Commercial LawContract LawObligations LawWhat should be considered when preparing a contract?

Contracts are the basic building blocks of modern society and commercial life. We encounter these legal texts that regulate our rights and obligations in almost every aspect of our lives, from renting a house to a large company merger, from a service purchase to a business relationship. A well-prepared contract serves as a road map that minimises disputes that may arise in the future by clearly revealing the declarations of will between the parties. It not only documents the current situation, but also provides mechanisms to protect the interests of the parties by anticipating possible risks. Therefore, the care and attention to be taken when drafting or signing a contract is of vital importance in terms of preventing complex and costly legal problems that may arise in the future.

Legal Framework: Freedom of Contract and its Limits

The main legal basis of the contracts is the Turkish Code of Obligations No. 6098 (TCO). The Turkish legal system has adopted the principle of “freedom of contract”, which is guaranteed by the Constitution. This principle means that individuals have the freedom to enter into contracts on any subject, with any person and in any manner they wish, within the limits set by law. However, this freedom is not absolute and unlimited. The legislator has imposed some limits on this freedom in order to protect public order, public morality and the weak party.

Article 27 of the TCO sets the limits of this freedom: Contracts that are contrary to the mandatory provisions of the law, morality, public order, personal rights or whose subject matter is impossible are absolutely null and void. Therefore, respecting these limits while drafting a contract is mandatory for the legal validity of the contract.

Basic Elements and Details to be Considered While Drafting a Contract

In order for a contract to be legally valid, enforceable and protective of the interests of the parties in the best way, the following elements should be given utmost attention:

1. Correct and Complete Identification of Parties: The identity information of the parties signing the contract must be stated completely and accurately.

   • For Real Persons: Name, surname, T.R. identification number, current and notifiable address.
   • For Legal Entities (Companies, Associations, etc.): Full trade name, tax number, trade registry number, MERSIS number, central address and most importantly, the name, surname and authorisation certificate (signature circular) of the persons authorised to represent and bind the company. If the contract is signed through a representative (proxy, company official), it is important to check whether the representative’s authorisation (power of attorney, signature circular) is up to date and sufficient, and to clearly state the basis of this authorisation in the contract. In case of unauthorised representation, the contract may be invalid.

2. Subject and Purpose of the Contract: The subject matter of the contract (sale of goods, purchase of services, lease, work contract, etc.) should be stated clearly and unambiguously. Instead of a general statement such as “A sale of goods has been made between the parties”, specific statements such as “The Seller undertakes to sell and transfer the ownership of X goods, whose brand, model and serial number are specified below, to the Buyer for Y price” should be used.

3. Detailing Rights and Obligations: All rights and obligations such as what the parties will do within the scope of the contract, what they will deliver, what price they will pay, what service they will provide, within what period of time they will perform should be written in detail and in a way that leaves no room for doubt. Uncertainties are the main source of future disputes. It should be clearly stated who, when, where and how each obligation will be fulfilled.

4. Duration and Termination Terms: It should be clearly stated whether the contract is for a definite or indefinite term.

   • For Fixed Term Contracts: The start and end dates must be clearly written. Provisions regarding the extension of the term (for example, automatic renewal, extension by agreement of the parties) may also be regulated.
   • Indefinite Term Contracts: Termination notice periods and termination conditions should be detailed. The circumstances under which the contract will be terminated (e.g. bankruptcy of one of the parties, force majeure, material breach of contract, justified grounds for termination) should also be clearly stated.

5. Price and Payment Terms: The contract price (fee, rent, sale price) should be clearly stated in numbers and writing, the currency should be clarified, and the payment method (cash, bank transfer, EFT), payment time (cash, instalment, term), delay interest rate and other payment terms should be detailed. It should also be stated whether taxes such as VAT are included in the price.

6. Penalty and Default Provisions: Sanctions to be applied in case one of the parties fails to fulfil its contractual obligations on time or at all (default) (penal clause, default interest, right to terminate the contract, compensation claim) can be regulated in the contract. A penalty clause is a predetermined amount of compensation to be paid in case of breach of debt and plays a deterrent role.

7. Force Majeure: The effect of circumstances beyond the control of the parties such as earthquake, flood, war, epidemic disease (force majeure) that make the performance of the contract temporarily or permanently impossible (suspension, termination, granting additional time) should be regulated in detail.

8. Place of Dispute Resolution and Applicable Law: In case of a possible dispute, it should be clearly stated which courts or arbitration centre will be competent and which country’s law will be applied (especially in international contracts). Contracts in Turkey usually specify the competent courts or enforcement offices. For example, a provision such as “Istanbul (Çağlayan) Courts and Execution Offices are authorised for disputes arising out of this agreement” can be added.

9. Confidentiality Provisions (NDA): Especially in commercial contracts, it is important to include confidentiality provisions (confidentiality undertaking or NDA – Non-Disclosure Agreement) to protect each other’s trade secrets, customer lists or sensitive data.

10. Form of Contract and Signatures: Some contracts must be made in accordance with a certain form (written form, official form, notarisation) in order to be valid. For example, contracts for the sale of immovable property must be made with an official deed at the title deed office. Failure to comply with such formal requirements may lead to the invalidity of the contract. It is important that each page of the contract is initialed by the parties and that there are full signatures on the last page in order to prevent forgery claims.

Contracts are critical documents that form the basis of legal relations and secure the rights of the parties. When drafting or signing a contract, all details, from the identity information of the parties to the subject matter of the contract, from rights and obligations to payment terms, from termination terms to dispute resolution, must be arranged in a complete, clear, clear and lawful manner. Especially in complex or high-value contracts, it is of great importance to obtain professional legal support from a lawyer in order to minimise possible legal risks and protect the interests of the parties in the best way. It should not be forgotten that a well-drafted contract is the most effective way to prevent many future problems and costly litigation processes.