 29 http://www.eurofound.europa.eu/emire/GERMANY/LEGALPERSON-‐DE.htm
legal person and within the power of representation – give rights and obligate the legal person. i) Public law legal persons: In public law, the essential legal person is the state. According to the Turkish Constitution (art. 123) a public law legal person can only be established by law or by the authority vested by law. Local administrative bodies (const. art. 127), professional organizations (const. art. 135) such as Bar association, Chamber of Commerce and Industry are public law persons TRT is an ‘impartial’ public law person (const. art. 133) and universities are ‘scientifically autonomous’ public law legal persons (const. art. 130). In international law, various organizations possess legal personality including inter-‐governmental organizations such as United Nations, World Bank, International Monetary Fund, European Council etc. ii) Private law legal persons : Both foundations and associations are non-‐profit legal persons regulated under the Civil Code. Provisions contained in the Civil Code establish the general framework for associations (dernek) and in broader terms for all private law legal persons. Some associations such as political parties, trade unions and sports clubs, have been subject to separate legislation due to their special field of activity.
Foundation (Vakıf) is the other private law legal person regulated under Civil Code and it is regarded as a fund established and maintained for charitable, educational, religious, research, or other benevolent purposes.
Both in foundations and associations, the purpose must not be contrary to law, public policy and public morals; it must not be impossible to obtain.
Companies are profit seeking private legal persons regulated under the Commercial Code. According to Turkish law all companies regulated under Commercial Code have legal personality however that may not be the case for all jurisdictions. In some countries only certain types of companies are vested in with legal personality. In Turkey, Companies acquire legal personality upon registration in the commercial register. In common law tradition the legal personality of a corporation includes five legal rights: the right to a common treasury or chest ( which includes the right to own
property)the right to a corporate seal (grants the legal person the right to make and sign contracts) the right to sue and be sued the right to hire agents (employees) the right to make by-‐laws (the right to self-‐governance, a display of autonomy). In common law, a corporation sole is a corporation consisting only one single member: e.g. The Crown in commonwealth realms. A corporation aggregate, on the other hand, is a corporation consisting more than one member.
iii) Effects of legal personality
-‐ Distinct patrimony -‐ Procedural capacity
d) Differences between Natural and Legal Persons i) Political rights (such as voting or holding an office) are possible only for natural persons. The majority of civic rights (such as the right to marry, divorce or the right to legal inheritance-‐with the exception of the State-‐) are also only applicable to natural persons. The only way a legal person can inherit is by a will.
ii) The right to usufruct (intifa hakkı) also differs between natural and legal persons. While natural persons may enjoy that right till their death-‐provided a shorter term for enjoyment is not agreed upon-‐, for legal persons the time limit for enjoyment is set at 100 years.
2) Law of Property Objects, which cannot be moved from one place to another and are fixed in their location, such as land and independent apartments subject to Condominium30 are regarded as immovable property. Other tangible property falls under the category of movables. Rights on movables and immovable are referred as “real rights” and regulated in the 4th book of Civil Code. a) Property right / Ownership (Mülkiyet)
30 Condominium (Kat mülkiyeti): Each of the individual apartments or houses in a building or complex containing a number of individually owned units.
The best known real right is the property right that refers to ownership of objects. The transfer of ownership is different for movables and immovables. Transfer of a movable property requires the agreement of the parties and the delivery of the item to the transferee. The transfer may be based on sale, donation or performance of another contract. The transfer of a movable property requires the mutual intention of the parties to transfer property (and, in addition, the physical transfer of the goods). In Turkish, Swiss and German law the contract of sale does not transfer movable property but, obliges the seller to physically transfer the object at a later stage as the performance of the contractual duty. The same is true for contracts such as one obliging the creation of a pledge. The transfer of an immovable may be only made through an official contract before the land register authorities and the entry into the register. Registration is a prerequisite of the transfer and any sort of contract whatsoever cannot provide the transfer of ownership if registration is not completed.
b) Pledge (rehin) / Mortgage (ipotek) Pledge or mortgage establishes a real right in the property in order to provide security for the performance of an existing or future debt. In addition to a agreement between the parties, pledge of a movable property requires the delivery of the item to the pledgee until the owed amount is paid. For immovables, the term “mortgage” is used. An immovable property may be mortgaged only with registration in the land register. The procedure is no different than transfer of ownership and upon the agreement of the parties the owner provides a right of mortgage by way of registration.
B) LAW OF OBLIGATIONS The law of obligations is a concept that is traditionally associated with civil law. Under Turkish Civil Code, the Law of Obligations (Borçlar Hukuku/Schuldrecht) constitutes the 5th of the five Books, codified under a separate legislation namely the Turkish Code of Obligations.
1) The Term “Obligation”
“An obligation is a legal tie which binds us to the necessity of making some performance in accordance with the laws of our state.” (Inst. 3.13.pr) “The essence of obligation does not consist in that it makes some property or a servitude ours, but that binds another person to give, do or perform something for us.” Paul. Inst. Book II (D.44.7.3pr.)
These two definitions from classical Roman law emphasize two aspects of an obligation. Firstly, the obligation is a legal tie (vinculum iuris) between creditor and debtor and is regarded as creating a relationship between the parties. The legal effect of this tie concerns only the parties of the obligation (obligor-‐obligee) and is not extended to third parties (although there are few exceptions to this principle: e.g. contracts concluded for the benefit of a 3rd person). An obligation has twofold consequences; a duty arises on the part of the person incurring the obligation, and there is a corresponding right in the other person to enforce that duty by legal action. By virtue of the obligation the obligee is entitled to demand performance from the obligor. Performance may also consist in refraining from doing something.
2) The Source of Obligations
• Contract (Sözleşme) • Tort (Haksız Fiil) • Unjust enrichment (Sebepsiz Zenginleşme)
The Turkish Code of Obligations cites three main sources for obligations: 1-‐Obligations arising from contracts 2-‐Obligations arising from delict/tort 3-‐Obligations arising from unjust enrichment (which is actually a quasi-‐contract-‐sözleşme benzeri).
Code of Obligations (CO), as a supplementary part of the Civil Code, provides the main legal framework for contracts and torts. Provisions of CO are divided into two parts: General Part which regulates general principles of contracts and torts. Special Part deals with specific types of contracts e.g.: sale contract, rental contract, service contract.
WEEK 5 ¢Explain contract and tort as sources of obligations
CONTRACT AND TORT
I) LAW OF CONTRACTS ”The law of contract is to a large extent the same worldwide. Certainly the rules governing contracts in the English-‐speaking world differ considerably from those of the Civil Law countries.”31 The contract law is, as in all areas of the continental Civil Law, based mainly on the tradition of Roman Law.32 A contract is an agreement creating legally enforceable obligations. A contract may be in written, oral or implied form unless a special legal form is required by law. However verbal agreements can turn out to be problematic when their proof is required. A) PRINCIPLE OF FREEDOM OF CONTRACT The economic system of the market economy rests on the assumption that every citizen is best qualified to determine for himself whether he needs supplies or wishes to sell, who will best serve his needs and on what conditions. If all these three decisions are to be made by every individual for himself, he must be granted freedom of contract as to whether at all, with whom and on what terms he wishes to contract.33 Contract law is based on the principle of freedom of contract as developed in the seventeenth and eighteenth centuries. The main aspects are: i) Freedom to conclude or not to conclude a contract and freedom of choice of the partner. There is no obligation to enter into a contract unless a special legal provision prescribes the formation of a contract (as may be the case for public transportation and other public services or in the context of antitrust law).34 ii) Freedom to establish the content of the contractual provisions. 31 Eugen Bucher, Law of Contracts; in: "Introduction to Swiss Law", Edited by F. Dessemontet & T. Ansay, Second Revised Edition, The Hague etc. (Kluwer/Schulthess) 1995, S. 103-‐124 32 ibid. 33 Ulrich Drobnig, General Principles of European Contract Law, Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986), Ch. 9, 305-‐332. 34 Eugen Bucher, a.g.e.
Parties are free to establish the conditions of the contract. This refers not only to the possibility of the parties determining their mutual obligations but also to the consequences of non-‐performance (e.g. conditions and effects of breach, etc.). iii) Freedom to depart from the types of contract as presented in the special part of the Code of Obligations.35
B) FORMATION OF CONTRACTS For a contract to be valid, certain requisites must be fulfilled.
1)Valid agreement The well-‐known mechanism of offer (icap) and acceptance (kabul) is recognized everywhere in Europe. A contract requires a mutual agreement of the parties. This agreement may be either explicit (açık) or implicit (örtülü). There is an agreement when the parties lead each other reasonably to believe that they are of the same mind about a given transaction (Offer+Acceptance=Agreement-‐Consensus). The same mind of parties about a given transaction, is reached by an offer on the one side, and the apparent acceptance of the offer on the part of the other. The offer and acceptance formula, developed in the 19th century, identifies a moment of formation when the parties are of one mind. An offer as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree".36 An offer is a statement of the terms on which the offeror is willing to be bound. It is the contractual intent to be bound by a contract with definite and certain terms communicated to the offeree. The communication between the parties may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract.37 For an offer to be capable of becoming binding on acceptance must be definite, clear, and final. If it is a nearly preliminary move into negotiation which may lead to a contract, it is not an offer but an invitation to treat/offer. An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree. The acceptance must be communicated. Exception to this rule is unilaterally obliging contracts where the assent of the non-‐obliging party may be deemed to exist. An offer can only be accepted by the offeree, that
35 İbid. 36 G.H. Treitel, The Law of Contract, 10th edn, 37 http://en.wikipedia.org/wiki/Offer_and_acceptance
is, the person to whom the offer is made. An offer must be accepted exactly, without modifications; any change the offer in any way, is a counter-‐offer. 38 Since the basis of a contract is the exchange of assents, it is essential that the assents of the parties be genuine, that is to say that there be a genuine meeting of the minds. Unintentional differences of assent may be due to several causes such as, mistake(hata), fraud(hile) or duress(tehdit). Two types of Mistake : -‐ Immaterial(about the motives for entering into contract, may not be the basis for voiding a contract)(saik hatası) -‐ Material(error in object or in person, to nature of the transaction, to quantity, to the necessary state of facts of a contract).
2) Capacity to contract
The legal validity of a contract depends on the full capacity of the real person who enters into the transaction. This means “capacity to act” of real persons or legal persons. Contracts concluded by real persons of full incapacity are void with no legal effect. Contracts made by real persons of limited capacity are voidable.
3) Legality of the subject matter If the subject matter of the contract is illegal or against morals; a valid, enforceable contract does not exist. For example, if a person offers to pay another person money for illegal drugs, and an acceptance is made by a promise to deliver the illegal drugs this is nevertheless a void contract.
4) Legal form (if required by law)
As a general rule, the formation of a contract does not presuppose formalities of any kind. With a few specific exceptions, contracts may be concluded orally or even without any verbal expression of assent, for instance, by actions implying viz. showing the intention to enter into a contract. The main exceptions to this rule of absence of formal requirements are: -‐ an assignment of a receivable requires a written document, signed by the assignor and delivered to assignee 38 http://en.wikipedia.org/wiki/Invitation_to_treat
-‐ the contract for the sale of land, contracts to transfer real rights in land requires official form to be concluded before land register authorities. -‐ the contract of suretyship should be made in writing. -‐ sale of motor vehicles requires official form before the notary. The reasons for which the law requires them are various, such as for example, to warn the parties of the seriousness and importance of their action or of the consequences of the contract. If a formal requirement as established by legislation has not been complied, the contract is void. C) REPRESENTATION (TEMSIL) Under Civil law, the basis of the source of representative authority, may be categorized as statutory representation and contractual representation(agency). In statutory representation, representative authority delegated by law: e.g. Guardian, Parent of a minor. In case contractual representation(agency), the principal and the agent enter into a contract and this contract determines the scope of contractual representation. In general modern civil law fully admits the possibility of concluding contracts by an agent or a statutory representative. A contract concluded by a person in the name of another is valid, if the latter has authorized the acting person to do so. An 'agency by appearance' can only be admitted under special circ*mstances, i.e. if the represented person himself has created said appearance or tolerated others creating it. A subsequent ratification of the conclusion of the contract equals a preliminary authorization. In the absence of a preliminary authorization or subsequent ratification the contract is void and the person wrongly alleging to be authorized is liable in damages to the other contracting party. The power of representation given to the contractual agent may be revoked at any moment, and an obligation not to retract authorization would not be valid. D) CLASSIFICATION OF CONTRACTS, IN TERMS OF THE DEGREE OF THEIR ENFORCEABILITY
-‐ Valid Contracts, -‐ Void Contracts, -‐ Voidable Contracts.
1) Void (Null) contracts
Void contracts are those which have no legal effect either; because they are against law and morals, because of incapacity, lack of formality or impossibility.
2) Voidable contracts Voidable contracts may be rejected at the option of one or both of the parties, due to the lack of one or more of the elements of a valid contract. Voidable contracts are valid until declared void. Contracts made by mistake are generally considered voidable according to Code of Obligations. The validity of a voidable contract may only be challenged by an interested party. E) TERMINATION OF CONTRACTS
-‐ By fulfillment of the obligations of the parties to each other. Performance (ifa) can be either specific (aynen ifa) or as a compensation (nakdi ifa).
-‐ By an agreement, (release or novation-‐tecdit).
-‐ By becoming impossible of the subject matter due to the circ*mstances beyond the control of the parties. .
-‐ By statute of limitations.(zaman aşımı)
-‐ Due to the breach of a party for the reason that, the other party fails to fulfill his obligation properly.
II) TORT A tort [haksız fiil] is a civil wrong that causes injury to another person or his/her/its property. It is a negligent or intentional harmful act, which does not arise out of a contract or statute. For example, when someone commits a crime, e.g., assault, he or she is punishable under criminal law, but the victim may also seek financial compensation from the tortfeasor, i.e., the one who committed the tort, for the injury suffered.39 General Part of CoO provides the general framework for tortious liability. However specific legislation exists in different areas, dealing with particular types of damages. :e.g. Motor Vehicle Act. 39 Vivek Pande, BLAW Course Outline
A) ELEMENTS OF AN ACTION IN TORT Under Turkish Code of Obligations, in an action in tort the Plaintiff must establish that;
1) Unlawful act
The act may also be in the from of an an omission, e.g., a driver who causes an accident by not paying attention to the road. A tortfeasor may raise certain defences which cure the illegality of the act:
§ the consent of the injured victim, e.g., a patient’s consent to surgery, boxing game
§ legitimate self-‐defense [meşru müdafaa], e.g., hitting an attacker § necessity (ızrar hali), e.g., to avoid striking a child, a motorist crashes
through a fence § fulfillment of a duty imposed by law, e.g., surgeon operates on an
unconscious accident victim, arrest of a person upon court order.
2) Negligence of the tortfeasor
Negligence may be be proved by showing that the tortfeasor; § acted with intent [kasıt], i.e., deliberately and not by mistake § acted with negligence [ihmal], i.e., failed to exercise reasonable care
contributory fault is a full or partial defense to negligence, e.g., tortfeasor hits a pedestrian who is sleepwalking on a dark road.
3) Damages
The tortfeasor’s unlawful act should result in damages [zarar] Damages may include § actual losses (damnum emergens-‐ fiili zarar) § lost profits and earnings (lucrum cessans-‐ mahrum kalınan kar) § pain, suffering, grief, emotional distress, etc. (manevi zarar) Vicarious Liability [vekalet nitelikli sorumluluk] may be imposed, i.e., damages are also sought from someone other than the tortfeasor, e.g., employers are usually liable for the torts of their employees committed during the scope of their employment.
joint and several liability [müteselsil sorumluluk]: may be imposed, i.e., damages are sought from many tortfeasors who collaborate to commit the act. are at fault § the victim may choose to recover the entire amount of damages from
some or all of the tortfeasors § any tortfeasor who pays damages has the right to seek proportional
reimbursem*nt from non-‐paying tortfeasors
4) Proximate Causation
The damages must be CAUSED, i.e., resulted from, the tortfeasor’s unlawful act. There must be Proximate Causation [uygun illiyet bağı], i.e., a logical relationship between the unlawful act and the damages, taking into consideration the ordinary course of events and life experiences § adequate causation does not exist if there is an Intervening Cause,
i.e., some other act or condition that causes injury to the victim after the tort has been committed
B) STRICT LIABILITY The law of non-‐contractual liability is founded on individual wrongful behaviour. Thus general principle is the Negligence liability.
• Negligence liability (İhmal-‐Kusur Sorumluluğu) – a duty to compensate if the damage was caused through a negligent behaviour Strict liability (Kusursuz Sorumluluk) – compensation duty for all damages caused without need to prove negligence. Strict liability regimes may be stipulated in different specific legislation (for instance environmental damages). Strict liability entails that the defendant must pay for damages resulting for the activity for which he/she is strictly liable, i.e.: nuclear plant or , liability imposed on a business for manufacturing a defective product that causes injury.
WEEK 6 ¢Explain difference between personal and real security ¢Explain types of personal and real security
SECURITY CONTRACTS
The main problem that can arise from an obligation on behalf of the creditor is the debtor’s failure to perform his/her duty. The creditor’s historical need for a security against this probability of non-‐performance is the idea behind the introduction of the legal institution of security. Where someone incurs a contractual obligation towards another, it is only natural that he will often be asked by his new creditor to promise some kind of penalty or guarantee in case of non-‐fullfillment. The creditor will normally try to minimize the risk of losing out in one of two ways: he can either ask to be allocated a specific item belonging to the debtor (or a third party) from which he will, in case of default or non-‐performance, be able to obtain satisfaction; or he may ask another party (or parties) to guarantee fulfillment of the principal obligation. In another words, he will try to secure his position either by way of a real right (ownership, right of pledge, mortgage) or by actions in personam against one or more additional debtors (personal security). Thus; starting from the ancient times of Roman law, we can observe two main types of securities: in personam-‐personal (şahsi) and in rem-‐real (ayni). The in personam securities creates rights which can only be asserted against persons while in rem securities creates rights which can be asserted against any third person.
I) PERSONAL SECURITIES A personal security can be given in the type of suretyship (kefalet), guarantee (garanti)or by assuming the obligation as a co-‐debtor. A) SURETYSHİP (KEFALET)
Traditionally the most important type of personal security is the contract of suretyship where the surety (kefil) binds himself to the creditor of a third party to be responsible for the fullfilment of the obligation of that third party.
n Suretyship is a unilateral contract (tek taraflı sözleşme) in the sense that only the surety promises to perform without receiving any promise of performance of the other party.
n The parties of the suretyship contract are the creditor and the surety (kefil). The principal debtor is not a party; furthermore, his consent is not even necessary for the conclusion of a suretyship contract.
n However, notwithstanding the fact that the suretyship contract is a surety’s own separate contract with the creditor, its validity is still tied to the validity of the principal obligation that the surety is backing up. In another words; the extent of the principal obligation at any time determines the obligation of the surety. This is the indication of the ‘accessory nature’ of the suretyship contract. The fate of a suretyship contract is dependant to the primary obligation’s fate meaning that when the primary obligation is extinguished (for whatever reason), the accessory obligation (suretyship) is also extinguished with it.
n Another effect of the ‘accesory nature’ (feri niteliği) of the surety’s obligation is that its performance cannot be requested unless the principal obligation has become mature or enforceable.
1) Requisites for a Valid Suretyship
a) A Primary Obligation A legally valid suretyship requires the existence of a principal obligation although it is not essential that the principal obligation should exist when the contract is formed. The payment of a future or conditional debt may also be undertaken by the surety. As mentioned earlier, the fate of the surety contract hinges upon the fate of the primary obligation, therefore, if the principal obligation is a)void because of the fact that the contract it derives from contain provisions that are impossible, illegal or contrary to public morals or b)void by reason of the incapacity of the principal debtor or c)voidable by reason of mistake-‐duress-‐fraud in the formation of the contract it derives from and the debtor rescinds the contract, then the suretyship is unenforceable as well. The only exception to this rule is the case where the surety undertakes an obligation knowing that it arises from a contract which is void against the principal debtor due to mistake or incapacity. In such a case, the surety will be held liable regardless.
b) Capacity of the Surety Persons who have a full contractual capacity are able to give securities by entering into contracts of surety. An appointed representative of a person without a legal capacity cannot enter into a surety contract for the name of the person under representation.
c) Form Requirement A surety contract must be in writing in order to be deemed as valid. A valid suretyship contract must also include a declaration of intent to create a suretyship and the maximum amount of suretyship liability. The surety, the creditor and the principal obligation must also be indentified within the suretyship contract.
2) Types of Suretyship
a) Ordinary Suretyship (Adi Kefalet)
When the promise of the surety is entirely collateral to the principal obligation, there is an ordinary suretyship. Being entirely collateral to the principal obligation means that: the creditor must first resort to the principal debtor before turning to the surety. The creditor can only demand satisfaction from the surety unless he has made a reasonable effort to exhaust proper remedies against the principal debtor.
If there is also a real security involved in securing the principal obligation then the sequence of the securities given (real and personal) becomes of importance. When a real security is created before the date of the suretyship or concurrently with it then the creditor shall have recourse first to the real security. Even when the real security is provided after the creation of the suretyship, the surety can still demand that the creditor first have recourse to real security.
b) Joint Suretyship (Müteselsil Kefalet) If a surety promises a joint surety or as a co-‐debtor or by similar expressions, the creditor may have recourse against the surety before the principal debtor and before foreclosure of securities. (Being under a joint obligation (müteselsil borç) means that all the debtors-‐in this case the primary debtor and the surety-‐ are each liable up to the full amount of the relevant obligation. The creditor can resort to any debtor for the total debt. When one debtor satisfies the creditor then the obligation chain between the debtors and the creditor is solved and the debtor that performed the debt can recourse to the other debtor-‐or debtors-‐ for his satisfaction within the frame of the debtors’ internal relationship. To be more precise: in a joint suretyship, the creditor has the option to initially resort to either the surety or the principal debtor.) In contracts that fall within the scope of the law of obligations, the agreement on a joint suretyship must be expressed explicitly. However in commercial obligations governed by the commercial code unless contrary stated in the contract, the suretyship created is of a joint nature. (-‐presumption of solidarity)
c) Co-‐suretyships (Toplu Kefalet) Several sureties who jointly undertook the performance of the same divisible claim are liable for their part as ordinary sureties and for the parts of the others as secondary sureties.
3) Effects of Suretyship
n The surety is only liable to the extent of the maximum amount stated in the surety contract including the amount brought about by the legal consequences of the debtor’s non-‐performance or improper performance or default.
n The surety is entitled and obliged to bring forward against the creditor the defenses and exceptions to which the principal debtor is entitled even if the principal debtor opts to waive them. The surety can assert the principal obligation is not binding on the grounds that: a) the principal debtor lacks the capacity b)the collection of the principal debt is barred by lapse of time (zamanaşımı) c)the principal obligation has already been discharged. The surety has also the right to assert defenses arising from the contract of suretyship such as that the surety contract is not valid or is already terminated. In ordinary suretyship, as mentioned above, the surety has also the right to demand that the creditor first resort to the principal debtor for performance or first have recourse to the pledge (if there is one). A Surety cannot argue the insolvency of the principal debtor as a defense against the creditor.
n Proceedings to collect the principal debt cannot be instituted against the surety before the fixed date of payment even if the principal debtor has become bankrupt.
n A creditor who has been satisfied by a surety is under the obligation to hand in to the surety the documents needed for the enforcement of his rights and deliver the securities created for the principal debt.
n If the surety pays in part or all of the principal debt, he must notify the principal debtor thereof. Provided he fails to do so and the principal debtor also pays the creditor bona fide (in good faith), the surety is deemed to forfeit his right of recourse against him. In such a case, the surety may bring an action of unjustified enrichment (condictio indebiti) against the creditor since the creditor has been enriched in expense of the surety unjustified. (The initial execution of the principal obligation by the principal debtor abrogates the causa of this successive performance by the surety.)
n A surety is released by the extinction of the principal debt in whatever way it occurs. There are also other grounds for termination of a contract of suretyship which originate from the contract of suretyship itself.
B) GUARANTEES (GARANTI) A guarantee is a contract that some particular performance will be undertaken as agreed regardless of the existence of a prior or principal obligation.
1) Pure Guarantees A pure guarantee is utilized primarily for guaranteeing the losses of an investor or assuring him a fixed ratio of profit in the course of his business regarding his enterprise. Pure guarantees do not benefit from special legal provisions and are governed by the general conditions applicable to all contracts.
2) Collateral Guarantees Collateral guarantee is a contract that requires the existence of a primary obligation and by which the guarantor undertakes to compensate the creditor in case the primary debtor fails to perform his obligation. The main difference between a surety and a collateral guarantee is that the surety creates an accessory obligation and therefore is not binding where the principal obligation is not valid whereas the collateral guarantee is an independent contract which creates a primary obligation free from the faith of the obligation it is created to back up. Another important distinction is that the surety contract must be in writing to be deemed as valid while there is no requirement of such for the validity of the collateral guarantee. Collateral guarantees are usually utilized by banks in the form of letters of guarantees. A contract of guarantee by a bank must meet the following criteria:
n The bank shall assume totally or partially the risk that the beneficiary may face
n The contract shall contain clauses that stipulate an independent undertaking whereby the bank is the principal debtor
n The contract shall include clauses regarding the acceptance of the punctual payment of a due debt without any prior notice or action against the primary debtor whose performance is guaranteed
Unless there is a contract of counter-‐guarantee, a guarantor is not entitled to a right of recourse against the debtor whose performance was guaranteed. C-‐ BILLS OF EXCHANGE GUARANTEES (AVALS)
An Aval guarantees, wholly or partially, the payment of the amount of a Bill of Exchange (Poliçe). This guarantee can be given by a third person as well as a person whose signature already appears on the bill. An aval must be in writing-‐attached to the Bill of Exchange-‐expressed by the words ‘it is for aval’ or equivalent-‐signed by the guarantor. When the guarantor pays the bill, he consequently acquires all rights attaching to the bill against the person guaranteed and against the others who are liable on the bill to that person.
II) REAL SECURITIES
In today’s world, creditors usually prefer real security over personal security. It provides them with assets of a rather stable value which can be converted to cash (by realization of the property) even in the event of insolvency and it excludes the risk of a (second) lawsuit against the surety (who may be unwilling to pay), or being faced with his financial collapse too, hence the Roman legal expression: –Plus cautionis in re est quam in persona (goods are better sureties than the debtor’s person)-‐. It is not wrong to say that this statement is a fair reflection of the modern trend in commercial life.
The classification of real property takes into consideration the nature of the property in question. Therefore we can talk about two categories of real security: Real security over immovable property (taşınmaz eşya) and Real security over movable property (taşınır eşya). A) REAL SECURITY OVER IMMOVABLE PROPERTY
The most common type of real security over immovable property is mortgage (ipotek). Apart from mortgage as a real security there is also the mortgage certification (ipotekli borç senedi) and the land charge notes (irat senedi), both of which are scarce in practice. Unlike mortgage, mortgage certificates and land charge notes are freely transferable negotiable instruments (kıymetli evrak) issued to the order (namına) of the creditor or to the bearer (hamiline) without specifying the basis of liability although the mortgagor retains the liability for the secured debt of both the mortgage certificates and land charge notes.
1) Mortgage (İpotek) The most important aspect of mortgage is that it creates a real right over
the mortgaged property on behalf of the creditor. This real right is accessory to the debt secured thereby and consequently the validity of a mortgage requires
the existence of a valid debt although it is not essential that such a debt shall exist at the time of the formation of contract since legally a mortgage can be created for the purpose of securing a future or conditional debt provided it becomes effective at the time of the enforcement of the right of the creditor against the mortgagor. Effects of Mortgage
n A mortgage can be created for a single debt as well as for several debts on the same property to the extent that this does not impose any unlawful restriction on the prospective economic activity of the mortgagor.
n A mortgage can be created on immovable property. Here, the term immovable property includes land, alienable personal servitudes that can be entered in to the Land registry (tapu sicili) as immovable properties, independent parts of a building subject to flat ownership and shares of co-‐owners of land.
n A mortgage property can belong to the debtor or a third person who secures the debt in favor of the debtor. As stated above, a mortgage (being a real security) does not create a personal liability on the owner of the real property, the liability does not extend outside the mortgaged property.
n A mortgage on a property includes all its integral parts (mütemmim cüz) and accessories (teferruat) (f.e. a mortgage created on a piece of land will cover all the buildings and trees on that land)
n A mortgage will only be effective once it is recorded in the Land register. The prerequisite for the registration of a mortgage is a contract between the creditor and the mortgagor. This contract does not create the mortgage but conveys the right and obligation to record the mortgage in the Land register.
n The owner of the mortgaged property can create further mortgages on the same property. However, the amount realized on the sale of the property will be disbursed to the creditors in their order of priority which will be determined in accordance with the principles of ‘fixed ranks’ system. The ‘fixed ranks’ system ensures the mortgages on the same property to acquire an order of priority according to the rank of the place in which they are registered in the Land register.
n If the debtor fails to pay his debt the creditor can demand the sale of the property under mortgage. There is no statute of limitations for an action on a debt secured by a mortgage. Any agreement made before the maturity of the mortgage debt and providing that the creditor will become the ipso iure owner of the mortgaged property is null and void. (This universal principle is called the lex commisoria prohibiton)
n Foreclosure proceedings begin with the request of the creditor. The execution office will sell the property and distribute the proceeds of the
sale among the secured creditors in accordance with their order of priority.
B) REAL SECURITY OVER MOVABLES The creation of pledge (pignus-‐rehin) provides a contractual security in
rem over movable property, claims and other assignable rights.
1) Pledges
a) Pledges on Movables (Taşınır Rehni)
Movable properties can be given in pledge only by the delivery of possession of the movable property to the pledgee (which does not necessarily mean that the delivery of the movable should be by hand; the delivery of the possession can be in direct or indirect ways as well, such as handing in the keys of the -‐pledged to be-‐ car or the key of a warehouse where the immovable to be pledged is placed).
n The main distinction between a pledge and a mortgage is that there can be no case of lapse of time for the former. A creditor can enforce his rights under a pledge regardless of the fact that he can enforce his original claim or not.
n A pledge on assignable claims and other rights are possible as long as the pledge is created by an agreement in writing.
n Negotiable instruments to bearer can also be pledged since they are regarded as immovable property.
b) Ships and Aircrafts
Notwithstanding the fact that ships and aircrafts are immovable properties, they are subject to mortgage not pledge. Mortgages on ships shall be registered with the Ship Registry (gemi sicili) whereas mortgages on aircrafts shall be recorded with the Civil Aviation Registry (Sivil Havacılık Sicili).
WEEK 7-‐8 ¢Explain general principles governing international sales ¢Explain the general structure of CISG ¢Familiarize with common clauses in sales contracts
LAW OF SALES CONTRACTS
I) SALES CONTRACTS ıN GENERAL Undoubtedly, one of the most common commercial transactions is the contract for the sale of personal property. A contract of sale is an agreement on an exchange of goods, services or property to be exchanged from seller (or vendor) to buyer (or purchaser) for an agreed upon value in money (or money equivalent) paid or the promise to pay same. In most civil law jurisdictions40 the conclusion of the sales contract does not mean that the ownership right over goods in exchange has been transferred. The conclusion of the sales contract only ascribe certain duties and obligations on both parties: -‐the obligation to the transfer of ownership on the vendor and the obligation to pay a certain sum of money (or money equivalent) on the buyer-‐. Therefore, the conclusion of a sales contract is not enough for the transfer of the subject-‐matter of the contract but an act of delivery on vendor’s side is also required. If a movable property (res) is to be sold, than after the signing of the contract the vendor is obliged to deliver the possesion of the property to the buyer. This can be done by either an actual delivery of the property (f.e. by handing it in) or by the indirect transfer of the possesion (such as handing in the documents and keys of a car41 to be sold or giving the keys of a warehouse where the goods are deposited etc.) Consequently, the transfer of the document to ownership does tranfer the ownership of the property (such as If an immovable is to be sold than with the conclusion of the sales contract, the transfer of the ownership of the immovable property should be registered in the Land Registry. 42
40 Excluding France 41 It must be stated here that apart from delivering the documents and the keys of a car in sale, in order to establish the ownership of the car its registration by the purchaser is also required. 42 In some few exceptional cases, the ownership may be transfered without the delivery of the goods or of title instruments: F.e. the ownership of a registered
Anything that has a certain economic value can be sold, materialization of the property has no relevance. Minerals, crops, quarry materials, negotiable instruments, legal claims, know-‐how, electricity43, gas, information, and even foreign currency, all can be the subject of a sales contract. Goods which do not exist at the time of the formation of the contract can also be sold. (f.e. crops that have yet not been grown can be sold) Human beings can not be the subject-‐matter of a sales contract although promise to render their services can. However in such a case, the contract in question will most probably not be considered as a sales contract but rather as an employement or service agreeement (locatio conductio). The difference between sales agreement and other types of contracts can sometimes become rather blur. F.e., a service agreement can be construed as the sale of services or a rent contract can be construed as the sale of the use of the rental property for a certain amount of time. However, in order to consider a contract as a sales contract there must be the promise from the buyer to pay a certain sum of money. This exchange is the basic feature that distinguishes a sales agreement from a barter (trampa) or a gift (hibe). The sales contract is a synallagmatic contract meaning that it burdens both parties with certain reciprocal obligations. (The primary obligations being: for the seller to transfer the ownership of the property and the buyer to pay the price). The sum (price) must be stated in a reasonable certainty in terms of money. No restrictions on the sum to be in foreign currency or Turkish Liras under Turkish Law. The parties to a sales contract are free to agree any price unless the goods are in a limited category of which the prices are fixed by authorities such as bread, gas or oil. Whereas the sale of immovables are subject to a formal contract to be concluded in the presence of a recording officer (tapu memuru), the sale of movables are not subject to any formal requirements although there a few exceptions: certain types of sales contract are subject to special formal requirements (such as sale of stocks, claims, cars and trademarks) as well as some special consumer contracts such as sales with installements (taksitle satış).
II) UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS (CISG)
A) IN GENERAL ship is considered to be transfered at the time of the enactment of the sales contract. 43 Goods or services such as electricity which can be sold, can also be utilized without compensation hence the crime of stealing electricity.
The United Nations Convention on Contracts for the International Sale of Goods is a treaty offering a uniform international sales law that, as of August 2010, has been ratified by 76 countries44 that account for a significant proportion of world trade, making it one of the most successful international uniform laws. Turkey is one of the recent states to have ratified the Convention.45 CISG basically governs three areas: the conclusion of the contract, the obligations of the seller including the respective remedies of the buyer and the obligations of the buyer including the respective remedies of the seller.
The Convention is divided into four parts:46
(1) The first part (Art. 1-‐13 CISG) contains rules on its sphere of application
(2) The second part (Art. 14-‐24 CISG) deals with the formation of the contract.
(3) The third part (Art. 25-‐88 CISG) is by far the most comprehensive part of the Convention. It is entitled "Sale of Goods" and provides the actual "sales law" of the Convention. It is subdivided into five chapters:
Chapter I (Art. 25-‐29 CISG) contains some general provisions which may be relevant throughout the entire sales law, in particular the definition of the notion of "fundamental breach" which will be relevant in particular as a precondition for the right to avoid the contract.
Chapter II (Art. 30-‐52 CISG) deals with the obligations of the seller, delivery of the goods and the handing over of documents. The conformity of the goods and third party claims are also included.
Finally, Section III (Art. 45-‐52 CISG) contains the core element of every sales law, 44http://en.wikipedia.org/wiki/United_Nations_Convention_on_Contracts_for_the_International_Sale_of_Goods 45 Kanun No. 5870 Kabul Tarihi: 2/4/2009 MADDE 1 –(1) 11 Nisan 1980 tarihinde Viyana’da imzaya açılan “Milletlerarası Mal Satımına İlişkin Sözleşmeler Hakkında Birleşmiş Milletler Antlaşması”na katılmamız uygun bulunmuştur. MADDE 2 –(1) Bu Kanun yayımı tarihinde yürürlüğe girer. MADDE 3 –(1) Bu Kanun hükümlerini Bakanlar Kurulu yürütür. 46 This part is taken from Peter Huber, Some introductory remarks on the CISG, Internationales Handelsrecht (6/2006) 228-‐238, Sellier, Eruopean Law Publishers
the buyer's remedies for breach of contract by the seller. Art. 45(1) CISG provides: "If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may: (a) exercise the tights provided in Art. 46 to 52 CISG; (b) claim damages as provided in Art. 74 to 77 CISG." This means that the buyer can resort to the following remedies: performance (Art. 46 CISG), including substitute delivery (Art. 46(2) CISG) and repair (Art. 46(3) CISG); avoidance of the contract (Art. 49 CISG); reduction of the purchase price (Art. 50 CISG); damages (Art. 45 lit. (b), 74 ff. CISG). There are several specific provisions for installment contracts (Art. 73 CISG) and for cases of anticipatory breach of contract (Art. 72 CISG) which do, however, not create new remedies, but rather modify the existing remedies. The most defining feature of the system of remedies in the CISG is that its aims at keeping the contract alive as long as possible in order to avoid the necessity to unwind the contract. The prime consequence of this is that termination of the contract will only be available as a remedy of last resort: It will usually require that the breach committed by the seller was a fundamental one (Art. 49(1) lit. (a), 25 CISG); in cases of non-‐delivery, the buyer may also terminate the contract after having fixed an additional period of time without success.
Chapter III (Art. 53-‐65 CISG) has a similar structure: Art. 53 CISG states the buyer's obligations in a general way, Section I (Art. 54-‐59 CISG) deals with the obligation to pay the price, Section II (Art. 60 CISG) deals shortly with the obligation to take delivery and Section III (Art. 61-‐64 CISG) governs the seller's remedies for breach of contract by the buyer. The structure of the seller's remedies is similar to the structure of the buyer's remedies.
Chapter IV (Art. 66-‐70 CISG) deals with the passing of risk and is closely linked to the buyer's obligation to pay the price.
Chapter V (Art. 71-‐88 CISG) contains provisions common to the obligations of the seller and of the buyer. Section I (Art. 71-‐73 CISG) deals with anticipatory breach and installment contracts. Section II (Art. 74-‐77 CISG) contains the extremely important rules on damages; this section is closely linked to Section IV (Art. 79-‐80 CISG) which governs the exemptions from the strict liability for damages that the Convention imposes on the parties. Section III (Art. 78 CISG) contains a short (and fragmentary) rule on interest. Section V (Art. 81-‐84 CISG) governs the effects of an avoidance of the contract and Section VI (Art. 85-‐88 CISG) deals with the preservation of the goods.
(4) The fourth part of the Convention (Art. 89-‐101 CISG) contains final provisions which deal in particular with the details of ratification etc., with possible reservations against certain parts or provisions of the Convention and with the entry into force of the Convention.
B) SPHERE OF APPLICATION AND GENERAL PROVISIONS (ARTICLES 1-‐13)47
47 From Wikipedia, the free encyclopedia
1) Goods that CISG is applicable The CISG is intended to apply to commercial goods and products (not services) only. With some limited exceptions, the CISG does not apply to goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use. This exclusion intends to ensure that domestic consumer-‐protection laws are not affected by CISG. Since there might be a conflict between the Convention and mandatory rules of domestic law for the protection of consumers. On the other hand there still seems to be a tendency to recommend the exclusion of the Convention, especially in the commodities trade. Auctions, ships, aircraft or intangibles (e.g. stocks, shares, investment securities, negotiable instruments or money, and electricity.) and services are also out of the scope of the Convention (Art. 2). Barter contracts are not governed by the Convention either. Convention also provides that the application of the Convention does not depend on whether the parties are considered "civil" or "commercial". The Convention thereby avoids the intricate problem of defining a "commercial party". It is also irrelevant whether the sales contract is commercial or private in character.
2) Whom to apply
Article 1 defines the Convention's scope of application. The Convention applies when the parties have their places of business in different Contracting States or when conflict rules designate the law of a Contracting State. The CISG applies to contracts of sale of goods between parties whose places of business are in different States when these States are Contracting States. Liaison or representative offices are places of business for CISG purposes. However, if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circ*mstances known to or contemplated by the parties at any time before or at the conclusion of the contract (Art. 10/a). A sale between two Italian companies where the goods sold are to be manufactured and then imported into Italy would not fall under the CISG. On the
contrary, a sale between a United States and an Italian company regarding shoes manufactured in Sicily and delivered in Florence would fall within the ambit of the CISG, although the shoes never would leave Italy prior to delivery.48 The CISG also applies if the parties are situated in different countries (which need not be Contracting States) and the conflict of law rules lead to the application of the law of a Contracting State. Uniform application of the CISG is problematic because of the reluctance of courts to use ‘solutions adopted on the same point by courts in other countries’ resulting in inconsistent decisions. For example, in a case involving the export to Germany by a Swiss company of New Zealand mussels with a level of cadmium in excess of German standards, the German Supreme Court found that it is not the duty of the seller to ensure that goods meet German public health regulations. This contrasted with a later decision in which an Italian cheese exporter failed to meet French packaging regulations and the French court decided it is the duty of the seller to ensure compliance with French regulations.
3) Exclusion of CISG
Parties to a contract may exclude or vary the application of the CISG.49 As international commercial sales are largely governed by party autonomy, the CISG provides basic default rules. International sales law does not only live within the CISG (supplemented to a certain extent by domestic law), but also in the sales contracts themselves which have either excluded the CISG, in whole or in part, or supplemented its rules with provisions that correspond to certain problems and needs encountered in practice. Although it is now generally accepted in western, industrialized countries that at least business parties are free to choose the law applicable to their contract, this is not true in all parts of the world. The fear of giving western businesses too many advantages still leads many developing and transition countries to refuse the recognition of choice of law clauses. The most prominent example is Brazil where the validity of choice of law clauses is highly controversial.50
48 Filip De Ly, Sources Of International Sales Law: An Eclectic Model, JOURNAL OF LAW AND COMMERCE, Vol. 25:1 49 Parties may include an express statement e.g. "The application the United Nations Convention on Contracts for the International Sale of Goods is strictly excluded from this Agreement." 50 Ingeborg Schwenzer & Pascal Hachem, The CISG -‐ Successes and Pitfalls, 57 American Journal of Comparative Law (Spring 2009) 457-‐478
4) Tort Claims and CISG The international contractual regime of the CISG would in most cases face a domestic tort system (i.e. the tort law that the private international law rules of the forum as applicable). Any concurrence between the sales law of the CISG and a (usually domestic) tort system will therefore run a high risk of friction and discrepancies. In so far as claims for personal injury or death in the sense of Art. 5 CISG are concerned, CISG does not govern those claims. Claims for damage to the buyer's property are more difficult to assess. The predominant opinion seems to be that tort claims under domestic law are fully admissible and not subject to any (analogous application of the) restrictions of the CISG because tort claims are based on policy considerations, which are different from the ones which underlie contract law.
5) Freedom of form
Under Article 11, a contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. States with a strict written requirement exercised their ability to exclude those articles relating to oral contracts. Specifically, Argentina, Belarus, Chile, China, Hungary, Latvia, Lithuania, Paraguay, Russian Federation and Ukraine are not bound by Article 11. Proving Contract Terms Unlike some domestic laws, under which certain agreements must be in writing to be enforceable, CISG allows verbal contracts or modifications. Additionally, any evidence can be used to prove the parties' intent, even if it changes the terms of a written contract. Thus, pre-‐contract negotiation materials, such as proposals, MOUs, term sheets or letters of intent, can be used as evidence to show what you intended, even if the final contract contains different terms. To prevent such chaos parties usually include a statement in all pre-‐contract documents that no representations were made that were not incorporated into the pre-‐contract document and that the pre-‐contract document will be superseded and extinguished by the final written contract executed by both
parties. It is also practical to insert a provision in the final contract stating that all pre-‐contract discussions and documents are superseded and extinguished by the written contract executed by the parties which cannot be modified except by a writing signed by the parties.51 An example of such a clause is as follows:
"None of the terms, conditions or provisions of this Agreement shall be held to have been changed, waived, varied, modified or altered by any act or knowledge of either party, their respective agents, servants or employees unless done so in writing signed by both parties."
B) FORMATION OF THE CONTRACT (ARTICLES 14–24) Under CISG "formation" refers to the mechanics of how the contract is concluded (e.g. by offer and acceptance). This is what Art. 14-‐24 CISG actually deal with. Other matters that may affect the validity of the contract such as incapacity, fraud, public order or export bans are, regarded as matters of "validity" which fall under the exception of Art. 4 and are therefore not governed by the CISG. 52 Domestic law shall regulate the excluded matters.
1) Offer and Withdrawal of Offer Art. 14 states that a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound with the acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. Where there is no explicit price or procedure to implicitly determine price, Art. 55 provides that the parties are assumed to have agreed upon a price based upon that ‘generally charged at the time of the conclusion of the contract for such goods sold under comparable circ*mstances’. However the interpretation of this Article has raised many discussions.53
51 CISG Article 29(2): A contract in writing which contains a provision requiring any modifications or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that contract. 52 Peter Huber, 53 See, Barry Nicholas, The Vienna Convention on International Sales Law, 105 Law Quarterly Review (1989) 201-‐243
Proposals other than those addressed to one or more specific persons are to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.
An offer becomes effective when it reaches the offeree. An offer may be revoked, if the revocation reaches the offeree before he has dispatched an acceptance. However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.
2) Acceptance A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. The general rule, is that acceptance is effective when it reaches the offeror, provided that it does so within the time he has fixed or, if no time is fixed, within a reasonable time (Art. 18/2). CISG says that any change to the original conditions is a rejection of the offer – it is a counter-‐offer – unless the modified terms do not materially alter the terms of the offer. Changes to price, payment, quality, quantity, delivery, liability of the parties and arbitration conditions may all materially alter the terms of the offer. An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. C) SALE OF GOODS (ARTICLES 25–88)
1) Fundamental Breach54
"Fundamental breach" is a central concept in the Convention's system of remedies. It is a pre-‐requisite of avoidance of the contract by either party and
54 This part is taken from, Barry Nicholas
also of the buyer's right to require delivery of substitute goods in case of non-‐conformity. And it is also important in the rules governing risk. Article 25 provides:
"A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and reasonable person of the same kind in the same circ*mstances would not have foreseen such a result."
2) Obligations Of The Seller and Buyer55 CISG defines the duty of the seller: to deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract. Similarly, the duty of the buyer is to take all steps ‘which could reasonably be expected’ to take delivery of the goods, and to pay for them. Generally, the goods must be of the quality, quantity and description required by the contract, be suitably packaged and fit for purpose.56 The buyer must examine the goods as soon as is practicable and he loses his right to rely on the lack of conformity if he does not give notice of it to the seller (1) within a reasonable time after he has discovered it or ought to have done so, (2) in any case, within two years of the actual handing over of the goods (Article 39).57 No lapse of time will disentitle the buyer "if the lack of conformity relates to facts of which [the seller] knew or could not have been unaware and which he did not disclose to
55 This part is taken from Barry Nicholas 56 Ayıptan sorumluluk MADDE 219-‐ Satıcı, alıcıya karşı herhangi bir surette bildirdiği niteliklerin satılanda bulunmaması sebebiyle sorumlu olduğu gibi, nitelik veya niteliği etkileyen niceliğine aykırı olan, kullanım amacı bakımından değerini ve alıcının ondan beklediği faydaları ortadan kaldıran veya önemli ölçüde azaltan maddi, hukuki ya da ekonomik ayıpların bulunmasından da sorumlu olur. Satıcı, bu ayıpların varlığını bilmese bile onlardan sorumludur. 57 MADDE 223-‐ Alıcı, devraldığı satılanın durumunu işlerin olağan akışına göre imkân bulunur bulunmaz gözden geçirmek ve satılanda satıcının sorumluluğunu gerektiren bir ayıp görürse, bunu uygun bir süre içinde ona bildirmek zorundadır.
the buyer" (Article 40).58 Claims made long after the goods have been delivered are often of doubtful validity and when the seller receives his first notice of such a contention at a late date, it would be difficult for him to obtain evidence as to the condition of the goods at the time of delivery, or to invoke the liability of a supplier from whom the seller may have obtained the goods or the materials for their manufacture.59 The seller is obliged to deliver goods that are not subject to claims from a third party for infringement of industrial or intellectual property rights in the State where the goods are to be sold. The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. The buyer’s obligation to take delivery consists:
(a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and
(b) in taking over the goods.
3) Passing of risk National laws provide for the passing of risk in domestic sales transactions. Risk may pass at the conclusion of the contract (as it does under Swiss law), or with the transfer of property (as in English and French law), or upon delivery (as in German law). The Convention could not have adopted the second rule because the Convention is not concerned with the effect of the contract on the property of the goods. The first rule was not appropriate because international sales usually are concluded at a distance and deal with goods that have yet to be manufactured. Passing of risk with delivery, is workable primarily when goods are actually handed over by the seller to the buyer. International sales, however, normally involve carriage by one or more third parties, leaving -‐-‐ for a period of time -‐-‐ neither the seller nor the buyer in physical possession of the goods. Sellers are 58 MADDE 225-‐ Ağır kusurlu olan satıcı, satılandaki ayıbın kendisine süresinde bildirilmemiş olduğunu ileri sürerek sorumluluktan kısmen de olsa kurtulamaz. Satıcılığı meslek edinmiş kişilerin bilmesi gereken ayıplar bakımından da aynı hüküm geçerlidir. 59Secretariat Commentary, http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-‐39.html
anxious to transfer the risk at the earliest stage of the transaction; buyers want to assume the risk much later. The Convention needed to provide balanced rules that took into account various transactional situations. The Convention does not establish a general rule; rather, it distinguishes between different transport situations. Where the goods must be handed over to a carrier at a particular place, the risk does not pass to the buyer until the goods are actually handed over to the carrier at the designated place. If no particular place was contemplated, the risk passes to the buyer when the goods are handed over to the first carrier. Where the goods are sold while they are in transit, the risk normally passes, with some exceptions, to the buyer at the time the contract is concluded. In circ*mstances in which the buyer is to take the goods from the third party -‐-‐ for example, at a warehouse -‐-‐ the risk passes when delivery is due and the buyer is aware that the goods are at his disposal. In all other circ*mstances, i.e., when the contract does not involve carriage of goods, the risk passes when the goods are placed at the buyer's disposal. On the whole, the Convention imposes the risk of loss on the party in the better position to take care of or insure the goods. In practice most contracts define the ‘seller's delivery obligations quite precisely by adopting an established shipment term such as FOB and CIF. New Turkish Code of Obligations has adopted a similar position with regard to passing of risk in art. 208.60
4) Remedies of Buyer and seller61
a) Repair or delivery of substitute goods 60 Yarar ve hasar MADDE 208-‐ Kanundan, durumun gereğinden veya sözleşmede öngörülen özel koşullardan doğan ayrık hâller dışında, satılanın yarar ve hasarı; taşınır satışlarında zilyetliğin devri, taşınmaz satışlarında ise tescil anına kadar satıcıya aittir.Taşınır satışlarında, alıcının satılanın zilyetliğini devralmada temerrüde düşmesi durumunda zilyetliğin devri gerçekleşmişçesine satılanın yarar ve hasarı alıcıya geçer.Satıcı alıcının isteği üzerine satılanı ifa yerinden başka bir yere gönderirse, yarar ve hasar, satılanın taşıyıcıya teslim edildiği anda alıcıya geçer. 61 Barry Nicholas, The Vienna Convention on International Sales Law, 105 Law Quarterly Review (1989) 201-‐243
In case of lack of conformity the buyer may request the seller to repair the goods, unless this is in all the circ*mstances unreasonable. Or, if the lack of conformity constitutes a fundamental breach, he may request the seller to deliver substitute goods. Claims made long after the goods have been delivered are often of doubtful validity and when the seller receives his first notice of such a contention at a late date, it would be difficult for him to obtain evidence as to the condition of the goods at the time of delivery, or to invoke the liability of a supplier from whom the seller may have obtained the goods or the materials for their manufacture.
b) Seller's right to cure The seller has a right to cure "any failure to perform his obligations" (including of course a failure to deliver conforming goods). The exercise of this right is subject to its not causing the buyer unreasonable inconvenience or unreasonable expense and to the buyer's right to damages.
c) Reduction of price In case of non-‐conformity of the goods, buyer is entitled to demand the reduction of the price "in the same proportion as the value that the goods actually delivered had at the time of delivery bears to the value that conforming goods would have had at that time
Resort to the remedy of reduction of price or to any other remedy is not an obstacle to a claim for damages. (Article 45/2). The buyer may therefore both reduce the price and claim damages for any consequential loss.
When the buyer cannot resort to the remedy of damages because the lack of conformity is "due to an impediment beyond his control" (Article 79). In this situation the restitutionary remedy of reduction of price protects the buyer.
d) Avoidance of the contract A party may declare the contract avoided; (a) if a failure by the other party to perform any of his obligations amounts to a fundamental breach, OR (b) if the seller fails to deliver or the buyer to pay the price or take delivery of the goods within a time period fixed by the other party. The party avoiding the contract must do so within a reasonable time. Avoidance of the contract releases both parties from their obligations, subject to any damages which may be due. A party who has performed in whole or in part may claim restitution of anything supplied or paid.
e) Partial performance Art. 51 and 52 deal with three situations: (a) partial delivery of the goods, (b) delivery of all the goods, but some is non-‐conforming. In case of (a) or (b), Article 51 provides that the remedies discussed above apply in respect of the undelivered or non-‐conforming part. Assume, for example, that the contract is for 100 tons of wheat and seller delivers 100, but 10 are seriously defective. If the defectiveness of the 10 tons constitutes a fundamental breach of the entire contract (i.e. if the delivery of only 90 tons of conforming wheat substantially deprives buyer of what he is entitled to expect under the contract), buyer can avoid the contract (and claim damages). On the more probable assumption, however, that the defectiveness of the 10 tons does not constitute a fundamental breach of the entire contract, buyer may either (i) require seller to deliver substitute goods for the 10 tons, or (ii) accept the full 100 tons and reduce the price in respect of the 10 tons, or (iii) "avoid the contract" in respect of the 10 tons.
f) Seller's right to make specification Article 65 makes special provision for the case in which the buyer places an order for goods but leaves until later the detailed specification of what is to be supplied and then fails to make the specification, thus making performance of the contract impossible. In these circ*mstances the seller's normal recourse, if Article 65 did not exist, would be to avoid the contract (assuming the breach to be fundamental) and/or to claim damages. Article 65, however, allows him to "make the specification himself in accordance with the requirements of the buyer that may be known to him." If he wishes to do this he must inform the buyer of the details of the specification and allow him a reasonable time within which to make a different specification. If the buyer fails to respond, he is bound by the seller's specification.
g) Damages Article 74 states the general rule in terms of foreseeability:
"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the
time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."
Article 75 applies where the contract has been avoided by either party and the aggrieved party has made a substitute transaction (either a "cover" purchase of replacement goods by the buyer or a resale by the seller). In such cases party can recover the difference between the contract price and the price in the substitute transaction, provided that the transaction was made "in a reasonable manner and within a reasonable time after avoidance." For if the seller re-‐sells at less than the market price (or the buyer makes a cover purchase at more than the market price), he might have difficulty in showing that he acted reasonably. Art. 76 provides that if the contract is avoided without a substitute transaction but there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. In all the cases governed by Articles 75 and 76 further damages may of course be recovered under Article 74. Under the new Turkish Code of Obligations, the default of the seller is regulated with reference to general principles with regard to the nonperformance of contracts. Art. 212 further states that, in a commercial sale under which certain date is fixed for delivery; the buyer, if the seller defaults, is deemed to have chosen the option to avoid the contract and to demand damages for non-‐performance. The buyer should notify the buyer if he is willing to accept late performance. Seller should compensate the loss sustained by the buyer either due to late performance or due to no performance at all. Substitute transactions either as a actual purchase or a hypothetical one with reference to current market price, are regulated in accordance with art. 75 and 76 of CISG, respectively.
h) Mitigation Article 77 provides for the aggrieved party's duty to mitigate his loss and reads as :
A party who relies on a breach of contract must take such measures as are reasonable in the circ*mstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim
a reduction in the damages in the amount by which the loss should have been mitigated.
i) Anticipatory breach An express repudiation by the defaulting party is not necessary. It is sufficient that it is "clear" that he will default. The prospective default must, however, be such as to amount to a fundamental breach in order to entitle the aggrieved party to avoid the contract. Art. 72 provides that :
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided. (2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.
j) Impossibility A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and he could not reasonable be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.
III) BASIC ELEMENTS OF AN INTERNATIONAL SALES CONTRACT
A) PREAMBLE & RECITAL
The preamble of a contract is a kind of explanation for the contract. It is drawn up once by the contracting parties. Each phrase is introduced by "Considering that" or "Whereas". The preamble is concluded by the phrase "Now therefore" which introduces the contract itself. The parties which have drawn up a preamble may wish to be reminded of the background of the contract, which conditions their obligation : the existence of closely related contracts, the particular competence of a party, the objectives
which they persue, or also the circ*mstances which prevail at the moment of conclusion. Finally, their willingness can be to summarise the contract and it is then simply addressed to the third party or management of the company. B) THE DELIVERY METHOD-‐ INCOTERMS The delivery method following the sale should be specified in accordance with the general commercial customs. (f.e. FOB-‐Antalya). The term INCOTERMs (international commerce terms) means a series of international sales terms published by ICC (international chamber of commerce) and widely used by in international commercial sales. Scope of this is limited to matters relating to the rights and obligations of the parties with respect to the delivery of the goods sold. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-‐of-‐the-‐art transportation practices. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods. These INCOTERMS are applicable if only there is a reference to them in the contract articles. The INCOTERMS are divided into 2 main groups:
ALL MODES OF TRANSPORTATION: EXW: Ex Works FCA: Free Carrier CPT: Carriage Paid To CIP: Carriage and Insurance Paid DAT: Delivered at Terminal DAP: Delievered at Place DDP: Delievered Duty Paid SEA AND INLAND WATERWAY TRANSPORTATION: FAS: Free Alongside Ship FOB: Free On Board CFR: Cost and Freight CIF: Cost, Insurance, and Freight
62
ALL MODES OF TRANSPORTATION:
1) EXW (Ex Works) The seller makes the goods available at his premises. The buyer is responsible for all charges. This trade term places the greatest responsibility on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a seller has the goods ready for collection at his premises (Works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination.
62 Turkish parts are taken from, İç ve Dış Ticarete ilişkin Ticari Terimlerin Kullanımı için ICC Kuralları, Ercüment Erdem
2) FCA (Free Carrier) The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerised / multi-‐modal sea transport.
3) CPT (Carriage Paid to) CPT: The general/containerised/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.
4) CIP (Carriage and Insurance Pay to) CIP: The containerised transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
5) DAT (Delivered at Terminal)
6) DAP (Delivered at Place)
7) DDP (Delivered Duty Paid).
SEA AND INLAND WATERWAY TRANSPORTATION:
8) FAS: Free Alongside Ship The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers. This term is typically used for heavy-‐lift or bulk cargo.
9) FOB: Free On Board
The seller must themselves load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export. Maritime transport only but NOT for multimodal sea transport in containers. The buyer must instruct the seller the details of the vessel and port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. It DOES NOT include Air transport. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.
10) CFR: Cost and Freight Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship's rail. Maritime transport only and Insurance for the goods is NOT included. Insurance is at the Cost of the Buyer.
11) CIF: Cost, Insurance, and Freight Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only.
IV) ICC MODEL SALES CONTRACT
ICC has prepared a Model International Sale Contract (the "Model Contract"). for "manufactured goods intended for resale". Thus it excludes those large vital goods produced for single users (which have a host of additional complexities), and such goods as commodities which have widely fluctuating values. It is also not best suited for continuing supply arrangements. The Model Contract is divided into two parts. The first, Part A, is essentially a checklist of specific conditions to an international sale; the second, Part B, is a list of General Conditions divided into 14 articles.
ICC MODEL INTERNATIONAL SALE CONTRACT
(Manufactured Goods Intended for Resale)
A. Specific Conditions
These Specific Conditions have been prepared in order to permit the parties to agree the particular terms of their sale contract by completing the spaces left open or choosing (as the case may be) between the alternatives provided in this document. Obviously this does not prevent the parties from agreeing other terms or further details in box A-16 or in one or more annexes.
A-1 GOODS SOLD
___________________________________
___________________________________
(DESCRIPTION OF THE GOODS)
If there is insufficient space parties may use an annex.
A-2 CONTRACT PRICE (ART. 4)
Currency: ______________________ amount in numbers:______________ amount in letters: _____________________
A-3 DELIVERY TERMS
Recommended terms (according to Incoterms 2010): (see Introduction of Incoterms 2010, ��5)
�� EXW Ex Works named place: ____________
�� FCA Free Carrier named place: ____________
�� FAS Free Alongside Ship named port of shipment: ____________
�� FOB Free On Board named port of shipment: ____________
�� CFR Cost and Freight named port of destination: ____________
�� CIF Cost Insurance and Freight named port of destination: ____________
�� CPT Carriage Paid To named place of destination: ____________
�� CIP Carriage and Insurance Paid To named place of destination: ____________
�� DAT: Delivered at Terminal �� DAP: Delievered at Place
�� DDP Delivered Duty Paid named place of destination: ____________
�� Other delivery terms
CARRIER (where applicable) NAME AND ADDRESS CONTACT PERSON ________________ ________________ A-4 TIME OF DELIVERY
Indicate here the date or period (e.g. week or month) at which or within which the Seller must perform his delivery obligations according to clause A.4 of the respective Incoterm (see Introduction, �� 6)
________________________________________________________ ________________________________________________________ �� A-5 INSPECTION OF THE GOODS BY BUYER (ART. 3)
�� Before shipment place of inspection: _______________ �� Other: ________________________________________ A-6 RETENTION OF TITLE (ART. 7)
�� YES �� NO
A-7 PAYMENT CONDITIONS (ART. 5)
�� Payment on open account (art. 5.1) Time for payment (if different from art. 5.1) ____ days from date of invoice. �� Open account backed by demand guarantee or standby letter of credit (art.
5.5) ��
�� Payment in advance (art. 5.2) Date (if different from art. 5.2): ________ �� Total price �� ____%
of the price ��
�� Documentary Collection (art. 5.5)
�� D/P Documents against payment �� D/A Documents against acceptance ��
�� Irrevocable Documentary Credit (art. 5.3) �� Confirmed �� Unconfirmed
Place of issue (if applicable): _________ Place of confirmation (if applicable): _________ �� Credit available: �� By payment at sight �� By deferred payment at:
___ days �� By acceptance of drafts at: ___ days �� By negotiation �� Partial shipments: Transhipment: �� Allowed �� Allowed �� Not allowed �� Not allowed �� Date on which the documentary credit must be notified to seller (if different from
art. 5.3) �� ______ days before date of delivery �� other: _____________ ��
�� Other: _________________________________________________________ (e.g. cheque, bank draft, electronic funds transfer to designated bank account of
seller) A-8 DOCUMENTS
Indicate here documents to be provided by Seller. Parties are advised to check the Incoterm they have selected under A-3 of these Specific Conditions. (As concerns transport documents, see also Introduction, �� 8)
�� Transport documents: indicate type of transport document required _________ �� Commercial Invoice �� Certificate of origin �� Packing list �� Certificate of inspection �� Insurance document �� Other: ____________ Insurance: Under Incoterms CIF the seller is responsible for purchasing only "free of particular average" insurance, which has the most limited type of recovery and is commensurately inexpensive. Most buyers on the other hand would prefer the goods to be insured on the basis of a "with average", "all risks", including "war risks" policy.63
63 James M. Klotz, Critical Review of The ICC Model International Sale Contract, ISGw3 Database, Pace Law School,
With regard to the Certificate of Origin, the buyer may ask for a warranty of the veracity of the Certificate along with an undertaking to notify the seller if the Certificate of Origin is ever investigated, as this may affect the buyer's ability to export the goods into other countries at the preferential tariff rate.64 A Certificate of Inspection can vary in a myriad of ways. It can be issued based on a sample inspection, a closed, or an open package inspection. By merely checking off the box on the Model Contract, the seller is unrestricted in the inspecting agency that is chosen, or the type of inspection undertaken. Such a Certificate of Inspection might be of far less value to the buyer than one which fulfills the buyer's needs.65 A-9 CANCELLATION DATE
TO BE COMPLETED ONLY IF THE PARTIES WISH TO MODIFY ARTICLE 10.3
If the goods are not delivered for any reason whatsoever (including force majeure) by (date) _______ the Buyer will be entitled to CANCEL THE CONTRACT IMMEDIATELY BY NOTIFICATION TO THE SELLER
A-10 LIABILITY FOR DELAY (art. 10.1, 10.4 AND 11.3)
TO BE COMPLETED ONLY IF THE PARTIES WISH TO MODIFY ART. 10.1, 10.4 OR 11.3 Liquidated damages for delay in delivery shall be: �� ____ % (of price of delayed goods) per week, with a maximum of ____ % (of price of delayed goods) or: �� ________ (specify amount) �� In case of termination for delay, Seller��s liability for damages for delay is limited to ____ % of the price of the non-delivered goods �� A-11 LIMITATION OF LIABILITY FOR LACK OF CONFORMITY (ART. 11.5) TO BE COMPLETED ONLY IF THE PARTIES WISH TO MODIFY ART. 11.5.
Seller��s liability for damages arising from lack of conformity of the goods shall be:
�� limited to proven loss (including consequential loss, loss of profit, etc.) not exceeding _____ % of the contract price; or:
�� as follows (specify): 64 ibid. 65 ibid.
_____________________________________________________________
A-12 LIMITATION OF LIABILITY WHERE NON-CONFORMING GOODS ARE RETAINED BY THE BUYER
(ART. 11.6)
TO BE COMPLETED ONLY IF THE PARTIES WISH TO MODIFY ART. 11.6
The price abatement for retained non-conforming goods shall not exceed:
�� ___% of the price of such goods or: �� ________ (specify amount)
A-13 TIME-BAR (Art.11.8)
TO BE COMPLETED ONLY IF THE PARTIES WISH TO MODIFY ART. 11.8.
Any action for non-conformity of the goods (as defined in article 11.8) must be taken by the Buyer not later than __________ from the date of arrival of the goods at destination
A-14(a), A-14(b) APPLICABLE LAW (Art.1.2)
TO BE COMPLETED ONLY IF THE PARTIES WISH TO SUBMIT THE SALE CONTRACT TO A NATIONAL LAW INSTEAD OF CISG.
(a) This sales contract is governed by the domestic law of __________ (country) To be completed if parties wish to choose a law other than that of the seller for questions not covered by CISG (b) Any questions not covered by CISG will be governed by the law of ____________ (country)
A-15 RESOLUTION OF DISPUTES (Art.14)
The two solutions hereunder (arbitration or litigation before ordinary courts) are alternatives: parties cannot choose both of them. If no choice is made, ICC arbitration will apply, according to art. 14
�� ARBITRATION �� LITIGATION (ordinary courts)
�� ICC (according to art. 14.1) In case of dispute the courts of
Place of arbitration _________ _________________ (place)
�� Other ___________________ (specify) shall have jurisdiction.
It is important to indicate whether the selected jurisdiction is to be exclusive or not. In an international sale, if litigation is clearly chosen as the dispute resolution mechanism, giving jurisdiction to one party's local court, but not exclusive jurisdiction, may not fulfill the needs of the parties.
A-16 OTHER
_______________________________
________________________________
The present contract of sale will be governed by these Specific Conditions (to the extent that the relevant boxes have been completed) and by the ICC General Conditions of Sale (Manufactured Goods Intended for Resale) which constitute part B of this document.
SELLER BUYER (signature) (signature) ___________________________ ___________________________ place __________ date ________ place __________ date ________
B. General Conditions
Art. 1 GENERAL
1.1 These General Conditions are intended to be applied together with the Specific Conditions (part A) of the International Sale Contract (Manufactured Goods Intended for Resale), but they may also be incorporated on their own into any sale contract. Where these General Conditions (Part B) are used independently of the said Specific Conditions (Part A), any reference in Part B to Part A will be interpreted as a reference to any relevant specific conditions agreed by the parties. In case of contradiction between these General Conditions and any specific conditions agreed upon between the parties, the specific conditions shall prevail.
1.2 Any questions relating to this Contract which are not expressly or implicitly settled by the provisions contained in the Contract itself (i.e. these General Conditions and any specific conditions agreed upon by the parties) shall be governed:
A. by the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention of 1980, hereafter referred to as CISG), and
B. to the extent that such questions are not covered by CISG, by reference to the
law of the country where the Seller has his place of business.
1.3 Any reference made to trade terms (such as EXW, FCA, etc.) is deemed to be made to the relevant term of Incoterms published by the International Chamber of Commerce
1.4 Any reference made to a publication of the International Chamber of Commerce is deemed to be made to the version current at the date of conclusion of the Contract.
1.5 No modification of the Contract is valid unless agreed or evidenced in writing. However, a party may be precluded by his conduct from asserting this provision to the extent that the other party has relied on that conduct.
ART. 2 CHARACTERISTICS OF THE GOODS
2.1 It is agreed that any information relating to the goods and their use, such as weights, dimensions, capacities, prices, colours and other data contained in catalogues, prospectuses, circulars, advertisem*nts, illustrations, price-lists of the Seller, shall not take effect as terms of the Contract unless expressly referred to in the Contract.
2.2 Unless otherwise agreed, the Buyer does not acquire any property rights in software, drawings, etc. which may have been made available to him. The Seller also remains the exclusive owner of any intellectual or industrial property rights relating to the goods.
ART. 3 INSPECTION OF THE GOODS BEFORE SHIPMENT
If the parties have agreed that the Buyer is entitled to inspect the goods before shipment, the Seller must notify the Buyer within a reasonable time before the shipment that the goods are ready for inspection at the agreed place.
ART. 4 PRICE
4.1 If no price has been agreed, the Seller’’s current list price at the time of the conclusion of the Contract shall apply. In the absence of such a current list price, the price generally charged for such goods at the time of the conclusion of the Contract shall apply.
4.2 Unless otherwise agreed in writing, the price does not include VAT, and is not subject to price adjustment.
4.3 The price indicated under A-2 (contract price) includes any costs which are at the Seller’s charge according to this Contract. However, should the Seller bear any costs which, according to this Contract, are for the Buyer’s account (e.g. for transportation or insurance under EXW or FCA), such sums shall not be considered as having been included in the price under A-2 and shall be reimbursed by the Buyer.
ART. 5 PAYMENT CONDITIONS
5.1 Unless otherwise agreed in writing, or implied from a prior course of dealing between the parties, payment of the price and of any other sums due by the Buyer to the Seller shall be on open account and time of payment shall be 30 days from the date of invoice. The amounts due shall be transferred, unless otherwise agreed, by teletransmission to the Seller’s bank in the Seller’s country for the account of the Seller and the Buyer shall be deemed to have performed his payment obligations when the respective sums due have been received by the Seller’s bank in immediately available funds.
In open account, payment is made by the buyer in determined time after the seller ships the goods. “Purchase on open account means that the buyer agrees to pay for goods ordered within a designated time after their shipment. Common terms are 30, 60, or 90 days. In open account, parties don’t necessarily need to use banks and billing can be done by the seller in firsthand. In this method, conversely to cash in advance, the seller takes the greatest risk and he is totally allocated to risk, whereas the buyer is risk free. Payment is solely based on the buyer’s creditworthiness and commitment to pay 5.2 If the parties have agreed on payment in advance, without further indication, it will be assumed that such advance payment, unless otherwise agreed, refers to the full price, and that the advance payment must be received by the Seller’s bank in immediately available funds at least 30 days before the agreed date of delivery or the earliest date within the agreed delivery period. If advance payment has been agreed only for a part of the contract price, the payment conditions of the remaining amount will be determined according to the rules set forth in this article.
Cash in advance is the frequently used and the easiest international payment method. The definition and procedure of cash in advance, which is also known as “Payment in Advance”, is: “The buyer simply prepays the seller prior to shipment of the goods. This term of payment requires that the buyer have a high level of confidence in the ability and willingness of the seller to deliver the goods as ordered. This method protects sellers and sellers undertake no risk. On the other hand, in cash in advance risk is totally carried by buyers. 5.3 If the parties have agreed on payment by documentary credit, then, unless otherwise agreed, the Buyer must arrange for a documentary credit in favour of the Seller to be issued by a reputable bank, subject to the Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce, and to be notified at least 30 days before the agreed date of delivery or at least 30 days before the earliest date within the agreed delivery period. Unless otherwise agreed, the documentary credit shall be payable at sight and allow partial shipments and transhipments.
In form, a letter of credit is nothing more than a letter from a financial institution promising to pay a stated sum of money upon the receipt of specified documents. The basic concept is that the prospective payor goes to a bank and asks it to issue a letter of credit to the prospective payee. The L/C is a guarantee, given by the buyer's bank, that they will pay for the goods exported, provided that the exporter can provide a given set of documents in accordance with clauses specified in the L/C and in a timely manner. In letter of credit risk is evenly shared and carried by the seller and the buyer. 5.4 If the parties have agreed on payment by documentary collection, then, unless otherwise agreed, documents will be tendered against payment (D/P) and the tender will in any case be subject to the Uniform Rules for Collections published by the International Chamber of Commerce.
A documentary collection is an order by the seller to his bank to collect payment from the buyer in exchange for the transfer of documents that enable the holder to take possession of the goods A set of documents containing a Bill of Lading would normally allow the holder to take possession of the goods. Bill of exchange is a negotiable instrument that orders payor to make the deficient mount of payment to payee. On the other hand, A bill of lading is a document issued by a carrier to a shipper, signed by the captain, agent, or owner of a vessel, furnishing written evidence regarding receipt of the goods (cargo), the conditions on which transportation is made (contract of carriage), and the engagement to deliver goods at the prescribed port of destination to the lawful holder of the bill of lading. Under D/P terms, the seller, through a bank acting as an agent, is able to retain control of the goods until the buyer pays.
5.5 To the extent that the parties have agreed that payment is to be backed by a bank guarantee, the Buyer is to provide, at least 30 days before the agreed date of delivery or at least 30 days before the earliest date within the agreed delivery period, a first demand bank guarantee subject to the Uniform Rules for Demand Guarantees published by the International Chamber of Commerce, or a standby letter of credit subject either to such Rules or to the Uniform Customs and Practice for Documentary Credits published by the International Chamber of Commerce, in either case issued by a reputable bank.
ART. 6 INTEREST IN CASE OF DELAYED PAYMENT
6.1 If a party does not pay a sum of money when it falls due the other party is entitled to interest upon that sum from the time when payment is due to the time of payment.
6.2 Unless otherwise agreed, the rate of interest shall be 2% above the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place of payment, or where no such rate exists at that place, then the
same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment.
ART. 7 RETENTION OF TITLE
If the parties have validly agreed on retention of title, the goods shall remain the property of the Seller until the complete payment of the price, or as otherwise agreed.
ART. 8 CONTRACTUAL TERM OF DELIVERY
Unless otherwise agreed, delivery shall be "Ex Works" (EXW).
ART. 9 DOCUMENTS
Unless otherwise agreed, the Seller must provide the documents (if any) indicated in the applicable Incoterm or, if no Incoterm is applicable, according to any previous course of dealing.
ART. 10 LATE-DELIVERY, NON-DELIVERY AND REMEDIES THEREFOR
10.1 When there is delay in delivery of any goods, the Buyer is entitled to claim liquidated damages equal to 0.5% or such other percentage as may be agreed of the price of those goods for each complete week of delay, provided the Buyer notifies the Seller of the delay. Where the Buyer so notifies the Seller within 15 days from the agreed date of delivery, damages will run from the agreed date of delivery or from the last day within the agreed period of delivery. Where the Buyer so notifies the Seller after 15 days of the agreed date of delivery, damages will run from the date of the notice. Liquidated damages for delay shall not exceed 5% of the price of the delayed goods or such other maximum amount as may be agreed.
The subject of direct, indirect, special and consequential damages is ambiguous. Such damages, at least to certain extent, are of the kind that the seller would ordinarily prefer to contract out of. Below are some sample clauses to this effect :
“In no event shall the Seller be responsible for any direct, indirect, special or consequential damages, including loss of anticipated profits, loss of time or any other losses incurred by the Buyer in connection with the purchase, installation or operation or failure of the goods."
10.2 If the parties have agreed upon a cancellation date in Box A-9, the Buyer may terminate the Contract by notification to the Seller as regards goods which have not been delivered by such cancellation date for any reason whatsoever (including a force majeure event).
10.3 When article 10.2 does not apply and the Seller has not delivered the goods by the date on which the Buyer has become entitled to the maximum amount of liquidated damages under article 10.1, the Buyer may give notice in writing to terminate the Contract as regards such goods, if they have not been delivered to the Buyer within 5 days of receipt of such notice by the Seller.
If the parties have not agreed to a "drop dead" date, the buyer can terminate the agreement after the expiration of a 10 week period -‐-‐ a very long period of time. A two and a half month delay in delivery of manufactured goods for resale is a very long delay -‐-‐ much longer than a buyer would ordinarily agree to.66 10.4 In case of termination of the Contract under article 10.2 or 10.3 then in addition to any amount paid or payable under article 10.1, the Buyer is entitled to claim damages for any additional loss not exceeding 10% of the price of the non-delivered goods.
10.5 The remedies under this article are exclusive of any other remedy for delay in delivery or non-delivery.
ART. 11 NON-CONFORMITY OF THE GOODS
11.1 The Buyer shall examine the goods as soon as possible after their arrival at destination and shall notify the Seller in writing of any lack of conformity of the goods within 15 days from the date when the Buyer discovers or ought to have discovered the lack of conformity. In any case the Buyer shall have no remedy for lack of conformity if he fails to notify the Seller thereof within 12 months from the date of arrival of the goods at the agreed destination.
The wording does not match the language of the CISG Article 39/167 which requires the buyer to notify the seller of the "nature of the non-‐conformity". Therefore it would be for sake of clarity to draft the clause so as to make the notification including necessary details. In 2006 a German Court ruled that
"1. If the buyer accepts the goods without immediate notice he has to prove their lack of conformity regardless of whether the time span of Art. 39 has already elapsed. When taking over the goods under FOB terms that point in time is decisive.
66 ibid. 67 CISG, Article 39(1): The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
"2. The buyer may retain the right to rely on the lack of conformity only by giving a notice which identifies the non-conformity and shows intention to object in accordance with Art. 39(1) CISG. In this respect, it is insufficient if the unconformity is only mentioned incidentally amongst other such notices and it is stated therein that this specific unconformity is no longer of importance." GERMANY: Oberlandesgericht Karlsruhe 8 February 200668
11.2 Goods will be deemed to conform to the Contract despite minor discrepancies which are usual in the particular trade or through course of dealing between the parties but the Buyer will be entitled to any abatement of the price usual in the trade or through course of dealing for such discrepancies.
11.3 Where goods are non-conforming (and provided the Buyer, having given notice of the lack of conformity in compliance with article 11.1, does not elect in the notice to retain them), the Seller shall at his option:
(a) replace the goods with conforming goods, without any additional expense to the Buyer, or
(b) repair the goods, without any additional expense to the Buyer, or
(c) reimburse to the Buyer the price paid for the non-conforming goods and thereby terminate the Contract as regards those goods.
The Buyer will be entitled to liquidated damages as quantified under article 10.1 for each complete week of delay between the date of notification of the non-conformity according to article 11.1 and the supply of substitute goods under article 11.3(a) or repair under article 11.3(b) above. Such damages may be accumulated with damages (if any) payable under article 10.1, but can in no case exceed in the aggregate 5% of the price of those goods.
The Model Contract does not set a time limit identify for the Buyer to elect the optional remedies. However since the liquidated damages are limited to %5 of the price, buyer has a small monetary incentive to delay making its "election". 11.4 If the Seller has failed to perform his duties under article 11.3 by the date on which the Buyer becomes entitled to the maximum amount of liquidated damages according to that article, the Buyer may give notice in writing to terminate the Contract as regards the non-conforming goods unless the supply of replacement goods or the repair is effected within 5 days of receipt of such notice by the Seller.
Article B-‐11.4, the buyer has to notify the seller at the expiry of this 10 week period of its intention to terminate the agreement, in which case the seller gets
68 http://cisgw3.law.pace.edu/cases/060208g1.html
an additional five days to perform. These provisions are not typical of non-‐conformity provisions that get negotiated in the real-‐life international sale of manufactured goods. 11.5 Where the Contract is terminated under article 11.3(c) or article 11.4, then in addition to any amount paid or payable under article 11.3 as reimbursem*nt of the price and damages for any delay, the Buyer is entitled to damages for any additional loss not exceeding 10% of the price of the non-conforming goods.
11.6 Where the Buyer elects to retain non-conforming goods, he shall be entitled to a sum equal to the difference between the value of the goods at the agreed place of destination if they had conformed with the Contract and their value at the same place as delivered, such sum not to exceed 15% of the price of those goods.
11.7 Unless otherwise agreed in writing, the remedies under this article 11 are exclusive of any other remedy for non-conformity.
11.8 Unless otherwise agreed in writing, no action for lack of conformity can be taken by the Buyer, whether before judicial or arbitral tribunals, after 2 years from the date of arrival of the goods. It is expressly agreed that after the expiry of such term, the Buyer will not plead non-conformity of the goods, or make a counter-claim thereon, in defence to any action taken by the Seller against the Buyer for non-performance of this Contract.
ART. 12 COOPERATION BETWEEN THE PARTIES
12.1 The Buyer shall promptly inform the Seller of any claim made against the Buyer by his customers or third parties concerning the goods delivered or intellectual property rights related thereto.
12.2 The Seller will promptly inform the Buyer of any claim which may involve the product liability of the Buyer.
It will not be surprising that sellers would limit this obligation significantly. ART. 13 FORCE MAJEURE
13.1 A party is not liable for a failure to perform any of his obligations in so far as he proves:
(a) that the failure was due to an impediment beyond his control, and
(b) that he could not reasonably be expected to have taken into account the impediment and its effects upon his ability to perform at the time of the conclusion of the Contract, and
(c) that he could not reasonably have avoided or overcome it or its effects.
13.2 A party seeking relief shall, as soon as practicable after the impediment and its effects upon his ability to perform become known to him, give notice to the other party of such impediment and its effects on his ability to perform. Notice shall also be given when the ground of relief ceases.
Failure to give either notice makes the party thus failing liable in damages for loss which otherwise could have been avoided.
13.3 Without prejudice to article 10.2, a ground of relief under this clause relieves the party failing to perform from liability in damages, from penalties and other contractual sanctions, except from the duty to pay interest on money owing as long as and to the extent that the ground subsists.
13.4 If the grounds of relief subsist for more than six months, either party shall be entitled to terminate the Contract with notice.
FORCE MAJEURE & HARDSHIP CLAUSES After a contract is agreed upon, according to the legal principle pacta sund servanda both parties are bound with the contract and the provisions thereof. The only exception of this rule comes with the occurance of some extraordinary events that are totally beyond the control of the parties. War, civil unrest, rebellion, strike, fire, flood, earthquake, extraordinary surge in the prices of raw materials, unexpected hyper inflation or devaluation are among some instances that can deeply affect the proper execution of an international business agreement. The issue becomes more serious when dealing with long term agreements. As a general legal principle such acts of god (vis maiore, force majeur, mücbir sebep) nullifies (or alters) the obligations of the parties. However, if the events that constitute a force majeur are not specified in the contract then the determination of the events that will be deemed as a force majeur will nonetheless prove to be problematic. The important point here that needs to be mentioned is: if both parties cannot agree upon a specific event to have the effect of a force majeur then this problem is to be solved by the courts of the country whose law is to be applied to the contract. And if this law is not specified in the contract then this becomes the problem of the conflicts of laws. The parties to the contract can designate the events that they deem to be a force majeur; the scope under which they will hold an event to have the effect of force majeure; they can frame compensation, refundment or remittance opportunities; they can set up legal frameworks where they can decide to themselves whether they want to keep the contract valid or not in the light of such developments. 69 69 İfa imkânsızlığı
Sample Clauses
“A party is not liable for failure to perform the party's obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalisation, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service. No party is entitled to terminate this Agreement under Clause 19 (Termination) in such circ*mstances.
“If a party asserts Force Majeure as an excuse for failure to perform the party's obligation, then the nonperforming party must prove that the party took reasonable steps to minimize delay or damages caused by foreseeable events, that the party substantially fulfilled all non-excused obligations, and that the other party was timely notified of the likelihood or actual occurrence of an event described in Clause 18 (Force Majeure).” OR “The obligations of each of the Parties hereunder, other than the obligation to make payments of money, shall be suspended during a period of Force Majeure and the term of the relevant period or phase of this Agreement shall be extended for a time equivalent to the period of Force Majeure situation. In the event of Force Majeure the Party affected thereby shall give notice thereof to the other Party as soon as reasonably practical stating the starting date and the extent of such suspension of obligations and the cause thereof. A Party whose obligations have been suspended as aforesaid shall resume the performance of such obligations as soon as reasonably practical after the removal of the Force Majeure and shall notify the other Party accordingly.”
I. Genel olarak MADDE 136-‐ Borcun ifası borçlunun sorumlu tutulamayacağı sebeplerle imkânsızlaşırsa, borç sona erer. Karşılıklı borç yükleyen sözleşmelerde imkânsızlık sebebiyle borçtan kurtulan borçlu, karşı taraftan almış olduğu edimi sebepsiz zenginleşme hükümleri uyarınca geri vermekle yükümlü olup, henüz kendisine ifa edilmemiş olan edimi isteme hakkını kaybeder. Kanun veya sözleşmeyle borcun ifasından önce doğan hasarın alacaklıya yükletilmiş olduğu durumlar, bu hükmün dışındadır. Borçlu ifanın imkânsızlaştığını alacaklıya gecikmeksizin bildirmez ve zararın artmaması için gerekli önlemleri almazsa, bundan doğan zararları gidermekle yükümlüdür.
Hardship clause is a clause in a contract that is intended to cover cases in which unforeseen events occur that fundamentally alter the equilibrium of a contract resulting in an excessive burden being placed on one of the parties involved. (also called Changes in circ*mstances, unforeseen events, termination clause, exoneration clause.)
Sample Clauses
Economic Change: “In case fundamental change in economy of the Contract which render its execution uneconomical or much more burdensome than it was originally expected, the Parties will enter into negotiation to replace them in the same situation as it was at the time of conclusion of the Contract.” Changes in Circ*mstances: “In the event of unforeseeable events or events which were excluded from the Parties’, forecasts, including any substantial changes to taxes and duties, which could have the effect of undermining the economic basis of the existing market or prejudice the Parties, the Parties shall come to an agreement, in the spirit in which the present agreement was concluded, to make the necessary adjustments so as to replace one or the other provisions of the present contract under the conditions of balance comparable to those which existed at the time of entering into the present contract. In the absence of an agreement, the Parties may refer their dispute to arbitration (as set in article ..)” Price adaptation: (for contracts on transaction related with energy): “ It is agreed between the parties that in case significant changes in primary energy costs, and in particular gas prices would occur and make the electrical power purchased by the Buyer not competitive towards electrical energy based on such primary energy, the partners shall find a mutual agreement to adapt the prices of delivery accordingly such agreement cannot be reached within 2 months, the parties are entitled to refer the matter to arbitration.” Exonoration Clause: “ If, due to circ*mstances of an economic, unforeseen, exceptional or particularly serious nature, occurring after the conclusion of the Contract and outside control or will of the Parties, the economy of the contractual relations would be disturbed in such way that the execution of its obligations would be detrimental towards one of the Parties, the Parties will in good faith to obtain the most suitable solution in order to continue their contractual relationship. If the Parties have not found a mutual agreement within a period of three (3) months as from the moment of the unforeseen, serious change of the economic contractual relations, each Party will have the possibility to terminate the Contract.”
ART. 14 RESOLUTION OF DISPUTES
14.1 Unless otherwise agreed in writing, all disputes arising in connection with the present Contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
14.2 An arbitration clause does not prevent any party from requesting interim or conservatory measures from the courts. GAPS IN THE MODEL CONTRACT
1) Form of notification
Model Contract refers to “notification” in various articles, however the there is no clarity with regard to the form of the notice. In commercial transactions it is not rare that parties allege not to have received notification properly, in particularly, where notice is of serious legal consequence. Therefore most of the times sales contracts provide detailed provisions as to how to serve the notification. Article 27, the sender may rely on notice if the notice is given by "means appropriate in the circ*mstances, even though there is a delay or error in the transmission of the communication". For example, a fax which is sent but is not received. A well-‐drafted notice clause will avoid this problem.70
Every notice to be given under this Agreement (Contract) shall be in writing and either delivered by hand or sent by facsimile or by registered [post/airmail]. The address of each party for the service of notices shall be as set out in this Agreement (Contract) (unless or until that address is changed by notice given under this clause). A written notice shall be delivered by hand or sent by pre-paid first class post or registered post. A correctly addressed notice sent by pre-paid first class post shall be deemed to have been delivered at the time at which it would have been delivered in the normal course of the post.
2) Other
70 James M. Klotz
There are numerous other clauses missing from the Model Contract. These include for example acceptance by facsimile, assignment, "entire agreement", reference to agents? fees, intellectual property provisions, and the myriad of specifics to the various existing clauses which relate to the subject goods, which, although not vital, will greatly improve the likelihood of each party's understanding of its rights and obligations.71
71 ibid.
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