Turkey: Transition Of Damage And Benefit In Sale Agreements

Sale agreements are the agreements in which the seller undertakes the obligation to transfer the possession and ownership of the goods to the buyer and the buyer undertakes the obligation to pay a price in return. In sale agreements, the item that is sold may be transferred at the time of sale, or it may be transferred after a certain period of time.

During the period between the moment of sale and the transfer of ownership, the sold item may gain value, or it may be damaged due to unexpected events and/or reasons that cannot be attributed to the seller. Under such circumstances, the issue of who will bear the loss or who will receive the benefit should be determined. Therefore, in sale agreements regulated under Article 208 of the Turkish Code of Obligations ("Code"), the moment of transition of damage and benefit is important.

Scope of Damage and Benefit

Damage is the partial or total destruction of the sold item in the period between the execution of the sale agreement and the transfer of possession in movables and registration in immovables, due to an event which is not expected and imposed on the seller and the buyer and/or their assistants.¹ The risk of deterioration, deterioration and destruction of a thing belongs to the owner of that item due to the nature of the concept of damage.

Under the Turkish Code of Obligations, benefit refers to the spontaneous increase in the value of the item sold between the execution of the agreement and the transfer of possession in the case of movables and registration in the case of immovables. ² This increase in value may occur in cases such as the harvesting of a garden, the appreciation of an immovable property, or the interest, rent money, etc. obtained from the goods sold.

Transition of Damage and Benefit

Article 208 of the Turkish Code of Obligations regulates at which point the damage and benefit passes from the seller to the buyer. According to the relevant article, apart from the exceptions arising from the law, the necessity of the situation or the special conditions stipulated in the agreement, the benefit and damage of the sold item are borne by the seller until the transfer of possession in the case of movable sales and until the moment of registration in the case of immovable sales. In this context, the Code associates the transfer of damage and benefit with ownership and regulates that the damage and benefit belong to the seller until the transfer of ownership of the item that is sold.

Pursuant to Article 208 of the Law, the following conditions shall exist in order for the damage and benefit to be borne by the seller:

A Validly Executed Sales Contract Shall Exist Between the Seller and the Buyer

Under the Turkish Code of Obligations, sale agreements may be invalid for reasons such as incapacity of will, over-utilization, collusion, lack of form, and incompetence. Without a valid sale agreement executed between the seller and the buyer within the scope of the Turkish Code of Obligations, the transfer of damage and benefit shall not be considered. As a matter of fact, if there is an invalid sale agreement executed between the parties, neither the obligation to pay the price nor the obligation to transfer the ownership or possession will arise. Without the transfer of possession or the ownership, it will not be possible to talk about the transfer of damage and benefit.

Transfer of Possession in Movables, Registration in Immovables Shall Not Yet Be Made

Under the Turkish Code of Obligations, it is clear that the transfer of damage and benefit is associated with the transfer of ownership. Because according to Article 763 of the Turkish Civil Code, the transfer of ownership of movable assets is possible with the transfer of possession, meaning the transfer of the actual control over that item, while the transfer of immovable property is possible with registration to the relevant registry. Since the sold item shall still be in the ownership of the seller before the transfer of possession and/or registration occurs, and in the event of any damage to the item in its ownership, the seller shall bear the damage on its own.

It should be noted that, if the delivery of the sold item has become impossible due to the damage occurred before the transfer of ownership, the seller shall not be able to demand the sale price from the buyer, and the buyer shall not be able to demand the delivery of the sold item. Therefore, the material damage arising from the non-performance of the obligation shall belong to the buyer.

The Damage/Benefit Shall Have Occurred as a Result of an Event that cannot be Attributed to the Parties

In order for the damage or benefit to be attributable to the seller, the event causing the damage or benefit must be unexpected and not caused by the parties. For example, damage caused by war, riots, strikes, earthquakes, floods, fires, etc., which fall within the scope of force majeure, or damage caused by the acts of third parties will fall within this scope. At the same time, if the value of the thing sold has decreased due to the impossibility of performance, or if the goods are partially or completely destroyed, lost or their physical characteristics have changed, then these should also be evaluated within the scope of the unexpected event.

Significantly, Article 208 of the Turkish Code of Obligations shall not apply if the seller and/or its authorized representatives have caused the damage (impossibility) through negligent behaviour. The seller and/or its authorized representatives shall be liable under Article 112 of the Turkish Code of Obligations within the scope of non-performance or improper performance of the obligation. As a result, the buyer shall not only be released from the obligation to pay the purchase price but shall also be entitled to claim compensation for the damage suffered. Except for the mentioned circumstances, if the seller is in default, the damage shall not be transferred to the buyer, the seller shall bear the damage. If the damage is caused by the buyer's default, the buyer shall bear the damage.

Exceptional Matters

Although Article 208 of the Turkish Code of Obligations is applicable to the transfer of damage and benefit in sale agreements, since the relevant provision is regulatory rather than mandatory, the parties may agree otherwise by contract. The parties may agree in an agreement that the damage and benefit of the sold item shall pass to the buyer as of the execution of the agreement, or they may relate the transfer of the damage from the seller to the buyer to another event, not to the transfer of possession and/or registration.

It should be noted that the rules regulated by the International Chamber of Commerce on the manner of transportation in international sales and the rules on when the damage shall be transferred from the seller to the buyer are included in Incoterms. Accordingly, in such cases, a procedure different from the Code may be applied for the transfer of damage and benefit.

Footnotes

1. Code of Obligations Special Provisions, Fikret Eren, p. 48, N. 137

2. Code of Obligations Special Provisions, Fikret Eren, p. 48, N. 136

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.