The Importance Of Contracts In Commercial Life In General
With globalisation, the world became smaller, and relationships, especially commerce, became more complicated / sophisticated. Commercial relations that were based on a certain or determinable sociality or generally a “personal acquaintanceship” in the traditional sense of commerce started to take place in an almost indeterminable environment and sociality (with companies anywhere in the world or people living at the far end of the city).This major change forced the “the word is the bond” mentality of traditional commerce to change and become written, and have a legal basis.
Contract determines the legal basis of commercial relationship in writing. Despite this explanation, there is no obligation for a contract to be written, except for a few specific contract types. The main factor to form a written contract is its standard of proof. Taking this into consideration, it could be said that a contract (such as purchase and sale, franchising, work) is the “Project” of the commercial relation it provides a base to. Without sticking to the general definition rules, a contract is of same importance to a commercial relation as an architectural plan is to a construction. A commercial work without a contract will be no different than a shanty building without a plan, regardless of the material quality.
Forming of the Contract
According to the Article 1 of Turkish Code of Obligations, “A contract is concluded by declaration of intents of parties that are mutual and consistent to each other”. Freedom of contract, a reflection of the “freewill” principle is applied, and the contract is legally binding and the duties it brings must be fulfilled, as a reflection of “agreements must be kept (pacta sund servanda)” principle. Which means the contract is mutually binding for both parties. As it would be very difficult to make changes to a contract after it’s for med without the agreement of the other party, it would be appropriate to pay attention to the conditions of the contract before formation.
On the other hand, there is no specific way to declare intention set forth by the law, therefore, expression of intention doesn’t have to be done in a certain manner, and there is no objection to the validity of declarations done by electronical means. Such declarations would be valid according to the law.
For a contract to be enforceable, Contract should have;
The principles of contract law
- Capacity of the contract; the signing person must be legally authorised (a shareholder or a manager), so it would be beneficial to request for a signature circular of the other party./li>
- Remaining in the limits of contractual freedom; contradiction to imperative laws, public order, ethics and morality, and personal rights, or impossibility of the subject would make a contract invalid.
- Elimination of Capacity (mistake, misrepresentation, duress), collusion and unjust enrichment; a mistake by the contractor that eliminates the free will of one party, deceit, threats, hiding of the true intention and a vast difference between the agreed value and true value would affect, even end, the validity of the contract.
As this is the oretical information, we will only list the principles by name and only explain the principles that have importance in practice. These principles shape the formation of contract, and it’s accepted that a contract should be in line with these principles. The principles are freedom of contract, equality, no obligations for third parties, good faith, co sensuality, imperfect liability, consideration, and discretion of the court.
According to our legislation, unless it causes the elimination of capacity, serious economic or social changes might require the intervention of a judge, within the limits of equity. Any clause preventing judicial intervention would be void, because it would be contrary to imperative regulations. Consideration is the principle that every contract has a value for both parties. Imperfect liability holds a party responsible if they are unable to fulfill their obligations through their own fault.
Essentials of a Contract
As mentioned before, the contract is the “architectural plan” of the business/commercial relationship, so the subject of the business must be well defined in the contract. It is important to determine the subject with all details (product in a sales contract, technical conditions in a construction contract, the work place and the position of employee in a contract of service, and so on). Another equally important matter is the consideration, payment method and the date of maturity if there is one. The amount of value-added tax (VAT) should also be stated. If not explicitly stated, it’s widely accepted that VAT is included in the amount written in the contract. Depending on the contract, down payment (initially paid portion of the total amount) , forfeit money (also down payment – in practice, especially in brokerage agreements drafted by realtors, down payment is used as forfeit money, however, if the legal conditions met, down payment is refunded if the contract is not made), in a sales contract, type, time and place of delivery, period and conditions of warranty, punitive conditions, confidentiality (the restriction to disclose private information received by the parties), right of termination, specific clauses concerning default, interest for delayed payments, notifications, force majeure (events beyond the parties’ control that deem the contract impossible, such as natural disasters, government decisions, riots etc.), agreements regarding dispute resolution (the law to be applied, arbitration, rules and place of dispute resolution) could also be in a contract.
Failures in Practice/Checklist
As someone who had to get involved with many commercial contracts both contested and uncontested during his legal practice, I find it beneficial to compile the failures in contracts I encountered as a checklist and share with my readers. These items are important in ensuring the contract is well-prepared. These items are;
- Finding out if the other party is authorized to sign, comparing the commercial registry and signature circular,
- Stamping the contract while signing,
- Making copies for each party, and ensuring copies don’t have any difference from the others,
- Having parties sign and stamp each page of the contract separately,
- Writing the commercial titles or names of the parties in accordance to their commercial registry records or identity cards,
- Stating the obligations of the parties and the subject of the contract clearly and beyond any doubt,
- Stating the numbers in the contract also in writing,
- Having additional assurances such as surety, indemnity and mortgages
- Keeping the copy with wet signature protected, photocopying the contract and using the photocopies when necessary, making no changes in the original copy,
- Explicitly stating the currency if the payment will be made in a foreign currency unit.
A contract which conveniently includes and determines all the items regarding the purpose is as important as the business itself, as such contract might bring the traders as much money as the business they conduct.
Att. Bülent KAPTAN
Patent & Marka Attorney