Corporate and M&A

Author: Özgür Kocabaşoğlu

Introduction

As a rule, rights and obligations arising from an agreement have legal consequences only between the creditor and the debtor which are parties to the agreement. This principle is referred to as "privity of contract." In general, contracts for the benefit of third parties, where the fulfillment of an obligation is undertaken to a third party other than the parties to the agreement, constitute an exception to the principle of privity of contract. This article will analyze the decision of the 11th Civil Chamber of the Court of Cassation dated 08.06.2021 ("Decision") concerning the question of who is bound by a share transfer agreement where the transfer of goods is undertaken in favor of a company other than the contracting parties, within the scope of the principle of privity of contract.

The Case and the Assessments of the Judicial Authorities

This case concerned a liquidation agreement ("Agreement") signed between the shareholders of the plaintiff company ("Plaintiff") and the shareholders of the defendant company ("Defendant"). The subject matter of the Agreement was the commitment of the real person shareholders who were parties to the Agreement to mutually transfer their shares in the Plaintiff and the Defendant companies. According to the Agreement, vehicles belonging to the Defendant were to be transferred to the Plaintiff or to another company to be nominated by the Plaintiff. However, the Defendant did not transfer the disputed vehicles to the Plaintiff. As a result, the Plaintiff requested the registration of the vehicles in its own name, and if this was not possible, to collect the cost of the vehicles from the Defendant with interest.

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