Ⅰ. INTRODUCTION
In modern legal systems, the authority of representation in contracts concluded with third parties constitutes one of the fundamental elements directly affecting the validity of the contract. Nevertheless, in practice, legal transactions carried out by persons lacking authority of representation are frequently encountered, giving rise to significant debates regarding the validity of such contracts and their binding effect on the parties.
In Turkish law, the principle of reliance on appearance, which has been developed to eliminate the legal uncertainty arising from such situations, emerges as an important mechanism serving to preserve the validity of contracts under certain conditions. In this study, the legal status of contracts concluded by persons without authority of representation will be examined within the framework of the principle of reliance on appearance, and the consequences arising with respect to different types of contracts will be comparatively analyzed.
ⅠⅠ. THE CONCEPT OF REPRESENTATION AND THE LIMITS OF AUTHORITY OF REPRESENTATION
Pursuant to Article 40 of the Turkish Code of Obligations No. 6098 (“TCO”), representation refers to the act of a person performing a legal transaction in the name and on behalf of another person. Since the authority of representation ensures that the legal transaction produces effects vis-à-vis third parties, the source and scope of such authority are of great importance.
The authority of representation may arise in the following forms:
- Statutory representation, such as the authority of a legal guardian or trustee,
- Voluntary representation, such as the authority granted through a mandate (power of attorney) agreement.
Where an unauthorized representative acts without the prior or subsequent approval of the principal, the transaction shall not be binding pursuant to Article 46 of the TCO. However, among the exceptions to this general rule, the principle of reliance on appearance may mitigate this strict consequence for the purpose of protecting justified reliance.
ⅠⅠⅠ. THE APPLICATION OF THE PRINCIPLE OF RELIANCE ON APPEARANCE WITH REGARD TO TYPES OF CONTRACTS
The applicability of the principle of reliance on appearance in contracts concluded by persons lacking authority of representation may lead to different consequences depending on the nature of the contract. This is because each type of contract does not share the same characteristics in terms of the parties’ duty of care, expectations of legal certainty, and the risks involved. Therefore, the principle of reliance on appearance must be assessed with due regard to the specific type of contract concerned.
ⅰ. Obligatory Contracts (Contracts of Sale, Service and Work)
Contracts of sale, service, and work are among the most frequently encountered types of contracts in commercial life and are often carried out within the framework of corporate organization. Where a person acting on behalf of a company concludes such contracts, it is generally considered reasonable for third parties to rely on the existence of that person’s authority of representation.
In this regard, the decision of the 12th Civil Chamber of the Court of Cassation dated 20 September 2017, numbered E.2016/19373, K. 2017/11054, is noteworthy. In the said decision, the Court held that a person who signs a promissory note on behalf of a company without having authority of representation shall be held personally liable, provided that it is established through commercial registry records that such person was not an authorized representative:
“According to the response received from the Trade Registry Directorate, it has been determined that the objecting debtor is not a representative of the company. In this case, it is evident that the objecting debtor, who signed the negotiable instrument on behalf of the issuing company without having authority of representation, shall be personally liable for the signature affixed on behalf of the company.”
The above-mentioned decision reflects an approach whereby, in the absence of authority of representation, liability is attributed directly to the unauthorized representative rather than protecting the reliance of the third party in the specific circumstances of the case.
However, particularly in commercial relationships characterized by continuity, such as situations where similar transactions have previously been conducted by the same person, where invoicing and payment processes have been carried out through that person, or where the company has de facto accepted that person as its interlocutor, a justified reliance may arise on the part of the third party. In such cases, even in the absence of actual authority of representation, the contract may bind the principal pursuant to the principle of reliance on appearance.
With respect to contracts of service and work, a more cautious assessment is required due to the presence of a personal performance element and the often-long-term nature of such contracts. Nevertheless, where the principal has created an appearance that a person determining the scope of work, giving instructions, and supervising performance is authorized, the protection of the good-faith third party may come into consideration.
ⅰⅰ. Continuing Contracts (Lease Agreements)
Lease agreements are among the contracts in which the third party may reasonably be expected to investigate the existence of authority of representation, as they give rise to long-term obligations. For this reason, the application of the principle of reliance on appearance should be interpreted more narrowly in comparison to obligatory contracts.
Nevertheless, where a person who exercises de facto control over the immovable property, collects the rental payments, and acts in the capacity of a lessor uses such authority with the knowledge or tacit consent of the principal, the protection of the third party’s reliance may be justified, particularly in commercial leases.
ⅰⅰⅰ. Contracts Directly Concerning Representation or Subject to Formal Requirements (Mandate, Suretyship and Security Agreements)
With respect to mandate agreements as well as suretyship and security agreements, the scope of application of the principle of reliance on appearance is considerably limited. This is because, in such contracts, the parties bear a heavier duty to verify the authority of representation, and agreements such as suretyship are subject to strict formal requirements.
Accordingly, as a rule, a declaration of surety issued by a person lacking authority of representation cannot be deemed valid on the basis of the principle of reliance on appearance. In its decision dated 23 March 2021, numbered E.2017/4-1422, K.2021/321, the General Assembly of Civil Chambers of the Court of Cassation emphasized that transfers carried out on the basis of a forged or unauthorized power of attorney cannot be considered valid even if the third party acted in good faith. In the said decision, the Court stated that:
“In addition to the reasoning of the previous decisions, although possession of the vehicle subject to the dispute had been transferred to the non-party Mustafa Ö., such possession was transferred for a limited period and, as the vehicle was not returned to the claimant upon the expiry of that period, the said person could no longer be regarded as a possessor in the capacity of a trustee. It was further established that he was convicted of the offence of breach of trust by the criminal court and that the judgment became final. The vehicle in question was not transferred to the defendant by this person, but was sold to the defendant on the basis of a forged power of attorney issued by the non-party O. Moreover, in the decision of the General Assembly of Civil Chambers dated 25 September 2002, numbered E.2002/4-608, K.2002/643, which constituted the basis for the reversal upon appellate review by the Special Chamber, it was explicitly stated that the mere fact that a person acquired the property in good faith is not sufficient.”
The Court thus underlined that transfers effected on the basis of forged or unauthorized powers of attorney cannot be upheld even where the third party is in good faith. This line of reasoning highlights the exceptional nature of the principle of reliance on appearance, particularly with regard to contracts subject to formal requirements, such as suretyship.
Ⅳ. CONCLUSION
The authority of representation is of particular importance with regard to the validity of legal transactions and their binding effect on the parties. As a general rule, transactions carried out by persons lacking authority of representation do not bind the principal; however, practical necessities arising in legal and commercial life render it inevitable to mitigate this strict rule in certain circumstances. In this context, the principle of reliance on appearance, which aims to protect the justified reliance of third parties, assumes a complementary role in safeguarding the validity of contracts.
The analysis conducted in this study demonstrates that, although the principle of reliance on appearance is not explicitly regulated under Turkish law, it has been recognized and applied through doctrine and judicial precedents within the framework of the rule of good faith. Nevertheless, this principle does not constitute an automatic remedy applicable to every case of unauthorized representation. The creation or conscious maintenance of an appearance of authority by the principal, the good faith of the third party, and the objective justifiability of such reliance constitute decisive factors for the applicability of the principle.
The assessment conducted with regard to different types of contracts further reveals that the effects of the principle of reliance on appearance vary depending on the nature of the contract. While a broader scope for the protection of third-party reliance may be recognized in obligatory contracts frequently encountered in commercial practice, such as contracts of sale, service, and work, a more restrictive approach is required in continuing contractual relationships, such as lease agreements, as well as in contracts subject to strict formal requirements, including suretyship. This differentiated approach serves to strike a fair balance between legal certainty and the freedom of will of the principal.
In conclusion, although the recognition of the principle of reliance on appearance is essential for ensuring the stability of commercial life and the protection of trust-based relationships, its exceptional nature should not be overlooked. In each individual case, the source of the appearance of authority, the duty of care incumbent upon the third party, and the overall relationship between the parties must be evaluated in a comprehensive manner. A careful and measured application of the principle within this framework will contribute both to the maintenance of legal certainty and to the prevention of the abuse of unauthorized representation.
