Ahmet Kutay Ulus (*)
1. Introduction
A contract is a legal transaction established by the reciprocal and concordant declarations of intent by the parties aimed at achieving a legal objective, either explicitly or implicitly. The interpretation of a contract refers to analyzing the declarations of intent, which are the constitutive elements of the legal transaction, to clarify their meanings and the legal consequences they intend to produce. According to Article 19 of the Turkish Code of Obligations, when interpreting contracts, the true and mutual intent of the parties should be prioritized over the literal wording used, regardless of any errors or efforts to obscure the real purpose.
This article first examines the concept of contract interpretation within the framework of the Turkish Code of Obligations and focuses on determining the true intent of the parties. Subsequently, it explains the methods and principles employed in contract interpretation, supported by examples from court decisions.
2. The Concept of Contract Interpretation and Determination of True Intent
Under Article 1 of the Turkish Code of Obligations, parties to a validly formed contract may sometimes experience doubts or disagreements regarding their reciprocal and concordant declarations of intent. In essence, one party may interpret the content, meaning, or purpose of the contract differently than the other. The purpose of interpreting legal transactions is to resolve such disputes. In broader terms, the interpretation of a legal transaction involves understanding its meaning, content, and objectives and expressing them in a manner comprehensible to all.
The interpretation of contracts entails the judicial determination of the content defined by the parties, based on their intentions. In interpreting a contract, the first step is to ascertain the presence of a declaration of intent, followed by determining whether the declaration is explicit. The process may also involve identifying whether the intent was expressed implicitly. If a declaration of intent is deemed ambiguous and requires interpretation, efforts are made to reveal its legal significance. However, interpretation should not be limited to clarifying seemingly unclear provisions; it may also involve uncovering alternative meanings of ostensibly clear terms.
For instance, in a Supreme Court decision:
“The written agreement dated July 28, 2009, signed between the defendant and the plaintiff’s representative, states that football player David Durmaz was transferred to Denizli Sports Club until May 31, 2012, with a manager’s fee of €10,000 for the 2009-2010 season, €10,000 for the 2010-2011 season, and €10,000 for the 2011-2012 season to be paid on October 30, 2011, totaling €30,000. The court ruled to dismiss the claim on the grounds that the manager’s fee was conditional upon the football player playing for the defendant club during the 2010-2011 season, which he did not. However, the wording of the contract does not support the interpretation that the fee was season-based. Article 19 of the Turkish Code of Obligations stipulates that the true and mutual intent of the parties should be considered rather than the literal terms of the agreement. It is evident that the payment schedule refers to an installment plan rather than a seasonal entitlement. Therefore, the dismissal of the claim based on an erroneous interpretation of the contract is contrary to the law and procedure.” (13th Civil Chamber, Case No. 2013/15789, Decision No. 2014/16309, Date: May 26, 2014)
It is also worth noting that contract interpretation is only applicable to validly established agreements. Disputes regarding contract interpretation may concern the entirety of the contract, its subject matter, legal consequences, or specific terms or expressions. Interpretation addresses issues that arise from provisions explicitly included by the parties through declarations of intent. If a matter has not been addressed by the parties, the issue pertains to contract completion rather than interpretation.
Article 19 of the Turkish Code of Obligations provides:
“In determining and interpreting the type and content of a contract, the true and mutual intent of the parties shall prevail, regardless of the words used mistakenly or to obscure the real purpose.”
Thus, the focus is on the true and mutual intent of the parties. However, there are instances where the declared intent and the actual intent do not align. This discrepancy may result from either simulated transactions (declarations meant to conceal the real intent) or unintentional errors. When interpreting contracts, the declared and mutual intent of the parties is examined. If no genuine and mutual intent can be established, the declared intent serves as the basis for interpretation.
The judiciary’s role in contract interpretation is to seek the legally protected intent while ensuring an equitable distribution of risks arising from differing interpretations of the provisions.
The General Assembly of the Supreme Court explained this approach as follows:
“The first element to consider in determining the actual or presumed intent is the expressions used by the parties in the contract. Generally, the terms are presumed to be used in their ordinary meaning at the time the contract was concluded. However, if the terms carry a special meaning within the context of the parties’ community, that special meaning shall prevail.” (Supreme Court General Assembly, Case No. 2004/14-262, Decision No. 2004/282, Date: May 12, 2004)
3. Contract Interpretation Compared to Other Contract Law Concepts
Contract interpretation may be confused with other aspects of contract law, such as characterization, adaptation, rectification, and judicial discretion.
1. Characterization: While interpretation seeks to clarify the content of the contract, characterization determines its legal nature. In case of disputes regarding characterization, the judge acts independently of the parties’ characterization.
2. Adaptation: Contract interpretation clarifies the content established by the parties, whereas adaptation modifies the contract to align with changing circumstances post-formation.
3. Rectification: This involves substituting an invalid legal transaction with a valid one that achieves similar results. Rectification is secondary to interpretation, which focuses first on determining the validity and content of the contract.
4. Judicial Discretion: This comes into play after the contract is interpreted. The judge first interprets the contract and then exercises discretion to reach a decision.
By clarifying these distinctions, it becomes evident that contract interpretation plays a foundational role in understanding and applying the terms of an agreement in accordance with the parties’ intentions.
4. Methods Used in Contract Interpretation
Certain systematic methods are employed when interpreting contracts. Two key methods have prominently emerged and hold a significant place in contract law: Subjective Interpretation (based on the actual intentions) and Objective Interpretation (based on presumed intentions).
Subjective Interpretation Method
The Subjective Interpretation Method seeks to ascertain the true intention of the person making the declaration of intent and carrying out the legal act. This method resolves disputes by investigating the genuine and mutual intentions of the parties. The judge interprets the content of the contract by determining the parties’ actual intentions. This process involves examining the internal situation of the parties at the time the contract was established.
However, this method can only be applied if the parties’ true intentions are provable. Notably, the Turkish Code of Obligations prioritizes declarations of intent over the parties’ internal intentions, which has led to criticism of this method.
Determining the genuine and mutual intentions of the parties is often challenging in practice due to the lack of clarity in actual intentions, and as a result, this method is not always feasible.
Objective Interpretation Method
Due to the difficulties in establishing actual intentions, the Objective Interpretation Method relies on the presumed mutual intent of the parties. This presumed mutual intent refers to the overlap between one party’s actual intent and the hypothetical intent determined under the reliance theory.
When the judge cannot ascertain the parties’ actual intent, they evaluate the contractual provisions presented by the parties based on the reliance theory. Under this theory, if the specific aim of the legal act created by the parties cannot be discerned, an investigation is conducted to determine what the parties, acting as honest and reasonable individuals, would have intended at the time the contract was formed, taking into account the overall circumstances of the case.
This approach aligns with the principle of good faith enshrined in Article 2 of the Turkish Civil Code, which states:
“Everyone must act in accordance with the rules of good faith in exercising their rights and fulfilling their obligations.”
The reliance theory not only seeks to balance the positions of all parties involved but also includes interpreting ambiguous contractual provisions against the party who drafted them. Within this framework, the presumed intentions of the parties must be consistent with the ordinary course of life and evaluated under the principle of good faith.
The reliance theory has also been emphasized in decisions by the Turkish Court of Cassation regarding interpretation methods:
“The determination of the true meaning of a declaration of intent is referred to as interpretation. In all legal transactions, the actual meaning and purpose of declarations of intent that are not unequivocal must be determined through interpretation by the judge under Article 2 of the Turkish Civil Code and Article 19 of the Code of Obligations.
In this regard, the General Assembly of the Civil Chambers of the Court of Cassation, in its decision dated April 3, 1963 (Case No. E:2-93, Decision No. K:29), stated:
‘Both pleadings and other verbal or written statements made by the parties during the proceedings are, as a rule, legal transactions. As with any legal transaction, these must be interpreted based on the good faith principles stipulated by Article 18 of the Code of Obligations and Article 2 of the Civil Code, disregarding the exact wording of the declarations, and determining what meaning the recipient of such declarations could reasonably derive from the words or writings used.’
This statement reflects the reliance theory endorsed in academic literature (e.g., Necip Kocayusufpaşaoğlu: Error in Obligatory Contracts Under the Reliance Theory, Garanti Press, Istanbul, 1968, p. 5 et seq.) and applied in judicial practice.
Furthermore, in the General Assembly’s established practice reflected in its February 6, 2012 decision (E:2012/14-606, K:2013/212), it is emphasized that both the content of the declarant’s statement and the conditions under which it was made are considered in light of the reliance theory to reach a conclusion.
In this context, unjust interpretations and assessments can detract from both the fairness of the trial and the judgment. The judge is obliged to treat all parties equally and impartially within the framework of the principle of fair trial. The principle of good faith must be considered in interpreting, completing, revisiting, and assessing transactions.”
(General Assembly of the Court of Cassation, Case No. 2014/15-2182, Decision No. 2015/1047, March 18, 2015).
5. Rules to Follow During Contract Interpretation
In addition to specific methods used for contract interpretation, there are essential rules that must be adhered to during the process. These rules are classified into: rules determined by the parties, rules stipulated by law, and general interpretation rules.
When drafting a contract, the parties can agree on how the contract’s provisions should be interpreted in the event of a dispute, provided these terms do not contradict legal provisions. This is referred to as “Interpretation Rules Determined by the Parties.” Such provisions in the contract are binding for both the parties and the judge. Moreover, these provisions must comply with the boundaries outlined in Article 27/1 of the Turkish Code of Obligations (TCO): “Contracts contrary to mandatory provisions of the law, morality, public order, personal rights, or that have an impossible subject are deemed absolutely null and void.” The compliance of these agreed-upon interpretation provisions with Article 27/1 can also be subject to judicial review.
In some cases, disputes may arise where either the parties have already stipulated an interpretation provision in the contract, or the law may already regulate how to interpret contract provisions under certain conditions. These are called “Statutory Interpretation Rules.” The law may determine how a contract should be interpreted through either mandatory provisions or non-mandatory provisions, which can be overridden by the terms agreed upon by the parties. In the latter case, the terms agreed upon by the parties during contract formation take precedence. An example of statutory interpretation in the Turkish Code of Obligations is Article 314, which pertains to the payment schedule in lease agreements: “Unless otherwise agreed by the parties or unless there is a local custom to the contrary, the tenant is obliged to pay the rent and any ancillary costs at the end of each month, and no later than the expiration of the lease term.” As evident, the rule in this article can be modified by mutual agreement between the parties.
Furthermore, there are general interpretation rules derived from laws, legal doctrine, and judicial decisions that have significant practical applications and are universally applicable to all contracts. These are referred to as “General Interpretation Rules.” These rules include:
• Rule of Interpretation Based on Good Faith: As previously explained, this rule is based on Article 2 of the TCO, which states, “Everyone must adhere to the principles of good faith when exercising their rights and fulfilling their obligations.”
• Retrospective Interpretation Rule: In contract interpretation, the circumstances at the time the contract was formed are considered.
• Holistic Interpretation Rule: In case of a dispute, the entire contract is considered during interpretation. This involves evaluating the provisions, objectives, definitions, and other components of the contract to achieve a cohesive understanding.
• Interpretation Against the Drafter Rule: If a provision or meaning in the contract is unclear or has multiple interpretations, it is resolved against the drafter of the contract. This rule also applies if the contract was prepared by a representative or an assisting party. It is primarily applied in standard form contracts under Article 23 of the TCO, which states, “If a provision in standard terms is unclear or has multiple meanings, it shall be interpreted against the drafter and in favor of the other party.” However, this rule does not apply if the terms were mutually negotiated by the parties. Therefore, it is not an absolute rule and is only applied when no other interpretative methods or rules are available. In consumer law and consumer contracts, this rule is applied mandatorily and definitively.
• Interpretation Favoring the Continuity of the Contract Rule: If a proposed interpretation would result in the contract being partially or entirely invalid, alternative interpretations that maintain the validity of the contract are preferred. This involves either selecting another plausible meaning or presuming that the parties acted reasonably to ensure the contract remains effective.
• Interpretation in Favor of the Debtor Rule: If the rights and obligations of the parties are not explicitly specified, the interpretation is made in favor of the party assuming the obligation. This rule is particularly relevant in standard form contracts governed by Article 23 of the TCO and is also an essential principle in consumer contracts.
6. Conclusion
In conclusion, contracts are formed when the parties mutually and appropriately express their intentions. Once a contract is validly formed, disputes arising from misinterpretations of its provisions, meaning, or purpose may occur. In such cases, to uphold the validity of the contract, it is interpreted by the judge.
During the interpretation process, the true and mutual intent of the parties is sought under Article 19 of the Turkish Code of Obligations. However, since it is not always possible to ascertain the true intentions in practice, the apparent (or expressed) intent is considered. This inferred meaning is determined using the Theory of Trust and the Rule of Good Faith.
Priority is given to any agreed-upon interpretation provisions in the contract. If none exist, applicable mandatory and non-mandatory legal provisions are used. If the law does not address the issue, interpretative methods and rules are employed. Through this process, the risks stemming from ambiguities are distributed equitably by the judge, safeguarding both the interests of the parties and the continuity of the contract.
(*) 4th year student at İstanbul Kültür University
Note: For the sources and legal basis of the article, please see the Turkish version on our website.
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