Muvazaa

Muvazaa, as a legal term, refers to an agreement between parties intended to present a legal act that does not reflect their true intentions, either to deceive third parties or to conceal another transaction, typically with the intent to mislead third parties. Muvazaa involves a deliberate discrepancy between the declared intentions of the parties and their actual intentions.

Elements of Muvazaa

The essential elements of muvazaa are generally as follows:

• Apparent Transaction: The legal act presented by the parties to the external world, which they do not intend to be binding between themselves.
• Muvazaa Agreement: An agreement between the parties stating that the apparent transaction will not produce legal consequences between them or will produce consequences different from those declared. This agreement may be made before or simultaneously with the apparent transaction.
• Intent to Deceive: The intention of the parties to mislead third parties through the apparent transaction. However, some legal scholars argue that since the core of muvazaa is the agreement that the apparent transaction will not produce its outward legal effects, intent to deceive third parties is not an essential element.
• Hidden Transaction: This element exists only in relative muvazaa; the parties conceal the actual transaction they intend to perform behind the apparent transaction.

Types of Muvazaa

Muvazaa is generally divided into two main types:

Absolute Muvazaa

Relative Muvazaa

Relative muvazaa may arise in various forms:

Legal Consequences of Muvazaa

Apparent Transaction

• The general rule is that the apparent transaction is invalid (null and void), as it does not reflect the true and mutual intentions of the parties. The Turkish Code of Obligations No. 6098 (Article 19, repealed Article 18 of the Old Code) emphasizes that courts must examine the parties’ actual and common purpose, disregarding the terms and labels used to conceal the true nature of the agreement.
• Doctrine debates the absolute nature of this invalidity, using terms such as “nullity,” “non-existence,” or “intrinsic invalidity.” The prevailing view in Turkish doctrine and Court of Cassation jurisprudence is that the apparent transaction is void by nullity.

The consequences of the invalidity of the apparent transaction are as follows:

Hidden Transaction

• In cases of relative muvazaa, the hidden transaction may be valid if it satisfies all legal requirements applicable to its type (e.g., formalities required for real estate sales).

The validity of the hidden transaction depends on the following:

• It must be validly established by the mutual and consistent intentions of the parties.
• Its subject matter must not be impossible or contrary to law or morality.
• It must comply with the formal requirements prescribed by law for that type of transaction. If the hidden transaction requires a specific form, the fulfillment of formalities for the apparent transaction does not remedy the lack of form in the hidden transaction.

Exceptions and Protection of Third Parties

• Written Acknowledgment of Debt: Under Article 19/2 of the Turkish Code of Obligations (formerly Article 18/2 of the Old Code), a debtor cannot invoke muvazaa against a third party who has in good faith acquired a claim based on a written acknowledgment of debt.
• Protection of Reliance on the Land Registry: A third party who acquires ownership or another real right in good faith based on an entry in the land registry is protected (Turkish Civil Code No. 4721, Article 1023). Even if registration based on a muvazaa and thus invalid transaction is fraudulent, the person who acquires rights in good faith from the person registered as owner (who is not the actual owner) is protected.
• Principle of Good Faith (Prohibition of Abuse of Rights): The assertion of invalidity due to muvazaa may be barred if it contradicts the principle of good faith (Turkish Civil Code Article 2). For example, if the parties have performed their obligations under a formally defective hidden agreement, later invoking invalidity due to lack of form may constitute an abuse of rights.

Assertion and Proof of Muvazaa

By the Parties

• The parties to the muvazaa transaction may assert its invalidity against each other. Their universal successors (e.g., heirs) may also do so.
• If the transaction is documented in a written instrument, the party asserting muvazaa generally must prove it by written evidence (Code of Civil Procedure No. 6100, Article 201). Even if the apparent transaction was formally executed, the muvazaa agreement (typically informal) may be proven by ordinary written evidence against the party to the transaction.

By Third Parties

• Third parties whose rights are affected by the muvazaa transaction may also assert its invalidity. Such parties may include creditors, reserved heirs, or holders of pre-emption rights.
• Unlike the parties to the transaction, third parties may prove muvazaa by any means of evidence, including witness testimony.

Muvazaa and Interpretation of Declarations of Intent

The issue of muvazaa is closely related to the interpretation of declarations of intent. Where there is a deliberate discrepancy between the declared and actual intent, as in muvazaa, the legal effect of the transaction depends on how the declaration is interpreted.

• In muvazaa, the addressee of the declaration (the other party to the muvazaa agreement) is aware of the actual intent. According to the theory of reliance, if the addressee knows or should know the true intent of the declarant, the declaration must be interpreted according to the actual intent. Since the addressee in muvazaa is aware of the true intention that the apparent transaction will not produce legal effects, the apparent transaction produces no legal consequences between the parties.
• The legal non-existence of the apparent transaction arises from the addressee’s knowledge of the true intent; no explicit agreement to that effect is required.

Difference from Similar Legal Concepts

• Acting Under a Pseudonym (Acting on Behalf of Another): In acting under a pseudonym, a person acts in their own name but for the benefit of another person who wishes to remain hidden. If the other contracting party is unaware of this arrangement, it is generally treated as indirect representation or a relationship of trust. If the other contracting party is aware and accepts that the named party is merely a front, this situation may constitute muvazaa (muvazaa in person). In acting under a pseudonym, the transfer of rights to the front person is at least temporarily intended, whereas in muvazaa, the apparent transfer is not genuinely intended by the parties.
• Trust Transaction: In a trust transaction, one party (the transferor/truster) transfers a right (e.g., ownership) to another party (the transferee/beneficiary), who agrees to use the right for a specific purpose and/or return it to the transferor or a third party after a certain period or upon fulfillment of a condition. Unlike muvazaa, where the apparent transfer is not genuinely intended, in a trust transaction the transfer to the transferee is genuinely intended by the parties, even if limited to a specific purpose defined by the trust agreement.
• Fraud Against the Law: This involves parties performing a legally permitted act to achieve a result prohibited by law. In fraud against the law, the parties desire the legal consequences of the transaction but use it as a means to achieve an unlawful purpose. In muvazaa, however, the parties do not desire the legal consequences of the apparent transaction.

Historical Development

The concept of muvazaa originates in Roman law. Although Roman jurists did not develop a fully formed general theory of muvazaa as in modern law, they addressed simulated acts. The principle that the actual intent (“quod agitur”) prevails over the simulated appearance (“quod simulate concipitur”) was recognized especially in the post-classical and Justinianic periods. The dogmatic foundations of the muvazaa theory were further developed during the Middle Ages by the Glossators and Commentators.

Transactions Not Susceptible to Muvazaa

Generally, muvazaa is not possible in certain types of transactions, particularly formal acts in which a public official plays a constitutive role beyond merely formalizing the parties’ intent (e.g., marriage or adoption). Similarly, unilateral declarations made to official authorities, such as the renunciation of inheritance, are also considered transactions not susceptible to muvazaa.