Incoterms_® and Commercial Contracts

1. What rules, if any, govern retention of title (RT) in your country? In the absence of rules, what are the principal mechanisms, if any, on which RT is based in your country?

RT is regulated by the Türk Medeni Kanunu (Turkish Civil Code or TCC) No. 4721 of 22 November 2001 in Article 764.¹

2. Please describe the characteristics and the scope of your country’s RT rules

Under Article 764 of the Turkish Civil Code, the contract which deals with RT on movable property should be made in official form and should be entered in the specific registry by the notary public in the domicile of the acquirer (the buyer or purchaser).

3. If RT is not regulated in your country, are there similar or commercially equivalent forms of security preserving seller’s rights to the goods?

See Nos. 1 and 2 above.

4. What is the relation of RT and passage of risk in your system? How may a seller protect its interest after the passage of risk?

1. In general

Under the Türk Borçlar Kanunu (Turkish Code of Obligations or TCO) No. 6098 of 11 January 2011, risk of loss (as well as benefit) passes to the buyer in the case of a sale of movable property at the time of transfer of possession of the property (in general, upon delivery of the goods) to the buyer. In other words, the risk passes to the buyer when it takes possession of the goods. Until that time, risk of loss (and benefit) belongs to the seller (Article 208/I. Cf. CISG Article 69; German Civil Code, Paragraph 446/1).

There are several exceptions to this general rule specified by Article 208/I TCO.

1. Default of buyer — First, if the buyer is in default regarding the transfer of possession, the risk of loss (as well as the benefit) passes to the buyer as if possession had been transferred to the buyer (Article 208/II).
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2. Distance sale contract — Secondly, upon the demand of the buyer, if the seller ships the sold goods to another place instead of the place of performance, the risk of loss passes to the buyer at the time the goods are delivered to the carrier by the seller (Article 208/III). Contracts or sales of distance have been regulated by the Law on Protection for Consumers (Tüketicinin Korunması Hakkında Kanun) No. 6502 of 7 November 2013 Articles 48-49. See also By Law on Distance Contracts (Mesafeli Sözleşmeler Yönetmeliği) (in Official Gazette, No. 29188 of 27 November 2014). A “distance contract” is defined as any sale contract concluded under an organized distance scheme without the simultaneous physical presence of the seller and the consumer, with the exclusive use of one or more means of distance communication (e.g. e-mail, fax, teleshopping, radio, catalogue, or press advertising with order form, etc.)² Under the Turkish Law on Protection of Consumers, the consumer is any natural or legal person who is acting for purposes which are outside his trade, business, craft or profession. (By Law, Article 4).

1. Passing of risk of loss in case of RT

In the case of a sale with a RT clause, risk of loss passes to the buyer at the time of transfer of possession (Article 208 TCO).³

In jurisprudence, a distinction is made between sale agreements made under a condition precedent” and those made under a condition subsequent (i.e. a dissolving condition).

In a sale agreement concluded under a “condition precedent”, the risk of loss passes to the buyer as soon as possession has been transferred to the buyer, whereas he or she would be the owner of the purchased goods when the condition precedent is fulfilled. Thus, in such sales risk of loss passes to the buyer before it becomes the owner of the goods.

However, under sale agreements concluded under a “condition subsequent”, because the buyer becomes the owner of the goods when the possession is transferred to it, risk of loss also passes to the buyer at that time.

5. What are the formal requirements, if any, including timing, to perfect the seller’s right ?

The RT clause does not protect the interest of the creditor/seller with respect to third-party creditors. Its effectiveness is limited to the parties who agreed to it.
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In the case of attachment of the goods (haciz) under RT by a third-party creditor (i.e. a creditor of the buyer), the seller who has retained title to the attached goods may replevin the goods, relying on its property right based on the RT. According to the Code of Enforcement and Bankruptcy (İcra ve İflas Kanunu), No. 2004 of 9 June 1932 (as amended) the buyer and the seller may assert the RT of the attached goods against the buyer’s creditor who has started an attachment proceeding. When an attachment proceeding is started against the buyer, the Office of Attachment (İcra Dairesi) informs the parties of the attachment ex officio. Thereupon, the seller may intervene in the attachment proceeding relying on its ownership right based on the RT clause (Article 96 as amended on 18 February 1965). The request of the seller for the return of goods sold under RT (the replevin request; istihkak iddiası) has to be made within seven days after the seller has been notified of the attachment. The request is directed to the Office of Attachment (İcra Dairesi). The creditor who has started the attachment proceeding may object to the replevin request (istihkak iddiası) within three days of notification of this request. The objection is directed to the Office of Attachment. Thereupon the Office of Attachment sends the attachment file to the Court of Attachment (İcra Mahkemesi). This Court may decide either to continue the attachment or to defer it. In such case, the seller has to initiate proceedings for return of the attached goods to it. This action is called an “action for replevin” (istihkak davası). If this action is not initiated by the seller, the seller with RT cannot prevent the sale of the attached goods.

If the seller has not received notice of the attachment proceeding for any reason, he or she is entitled to initiate the “action for replevin” (istihkak davası) during the attachment proceeding up to seven days before the attached goods are sold and the proceeds are paid to the buyer’s creditor.⁴

In case of bankruptcy of the buyer, a declaration relating to the RT clause must be forwarded by the seller. If the goods sold under RT are included in the bankruptcy estate (iflas masası), the seller must request the Bankruptcy Administrator (İflas İdaresi) to remove the goods under RT from the bankrupt’s estate within one month after the bankruptcy proceeding has begun — Code of Enforcement and Bankruptcy (İcra ve İflas Kanunu), No. 2004, Article 228. If the request for replevin by the seller is accepted by the Bankruptcy Administrator, the goods sold under RT are removed from the bankrupt’s estate and returned to the seller. If the request for replevin is rejected by the Bankruptcy Administrator, the seller must be notified of the rejection of his request. In this case, the seller who has retained the title to the goods must initiate an “action for replevin” (istihkak davası) within seven days following the service of the notice upon it. This action is initiated before the Court of Enforcement (İcra Mahkemesi). If this action is not initiated, the seller may not request the goods under RT and share the proceeds of the goods if they are sold in the bankruptcy proceeding⁵.
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6. Effectiveness

1. Does sale to a third party break RT? What if goods have been transformed or sold? If yes, is there a possibility to transform the RT in case of sale to a third party?

Under Turkish law, if the goods under RT are sold and transferred to a third person in good faith, the acquisition by the third party is protected. The third person acquires ownership of the goods as soon as possession is transferred to it (Article 988 TCC). The entry in the RT registry, maintained by notary publics, does not have a role in relation to the determination of good faith. Entry in the registry is only important for the creation of the seller’s RT.

When this problem is examined in case of sale agreements concluded under condition precedent and condition subsequent, the following conclusions are reached:

In a sale agreement under condition subsequent, as explained above, the buyer is the owner of the goods under RT. Therefore, if he or she sells the goods to a third person who acquires them in good faith, acquisition by the third party is protected (Article 988 TCC). In case of a sales agreement concluded under a condition precedent, the buyer does not become the owner of the goods under RT in spite of the transfer of possession. The risk of loss passes to the buyer, but he or she is not entitled to dispose of the goods. Nevertheless, the buyer may transfer its “expected ownership right” to a third person in good faith through the possession of the goods without the consent of the seller. Good faith must be protected.

2. Enforcement of RT if delinquent buyer is not insolvent — What is the judicial procedure and what is its likely timeline?

As explained above, even in sales agreements under a condition precedent, if the third party is in good faith, its acquisition is protected (Article 988 TCC). The seller with RT does not have a claim against a third party acting in good faith. In this case, the seller with RT may claim damages from the buyer under the sale agreement with the buyer (Article 112 TCO).

If the third party is acting in bad faith (i.e. if he has knowledge of the condition precedent), the seller may request return of the goods under RT from the third person (rei vindicatio: Article 683 TCC). Further, he or she may claim damages from the buyer if he or she suffers damage (Article 112 TCO).

3. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

See the explanations in No. 6 (a) and (b) above and (d) below.

4. Bankruptcy — Interaction of RT (which is not contract law)
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   and bankruptcy law

1. Goods still with buyer

See explanations in No. 5 above.

2. Goods already sold by buyer

See explanations in No. 5 above.

3. Time limits to declare title to receiver

See explanations in No. 5 above.

4. Who pays storage, insurance and transport during discussions with receiver?

See explanations in No. 5 above.

7. Model clause(s)-Drafting tips

NOTE: The following language is based on contractual provisions commonly seen in this country, but readers should always consult legal counsel before including an RT clause in a contract.

A standard model contract does not exist. In practice there are several types of agreements under RT. Therefore it is suggested that the parties should consult legal counsel before including a RT in each concrete case.

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