What is a Contract for the Benefit of a Third Party? (Y7HD, K.2022/1271)

A contract for the benefit of a third party is a special type of debt relationship where one of the obligations in a bilateral debt relationship is to be performed for a person who is not a party to the contract (a third party). In the Turkish Code of Obligations (TBK), it is regulated under the heading "C. Contract for the benefit of a third party," and the fundamental provision establishing this institution is TBK Article 129. According to the article, if a person who has entered into a contract in their own name has included an obligation to perform for the benefit of a third party in the contract, they can demand the performance of the obligation for the third party; furthermore, if it is in accordance with the parties' intention or custom, the third party or their successors can also demand the performance of the obligation. After the third party notifies the debtor of their intention to exercise this right, the creditor can no longer release the debtor or change the scope of the debt. This framework establishes a dogmatic distinction between a "full contract for the benefit of a third party," which grants the third party a direct and original right to demand performance, and an "incomplete contract for the benefit of a third party," which grants the third party only the right to accept performance. tsb.org.tr+1

As emphasized in the decision of the 7th Civil Chamber of the Supreme Court of Appeals, numbered 2021/940 E., 2022/1271 K., in a "contract purely for the benefit of a third party," the third party, although not a party to the contract, acquires the receivable directly and originally upon the conclusion of the contract; they can demand and accept performance from the promisee alone. Thus, an exception to the principle of relativity arises; the third party's right to demand and accept is determined according to the parties' intention and the provisions of the contract. The decision reminds us of the conditions and limits of the third party's direct right to demand in a performance foreseen for a third party, in a manner consistent with the wording and purpose of Article 129 of the Turkish Code of Obligations. yargitaykararlari.com.tr+1

Article 129, paragraph 2 of the Turkish Code of Obligations (TBK) stipulates that a third party's (or their successor's) ability to demand performance is conditional upon the parties' intention or conformity with custom and practice. Once this condition is met, the third party may demand performance from the debtor. Once the third party notifies the debtor of their intention to exercise this right, the creditor party to the contract can no longer release the debtor or alter the nature and scope of the debt to the detriment of the creditor. Thus, the legislator, in order to protect the interests of the third party, restricts the freedom of disposition between the creditor and the debtor. (tsb.org.tr)

There are two more important supplementary regulations related to the rule. The first is Article 130 of the Turkish Code of Obligations (TBK): In liability insurance taken out by someone employing another person to secure their legal responsibility, the rights arising from the insurance belong directly to the employee (third party). This provision allows the employee to directly claim insurance compensation, thus concretizing the logic of contracts for the benefit of a third party with a typical example. The second is Article 141 of the TBK: A person who incurs a debt for the benefit of a third party cannot offset this debt against their claim against the other party to the contract; thus, the third party's right to claim cannot be weakened through offsetting. Adana Lawyer Saim İncekaş+1

Legal doctrine and jurisprudence acknowledge that the institution is divided into two main forms. In an incomplete contract for the benefit of a third party, the third party can only accept performance; they do not have the right to demand performance. In a complete contract for the benefit of a third party, the third party can directly demand performance from the debtor and accept performance. The complete type is seen as an exception to the principle of relativity because the third party directly acquires a right to claim from the contract; this exception is balanced by the notification and purpose/custom criteria in Article 129 of the Turkish Code of Obligations. The definitions and limitations in the decision of the 7th Civil Chamber of the Supreme Court of Appeals, numbered 2022/1271, also confirm this distinction. DergiPark+1

In practice, contracts for the benefit of a third party are encountered in banking and insurance transactions, construction contracts in exchange for land shares, group contracts, and especially in liability insurance. For example, in life insurance taken out due to a consumer loan, the bank's first attempt to collect from the insurance company within the policy limits; or in occupational accident/professional liability insurance, the right of the injured employee or third party to directly apply to the insurer is based on the system in Articles 129-130 of the Turkish Code of Obligations. In this context, it should be remembered that the right of direct claim granted to a third party cannot be eliminated by a subsequent release or change of scope made by the contracting parties. app.e-uyar.com+1

The following points should be considered from a technical perspective: Firstly, the right granted to a third party constitutes an "independent claim right"; however, this right cannot exceed the limits set by the content of the contract and the will of the parties. Secondly, the creditor's power to release or modify the scope of the claim is limited after the third party notifies the debtor; this is a mandatory safeguard protecting the interests of the third party. Thirdly, due to the prohibition of set-off (Turkish Code of Obligations, Article 141), the debtor cannot weaken the position of the third party by offsetting their debt to the third party against their claim to the creditor. Fourthly, in liability insurance, direct claim (Turkish Code of Obligations, Article 130) is a typical, legally mandated aspect of a contract for the benefit of a third party; here, the third party can directly claim insurance compensation even if they are not a party to the contract. tsb.org.tr+1

In conclusion, contracts for the benefit of a third party are an exceptional but functional manifestation of the principle of relativity in contract law. Article 129 of the Turkish Code of Obligations (TBK) grants a third party the right to directly demand and accept payment when it is in accordance with the parties' intention or custom; it also limits the creditor's power of disposition upon notification. Article 130 of the TBK makes the right of a third party to directly demand payment a rule arising from the law, especially in liability insurance; and Article 141 prevents the elimination of a third party's claim through set-off. The Supreme Court's 7th Civil Chamber's decision numbered 2022/1271 explicitly confirms the third party's right to directly demand and accept payment in "contracts purely for the benefit of a third party," thus guiding practice. This structure aims to protect the interests of third parties in a balanced way with freedom of contract and finds strong practical application, particularly in banking-insurance practices and mixed-type contracts (e.g., construction in exchange for land shares).

Asel DONGELLI