Freedom of Contract

The human beings are facing various needs both in their daily lives and in their professional lives everyday. These needs can be overcome by debt relations with others, especially by establishing contracts.

I. Introduction

According to the Turkish Code of Obligations ("TCO"), the parties are free in signing a contract; choosing the contracting party and determining the subjects of the contract. This is called the principle of Freedom for Contracts.

"The contracts are legal transactions which create debt relations between the parties by the declaration of mutual agreement and consent.

A contract consists of enforceable obligations that have been voluntarily assumed. Thus, one of the essential elements of a contract is an agreement. There is an agreement when the parties lead each other reasonably to believe that they are of the same mind about a given transaction. This point is reached by an offer on the one side, and an apparent acceptance of the offer on the part of the other. In addition an offer expresses the willingness of the offeror to enter into a contractual agreement regarding a particular subject. It is a promise that is conditional upon an act or return promise and to make an offer, the offeror must appear to intend to create a binding obligation whether this intent exists is determined by objective standards. Thus intend may be shown by conduct.

According to Article 26 of the TCO; the contracting parties can choose the type, the subject and the terms and conditions of the contract freely. However, Turkey has introduced planning into its economy and there is also state economic activity. These bring certain limitations to the freedom of contract. In this article we will focus on the limitations to freedom of contract, which can be found below, are as follows: (i) contracts against law and imperative provisions of law, (ii) contracts contrary to moral rights and public order, (iii) contracts against individual rights and (iv) impossibility of contracts, shall not be valid.

II. Contracts Against Law and Imperative Provisions of Law

There are some obligatory provisions in the TCO and the Turkish Commercial Code ("TCC") which a contract cannot violate. For instance; a party to the agreement cannot, in advance, waive the effect of the statute of limitations. In addition parties sometimes enter into contracts which are indirectly against the Turkish law. This is called a fraud against the law and such contract will be deemed a direct violation of law. In addition the subject of an agreement may be limited and/or entirely restricted by certain prohibitive provisions under relevant legislation. For instance; agreements for black-marketing and agreements aiming to arrange the purchase of narcotics are forbidden.

III. Contracts Against Moral Rights and Public Order

A contract cannot be against moral rights and public order. For instance; contracts which aim to affect the bidding at auction sales, contracts arranging the bribery, or to testify falsely in courts, are forbidden.

IV. Contracts Against Individual Rights

According to Article 23 of the Civil Code ("CC"), no one can renounce his/her right to have rights and to enter into legal transactions, entirely or partially. No one can alienate his/her personal liberty, nor impose any restrictions contrary to law or moral rules at its own discretion.

Please kindly note that, if the law prescribes a specific form for a certain type of a contract, observing the form is a condition for validity. If the law prescribes a specific form, the parties cannot agree not to comply with the specified form. For instance; the written form is necessary where a statutory rule expressly prescribes it, or where the parties have agreed that a contract or part of it can only be executed in a written form, observance of the form is a condition for a validly existing contract.

In addition, relating to the public order concern, some areas of law and thus contracts made in such areas have also some specific restrictions. For example: (i) some contracts (such as those pertaining to incorporation of a company) are subject to the state approval for such incorporation, (ii) some employment agreements contradicting applicable employment laws and collective bargaining agreement, (iii) some contracts with provisions subject to the Consumer Protection Law ("CPL") and (iv) some contracts with subjects being impossible.

In addition to all the substantive restraints on the freedom of contract principle as outlined above, while entering into a contractual relationship, the contracting parties shall always take as basis the good faith and fair dealing principles and act as prudent and diligent businessmen.

V. Impossibility of Contracts

According to the TCO, if the subject of a contract is not possible, this contract is impossible. In this situation, the contract that is impossible because of the practical or legal reasons, follows the nullity and it is invalid from the beginning. For the nullity, the impossibility has to be about the subject of the contract and it has to affect to everyone.

The contract which is invalid because of the nullity does not create any award and result from the beginning. But, while making the contract, a party knows or has to know the impossibility, in this situation that party has to make up the other party's reliance interest. According to the TCO, if the impossibility arises after making the contract and if the debtor hasn't got any fault, the debtor rescues from his or her debt. In this situation, the contract doesn't follow the nullity, but the debtor is rescued from his or her debt. For the impossibility which rescues the debtor from the debt is not important that it is objective or subjective. If the impossibility is not grounded on the debtor's defect, the debtor is rescued from his or her debt.

If the debtor has a defect in the impossibility which arises after making the contract, the debtor is liable for that. The impossibility which arises after making the contract, can be objective or subjective. It doesn't affect the liability of the debtor. In other words, the debtor is always liable, if he or she has a defect.

VI. Conclusion

People, who enter contract relation, have to exercise their acts to each other. The act which is impossible, has very important role both for sides' situations and the contract's health. Turkish Code of Obligation adopt Principle of Freedom for Contracts, on the other hand it constrains this principle. The impossible acts, which are agreed in the contracts, compose one of these bounds. Freedom of contract covers a large area and donates different conceptions. But, the fundamental understanding is that the individuals are granted the right to arrange for their private lives in a way that suits their interests and in accordance with their free will.