Collusion and its Legal Consequences (Turkish Code of Obligations, Article 19)

In Turkish Contract Law collusionis defined as parties appearing to have entered into a contract they did not actually intend, with the aim of deceiving third parties. In other words, a transaction appears to be taking place between the parties, but this transaction does not reflect their true intentions. Because collusion undermines the element of trust in legal transactions, it is explicitly regulated by the legislator and is subject to the sanction of absolute nullity.

Legal Basis

According to Article 19/1 of the Turkish Code of Obligations No. 6098 : "A contract is considered fraudulent if it does not reflect the true intentions of the parties. A fraudulent contract is absolutely null and void."

The second paragraph of the same article states that if a seemingly fraudulent contract is actually a hidden contract reflecting the parties' true intentions, its validity shall be subject to general provisions. This regulation distinguishes between fraudulent transactions and transactions that the parties genuinely intended to carry out.

Elements of Simulation

1. Agreement Between the Parties: The parties must ostensibly agree to conduct a transaction. This agreement forms the basis of collusion.

2. Apparent Transaction: The parties must conduct a transaction that is likely to mislead third parties. For example, a sales contract could be presented as a donation.

3. Discrepancy with True Intent: The transaction does not reflect the true intentions of the parties. For example, presenting a donation as a sale.

4. Purpose of Deceiving Third Parties: The primary purpose of collusion is to deceive creditors, public authorities, or third parties.

Types of Collusion

• Absolute Simulation: The parties have no actual intention of entering into any legal transaction; a transaction is merely performed for appearances. For example, signing a sales contract that does not actually exist. In this case, the apparent transaction is absolutely void.

• Relative Simulation: The parties seemingly carry out a transaction, but behind this apparent transaction lies a different, hidden transaction. For example, presenting a donation as a sale. In this case, the apparent transaction is invalid, while the hidden transaction is valid if it meets the legal requirements.

Legal Consequences

• Absolute Invalidity: A collusive transaction is absolutely void according to Article 19 of the Turkish Code of Obligations. That is, it is invalid from the outset and has no legal consequences.

• Status of a Concealed Transaction: If there is a concealed transaction behind the collusion that conforms to the intentions of the parties, this transaction is considered valid provided it complies with general provisions. For example, in a sales contract presented as a donation, the donation is valid if the formal requirements of the donation have been met.

• Protection of Third Parties: Since collusion often aims to deceive third parties, creditors can file a "lawsuit for annulment of transaction" in accordance with Articles 277 et al. of the Enforcement and Bankruptcy Law to have collusive transactions annulled

Supreme Court Practice

In Supreme Court rulings, collusion has generally transfers made with the aim of evading creditors and transactions that conceal the true intention . Particularly in real estate sales, the Supreme Court considers transactions that are actually donations but presented as sales, or sales transactions registered in the land registry to evade creditors, as collusive. The Supreme Court's General Assembly of Civil Law and relevant chambers examine the parties' social relationships, economic situations, and the ordinary course of life to determine the existence of collusion.

Conclusion

Collusion refers to transactions made by parties with the intention of misleading third parties, which do not reflect their true intentions. According to Article 19 of the Turkish Code of Obligations, collusive transactions are absolutely null and void. However, if there is a hidden transaction underlying the collusion that reflects the parties' true intentions, that transaction is valid as long as it complies with legal requirements. Supreme Court precedents also show that collusion frequently arises, particularly in transactions made with the aim of concealing assets from creditors.

Asel DONGELLI