Chapter 1: Introduction to Business Law

Introduction

Business law is the combination of different branches of law and it is necessary for a Merchant up to a point. Although it is not regarded as a separate branch of law in Turkey, Business law mainly establishes the rules that should be followed by all the merchants and businesses.

Business Law

In general, business law deals with all kinds of legal issues in business and commerce.

In a business dictionary, “business” is defined as an organization or an economic system where goods and services are exchanged for another or for money.

Business law may, first of all, be relevant to starting, managing, and transferring a business. It is also relevant to issues such as selling and buying, and to contracts for that matter. Besides contracts, consumer protection is another subject that is very important in running a business. Labor law is also used a lot in all kinds of business activities, both in the sense of individual labor law and social security. Especially the rights and duties of merchants form a core part of this branch of law. In running a business, it is also important to know about the fiscal system and taxation. At the same time, the court structure should be introduced.

Besides the courts, mediation and arbitration are the alternatives for dispute resolution methods in Turkey. Nonetheless there are still discussions on compulsory mediation in Turkey, they are not conclusive yet. Furthermore, national arbitration is yet developing in Turkey.

Business law is mainly used among merchants: and a merchant may be a real person or a legal person. The legal person merchants are business associations or in other words the companies.

The Development of Business Law

The law merchant was developed in 11th century. The main objective was to protect the merchants. It also aimed to help the traders to negotiate contracts partnership, trademarks and various aspects of buying and selling by themselves. Law Merchant forms the basis of business law. In the medieval era “nationalization” of law started. Following the birth of national states in Europe, the process of codification started. The modern concept of business law developed in England and United States.

There are two highly dominant legal systems in the World. One is the Continental Law system, having its origins in Roman law and the other one is the Anglo-Saxon Law system derived from the Common Law in England. The Continental Law system keeps the legislation as the foremost source of law, where as in Anglo-Saxon system the previous judgments are binding and form the main source of law. After the development of the United States, this country highly affected the law system and it was named as the Anglo-American law system. Turkey is a Continental Law country.

The Need for Business Law

Business law covers several different areas of law. Contractual relations are regulated within the scope of business law regulation as follows.

1. sale of goods - i.e., implied terms and conditions, the effects of performance, and breach of such contracts and remedies available to the parties;
2. the carriage of goods, including both national and international rules governing insurance, bills of lading, charter parties, and arbitrations;
3. consumer credit agreements; and
4. labor relations determining contractual rights and obligations between employers and employees and the regulation of trade unions.

From a civil lawyer’s perspective, the scope of business law can be as extensive as covering contract law, commercial law, company law, competition law, labor law, fiscal law and even evolving with new areas of law developing in relation to consumer protection, computers and the Internet, all of which are already very broad areas of law on their own.

There is a huge need for business law, especially when a merchant is forming a commercial enterprise or when a business association is established. Additionally, when they enter into a legal transaction or when a dispute arises, again the principles of business law shall be helpful in the legal sense.

Sources of Turkish Law

Introduction to Turkish Law

After the foundation of Turkish Republic in 1923, it was impossible to continue with the legal system that was applicable in the Ottoman Empire. Turkey is a Continental Law (civil law) country. Since the most important daily legal relations are the relations regarding the law of persons, family, property, succession and the law of obligations, first there was the need to fill the legal gap in these areas. One choice for Turkey was to seek for reception possibilities. Therefore, first of all, in the neediest areas of law, Turkey the Codes of Switzerland. So, in 1926 the Civil Code and the Code of Obligations had been enacted. Together with this effort of reception which continued in the following years with the Commercial Code, Criminal Code, etc. Turkey was able to adopt modern and secular laws.

The comprehensive reform process accelerated in the late 1990s in Turkey directly affected relations with The Council of Europe. Actually, starting with the 1990s, there have been many amendments realized in many different laws of Turkey. It could easily be stated that this period contains a legal reform in Turkey The previous Turkish Civil Code was effective till 1 January 2002, and The Turkish Code of Obligations was effective till 1 July 2012. Then, the new ones entered into force.

Main Sources of Law

The main sources of law are written sources in Turkey since it is a Continental Law country. In case where no provision exists, the judge should decide according to the existing customary law. When there are no customary law principles, the judge should decide accordingly as if he were the legislator.

When article 1 of the Turkish Civil Code is taken into account, a judge should first use the written sources of law and while using them he/she should understand the provisions not only with the letter but with the spirit as well. In private law matters, when the written laws are silent, the judge must look for the existing customary law principles; and when they are silent as well, if the judge thinks that there is a necessity for a rule, he/she should lay down that rule then and decide accordingly.

In summary, it can be stated that there are two groups of sources in Turkish Law. One involves the primary sources and the other involves the secondary sources. Primary sources include the written laws, the customary law and the judge as a law-maker. Secondary sources include the doctrine and the precedents, in other words, judicial decisions. They are not binding; the judge is free to use them according to his/her discretion. In our legal system, previous court decisions are not binding; but, most certainly, a judge in a lower court may use especially the higher court decisions in similar cases. Therefore, the precedents are not binding in the Turkish legal system. However, the only exception to this rule is what is called the “unification of judgment.”

Written Laws

The legislation power belongs to the Turkish National Assembly in Turkey, since it is a Continental Law country.

The typical legal system is founded upon a system of norms. The written laws form of a part of hierarchical system of norms, with each layer gaining authority from the previous. All norms could be traced back through a chain of validity, which is known as the Kelsen’s pyramid. Kelsen is the first famous legal philosopher. His theory is known ‘pure theory of law’. At the top of the pyramid is the ‘Grundnorm’ namely the ‘Constitution’ in our system.

In Turkey after the referendum in 16 April 2017, a very important amendment in the Constitution is realized. According to these amendments, some of the written sources are changed with the elections made on 24 June 2018. Instead of the parliamentary system, presidential system is introduced in Turkey. There is no longer the Council of Ministers; therefore, the concept of “statutory decrees” is changed and a new concept is brought as the “presidential decrees”. Again, there is no longer “regulations”, since the regulations are issued by the council of ministers.

Constitution: In the hierarchy of written laws, the Constitution occupies the highest place. It is regarded as the most important binding source; and no other source of law can be contrary to the Constitution. The Constitution primarily defines the form and the ideology of the State, lays down the main rights and obligations of the individuals and the State. It also regulates the principal organs of the government and the three powers, namely the legislative, executive and judicial powers.

Codes and Statues: A code is a law on general subjects, covering a whole branch of law, e.g., Civil Code, Commercial Code, Criminal Code, Code of Obligations, whereas a statute is a specific law on a certain subject, e.g., Statute on Consumer Protection, Statute on Land Registry. Instead of the term “statute,” the term “law” having the same meaning may also be used in the same sense.

Codes and statutes are enacted by the Grand National Assembly and they are applied as a rule until they are abrogated or changed by another code or statute.

International Treaties: Ratification is the process which an international treaty becomes a source of law in Turkey. It should become a party. After Turkey becomes a party to the international treaty, this treaty should be approved by the Turkish Grand National Assembly by enacting law.

A new sentence is added to article 90 of the constitution in 2004 in Turkey. According to this, in the case of a conflict between international treaties in the area of fundamental rights and freedoms duly put into effect and the domestic laws, due to differences in provisions on the same matters the provisions of international treaties shall prevail.

Presidential Decrees: The executive power belongs to the President in the new presidential system. There is also a vice President appointed by the President. But there are no prime minister and the council of ministers in the new system. The president has an authority to issue presidential decrees. The presidential decrees should not be in conflict with existing codes and statues. Fundamental right and liberties and the political rights cannot be regulated by presidential decrees.

By-Laws: President ministries and public corporate bodies may issue by-laws. Every valid by-law is dependent upon a code, a statute or presidential decree. By-laws contain more concrete and specific rules and they cannot contain provisions contrary to the codes, statutes and presidential decrees.

Customary Law

For a custom to have legal validity and to be considered as a part of the customary law, certain requirements must be fulfilled.

Firstly, of all a custom must exist for a long period of time; it should have the characteristic of antiquity. Secondly, the custom should have the characteristic of continuity; it must be continuously observed. There should be no interruptions in the observance of the custom. Thirdly, the members of the society should believe consciously or unconsciously in the rightness of the custom. Fourthly, a custom may not be applied if it is in conflict with the written laws; therefore, customs must be in agreement with the written laws. Lastly, there is a need for a state sanction. Until a court applies a custom and gives it the sanction of state authority, it shall not be considered as a part of the customary law.

In commercial law, customary law plays a very important role; therefore, when studying business law, it is important to understand the importance of the customs among merchants as well. In order to be applied, a commercial custom or usage should be widely known.

Judge as a Law-Maker

When the written laws and customary law are in silent, it means there is a legal gap. At this point, the judge decides if this is a real gap or not. If it is, it means there is a need for regulation that is provided by lawmaker. Therefore, the judge decides the case accordingly. If it is not a real gap, the judge has to dismiss the case.

The Concept of Person

“Person” means a being that is recognized by law as a subject of rights and obligations.

In general or daily usage, the word “person” refers to human beings, but in the legal sense it has a wider meaning which also includes companies, associations, foundations, syndicates, and even the state and public corporate bodies. Therefore, a person is a being that is subject to rights and obligations that are imposed to it by law.

In the modern legal systems including Turkish Law, there are two types of person: Real persons (natural persons) and legal person (juristic persons).

Real Persons

The personality of a real person begins with birth. According to article 28 of the Civil Code: “The personality right begins with the birth of the living child...” From this provision, it is understood that there are two requirements for the beginning of personality: 1. Alive birth 2. Whole birth. From the concept “whole birth,” it should be understood that the child is completely separated from the mother’s body; and from the concept “alive birth,” it should be understood that after separating from the mother’s body, the baby breaths at least once on its own. It is stated that the infant is regarded as a person at this moment of alive and whole birth.

The natural way for a person’s personality to end is death. This point is also regulated in article 28 of the Civil Code.

When there is no corpse, this situation is not regarded as “normal” death. At this point, there are two important presumptions under which a person can still be declared dead despite the absence of a corpse.

These presumptions which presume death are called the presumption of death and presumption of absence. The presumption of death is regulated in article 31 of the Civil Code. According to this provision, the death of a person is deemed proven, even if no one has seen the corpse, if that person has disappeared in circumstances in which his death may be considered certain.

The result of death presumption is similar to that of a normal death. There is no need for a special court decision.

A declaration of absence can be filed in two different situations. In the first case, it is highly probable that a person is dead because he or she has disappeared in extremely life-threatening circumstances. In that case, the next of kin (the next of kin may be any person deriving rights from his or her death) has to wait for one year and then apply to the court.

The second case is about a person who has been missing for a lengthy period of time without any sign of life. This is a situation in which a person has disappeared without any reason. In that case, five years should pass since the last sign of life before the application to the court.

In both cases, the court must, by suitable public means, call on any person who may provide information about the missing person to come forward within a specified period. This period may not be less than six months following the first public notice. If no news is received during the set period, the missing person is declared absent (presumed dead) and the rights derived from the fact of his or her death may be enforced as if death were proven. His or her succession may be distributed but the heirs have to give a guarantee for five and fifteen years in the first and the second case, respectively. If the absentee has been married, the marriage does not automatically dissolve with the court decision; the spouse has to ask for the dissolution of the marriage .

Legal Persons

Legal person refers to a non-human entity that is treated as a person for limited legal purposes--corporations, for example. Legal persons can sue and be sued, own property, and enter into legal transactions. Law attributes such entities a capacity and an authority to exist and act like individuals to the extent appropriate; and therefore, the provisions for individuals in civil law also apply to legal persons where appropriate.

There are certain requirements for legal entities. First, legal entities are established for a specific purpose. Legal capacity of a legal entity is framed as to this specific purpose concerned.

Secondly, legal entities are associated/ organized/incorporated independently of the persons that form the legal entity concerned. This feature of a legal person relates to its organs that are to be established in accordance with the legal requirements regulated in the relevant laws.

Thirdly, the law recognizes the independence of legal persons and it defines the types of legal persons exhaustively.

In principle, the establishment and the termination of legal entities are subject to the formalities stated in the law. As their establishment formalities, there are three different ways that the legal entities are subject to:

1. by way of a registration in the relevant registry (i.e. companies)
2. by way of a permission from the relevant authority
3. no specific requirement for the establishment (free)

Legal persons are classified as private law legal persons and public law legal persons .

1. Private Law Legal Persons are established by a legal transaction subject to private law rules; and the types of private law legal persons are exhaustively listed in the law. Private law legal persons may be classified based on whether or not they have an income generating purpose. Accordingly, associations and foundations are legal persons with non-income generating purposes subject to private law rules and companies are income generating legal persons.
2. Public Law Legal Persons are the legal entities that are vested with public authority as some sort of a public duty is served by these entities. Public administrations and public institutions and public enterprises are public legal persons organized under public law. In that regard, the State (devlet), municipalities (belediye), village administrations (muhtarlık), universities, trade and industry chambers and bar associations bear public law legal personalities.

Capacity of Persons

In Turkish Law, capacity of real persons and legal persons is regulated differently. The general provisions about the capacity of legal persons are explained very briefly above. What determines their capacity is their purpose. Mostly their capacity is drawn according to their purpose, but especially for business associations that are regulated in the Commercial Code, there are exceptions to this rule. Apart from that, the capacity of every legal person may have some differences according to the law that regulates it and according to its articles of association.

As to the capacity of the real persons, it is regulated in the Civil Code. The Civil Code makes a distinction between the capacity to have rights and duties and the capacity to act. Therefore, there are two main types of capacity.

Capacity to Have Rights and Duties

Every real person has capacity to have rights and duties. Capacity to have rights and duties is a passive capacity; and being a real person is enough to have this capacity. In the modern legal systems, the principle of equality is the governing principle of the capacity to have rights and duties.

Capacity to have rights and duties is also under the guarantee of the Turkish Constitution as well. According to article 12 of the Constitution, all real persons are considered equal according to this capacity.

Normally, this capacity starts at the moment a child is born; but according to article 28 of the Civil Code, even an unborn child has capacity to have rights and duties provided that it survives birth.

According to the Civil Code, when a person dies leaving behind a child and a spouse, the legal heirs of that person shall be the child and the spouse. If this person does not have a child or grandchildren but has a mother and father together with a spouse, the legal heir of that person shall be the spouse and the parents. Therefore, if a man’s wife is pregnant when he dies, the birth shall be waited for to share the succession. When the baby is born alive and breaths at least once, this baby shall be the legal heir of the deceased father. If the baby is not alive, then the parents and the spouse shall be the legal heirs.

Capacity to Act

Capacity to act is considered as an active capacity. A person who has capacity to act has the capacity to acquire rights and incur obligations through his/ her own actions. There are four groups of persons based on their capacity to act: persons of full capacity, limited capacity, limited incapacity, and full incapacity.

In order to have full capacity there are three requirements. Firstly a person should attain majority; secondly, this person should be capable of making fair judgements; and lastly, he/she should not be restricted. These three requirements of capacity can be explained as follows:

1. The concept of majority: According to the Turkish Civil Code, a person attains majority with the completion of age 8. In two exceptional situations, persons may acquire majority before completing 18 years of age. First of all, marriage confers majority. The second way is the court decision. A minor who has completed his/ her 15 years of age may, upon his/her application and with the consent of his/her parents, be declared by the court to be of full age. However, to grant this decision there should be a valid ground for this application.
2. The capacity to make fair judgements (Discretion): Persons who have discretion are able to make fair judgements, so that they can act rationally. According to article 13 of the Civil Code, a person is capable of making fair judgements if he or she does not lack the capacity to act rationally by virtue of being under age or because of a mental disability, mental disorder, intoxication or similar circumstances. Not all persons suffering from mental disorder can be be regarded as having no discretion. Therefore, this should be considered as a relative concept; and in every specific case. The judge should evaluate whether the related person has discretion or not
3. Not to be interdicted: There are some grounds stated in the Turkish Civil Code in which a person may be interdicted. In CC articles 404408, they are listed as mental disability, mental disorder, habitual drunkenness, habitual gambling. One year or more imprisonment.

Full Capacity

If a person has all three of the above mentioned requirements, then this person is deemed to have full capacity, which means that this person may enter into any kind of transaction and may be liable for all his/her tortuous acts.

Limited Capacity

For the persons of limited capacity, capacity is the rule and incapacity is the exception that is only limited to specific transactions. These are married persons and the persons to whom a quasi-guardian is appointed.
Curators and legal representatives are the types of quasi guardians.

Though there are some discussions in the doctrine, mostly it is accepted that married persons are also of limited capacity for two reasons: the concept of family domicile (Civil Code art. 194) and the suretyship contracts (Code of Obligations art. 584).

Limited Incapacity

The persons interdicted persons and minors who are able to make fair judgements are in the persons of limited incapacity group. As a rule, persons of this group act through their statutory representatives. They are under parental authority or guardianship.

Persons of limited incapacity do not have the capacity to enter into legal transactions. Their parents or guardians act on behalf of them. However, there are some exceptions to this rule. First of all, they may enter into legal transactions with the consent of their statutory representative. When a person of limited incapacity enters into a legal transaction without obtaining the consent of his/her statutory representative, this transaction shall be considered as a voidable transaction.

Persons of limited incapacity have discretion; therefore, they have full tortuous liability, which, in other words, means that they are responsible for all their tortuous acts.

Full Incapacity

The persons of full incapacity are the ones who do not have discretion, who are not able to make fair judgements. They should be either under parental authority or guardianship. Their statutory representative represents them in their legal transactions. These persons cannot create a legal effect by their actions. If they enter into a transaction, this transaction shall be completely null and void. Since the persons of full incapacity do not have discretion, they are not liable for their tortuous acts.