The principle of freedom of contract, which has been adopted in modern legal systems, states that the content of the agreement may be freely determined by the parties, provided that it remains within the limits set by the law. The parties are expected to be faithful to the provisions of the agreement, the content of which is freely determined, and to duly fulfill their obligations arising from the agreement; this expresses the principle of fidelity.
However, despite the alignment of the parties' wills, declarations, rights, and obligations during the conclusion of the agreement, it is sometimes encountered that the parties are unable to fulfill their contractual obligations. The balance that existed between the mutual obligations when the agreement was concluded may be unbearably distorted against one of the due to the extraordinary change of circumstances. In the event that one of the contracting parties has difficulty in fulfilling its contractual obligations, "hardship" arises. Here, the adaptation of the agreement, which is the subject of this article, appears as an exception to the principle of fidelity in case of hardship. The Turkish Code of Obligations regulates hardship as follows:
Turkish Code of Obligations Article No. 138 - An extraordinary situation that was not foreseen and not expected to be foreseen by the parties at the time of conclusion of the agreement, occurs for a reason not caused by the debtor and changes the existing facts against the debtor at the time of conclusion of the agreement to the extent that it is against the rules of honesty and the debtor has not yet fulfilled the debt or the performance becomes extremely difficult. The debtor has the right to request the adaptation of the agreement to the new conditions from the judge, and to rescind from the agreement if this is not possible. In continuous acting agreements, as a rule, the debtor uses the right of termination instead of the right to rescind.
According to the wording of the law, the party who is in hardship may request the judge to adapt the agreement to the changed conditions or may rescind the agreement. However, it must be accepted that the debtor shall first request the adaptation of the agreement from the other party. If the other party does not accept this request, it can be said that the debtor has two options: The first one is to request the adaptation of the agreement from the court. In such a case, the agreement between the parties will be subject to litigation. The second option of the debtor is to terminate the agreement through rescission of the agreement.1
The 13th Civil Chamber of the Court of Cassation explains the conditions for requesting the adaptation of the agreement from the court as follows:
Pursuant to Article 138 of the TCO, the following conditions must be met for the judge to decide on the application of a contracting party in accordance with the request:
1) After the conclusion of the agreement, the balance between the performances of the parties must have deteriorated to such an extent that the debtor cannot bear the consequences anymore. If the hardship existed at the time of the conclusion of the agreement and was not known by the parties, it may not be subject to the provisions of Art. 138 of the TCO but may be subject to annulment according to the provisions of mistake (Art. 30 of the TCO), if any. The hardship that occurs subsequently, may not necessarily lead to the economic ruin or severe damage of the debtor. In the article, it is deemed sufficient that "the extent that it is against the rules of honesty and the debtor has not yet fulfilled the debt or the performance becomes extremely difficult." Of course, the situation of the other party shall also be taken into consideration in this assessment.
2) The change in the balance of obligations must arise from an extraordinary circumstance (such as war, economic crisis, devaluation, natural disasters, prohibitions and restrictions on imports and exports) which could not have been foreseen and was not expected to be foreseen when the agreement was concluded. This issue may be referred to as "Improvision". Although the article states "not foreseen by the parties", it should be deemed sufficient that the extraordinary event is unforeseeable only for the party in hardship at the time of the conclusion of the agreement. It is not enough for the party in hardship to prove that he did not foresee this situation at the time of the conclusion of the agreement; this situation must be "unforeseeable" for him. If he could not foresee this fact due to his own carelessness or inattention, he will not be able to benefit from Article 138.
3) The fact that creates an hardship cannot be caused by the debtor. In addition to the fact that the fact itself is not caused by the debtor, the fact that creates a hardship cannot be caused by the debtor.
4) The obligations must not yet have been performed. As a rule, it is not possible to apply for adaptation or rescission of the agreement by mentioning hardship after fulfillment of the debt. However, if the debtor has performed by reserving his rights, he may exercise these rights after the performance. In this case, according to the result of the adaptation or in case of rescission of the agreement, the debtor can request partial or complete recover the performance according to the provisions of unjust enrichment.2
The COVID-19 pandemic, the global housing crisis, the earthquake, the inflation in our country and the legal regulations in order to protect the value of the Turkish currency; caused many parties, especially parties of the lease agreements and loan agreements concluded in foreign currency, to fall into difficulty of performance.
In cases that filed with a request for adaptation of the agreement, the Court evaluates each concrete case on its own by looking at the nature of the agreement and the performances, whether the changed conditions are foreseeable and the effect of the changed conditions on the parties. For example, it is accepted that a prudent merchant will be more capable of foreseeing extraordinary circumstances than a non-merchant. In a decision of the Court of Cassation General Assembly of Civil Chambers dated 2014, it was ruled that the economic situation in our country was not unpredictable and therefore the conditions for adaptation did not occur:
As explained above, Turkey has been introducing economic packages for years, but has not been able to achieve a stable economy. It is a fact that devaluations are not unpredictable for our country and that exchange rate policies can change at any time. It is known that devaluations and economic crises do not occur suddenly, they occur after downswing in the market. In our country, devaluations have been announced since 1958, monetary adjustments have been made frequently and the value of the Turkish currency has been reduced against the dollar and other foreign currencies. The unstable economic situation in our country is something that can be foreseen by the plaintiff. In the concrete case, the unforeseenness, which is one of the conditions of adaptation, did not occur.3
In order for the judge to decide to rescind the agreement, the plaintiff must have such a request. If the plaintiff has not stated in his/her request that he/she wishes to exercise the right of rescission in case adaptation is not possible, or if he/she has directly and only requested to exercise the right of rescission, even though the judge has seen that adaptation is possible, the judge cannot automatically decide to apply the other right by exceeding the request, therefore the judge shall dismiss the case. However, this rejection does not prevent the filing of a new lawsuit with the request for adaptation and rescission of the agreement, which was not put forward in the rejected lawsuit if the conditions continue. The judge is free to determine the amount and method of adaptation and is authorized to decide a different adaptation rather than the requested one. 4
Footnotes
1. BAYSAL Başak, Aşırı İfa Güçlüğü, s.137 vd.
2. Yargıtay 13. Hukuk Dairesi E. 2013/16898 K. 2014/18895 T. 13.06.2014
3. Yargıtay HGK, 12.11.2014 tarih, 2014/1614 Esas, 2014/900 K. kararı
4. Oğuzman Kemal /Öz Turgut, Borçlar Hukuku Genel Hükümler, 11.İstanbul 2013., s. 207-208
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.
