According to Court of Cassation decisions, theories concerning the disruption of the economy of contract or the balance between performances in a contract are applied only in extraordinary circumstances. In doctrine, economic crisis or a state of war are cited as examples of such extraordinary circumstances. In order to ensure swift decision-making in such situations, the Court of Cassation has issued three template decisions. Two of these template decisions relate to loan agreements and one to a lease agreement. These decisions will be examined separately below. However, the conditions under which the rights of adaptation, termination or rescission may be exercised will be examined first.
Adaptation
There are two theories regarding adaptation: objective and subjective. The objective theory is based on the balance of obligations in the contract; the subjective theory is based on the change in the conditions that the parties took as a basis when the contract was made. Article 138 of the Turkish Code of Obligations is based on the subjective theory. Therefore, during the new period of economic crisis, the Court of Cassation's stereotyped old case law may change, as the Court of Cassation previously adopted the objective theory.
According to Article 480/2 of the Turkish Code of Obligations, the right to request adaptation from the judge is a constitutive right. This right will take effect upon the decision to be rendered by the judge. In every specific case he encounters, the judge shall establish the balance between the performances of the parties in accordance with the rules of equity. According to one view, no solution method other than increasing the price or rescinding the contract can be used. Unlike the former Code of Obligations, no restrictions have been imposed on the judge in this regard. Therefore, the aforementioned adaptation may now take the form of extending the contract period, reducing the price, or narrowing the subject matter of the performance.
According to Article 138 of the Turkish Code of Obligations (TCO), the conditions for adaptation require the existence of an unforeseeable extraordinary situation, this situation not originating from the debtor, and this extraordinary situation changing the facts existing at the time the contract was concluded, rendering the performance of the debtor's obligation excessively difficult.
The theory of unforeseen circumstances is explained as follows: “If the conditions existing at the time the contract was concluded have changed significantly, the parties should not be bound by the contract. This is called the ‘Condition of Unforeseen Circumstances’. In doctrine, it is assumed that the contract is made with an implicit acceptance that the situation at the time it was made will not change, and that its exact enforcement is made conditional by the parties upon this implicit condition.”
In my opinion, the dispute centres around the obligation of merchants to act with the diligence of a prudent businessman, as stipulated in Article 20 of the Turkish Commercial Code (TCC). According to data from the International Monetary Fund (IMF), established in 1946, Turkey frequently encounters devaluations and high inflation rates. Therefore, a prudent merchant must foresee that the economic conditions of the country in which they conduct their commercial activities are subject to frequent changes.
Indeed In its decision numbered E. 2003/13-599, K. 2003/599, dated 15.10.2003, the General Assembly of Civil Chambers of the Court of Cassation the following expressions are included:
“Bilirkişi raporlarındaki açıklamalardan da, sözleşme ve dava tarihleri arasındaki süre içerisinde döviz kurunun %60’ın üzerinde bir artış gösterdiği anlaşılmaktadır. Devalüasyon ve ekonomik krizlerin aniden oluşmadığı, piyasadaki belli ekonomik darboğazlardan sonra meydana geldiği bilinmektedir. Davacı tacirin ekonomik krizin işaretlerinin belli olduğu bir dönemde, Şubat 2001 krizinden bir ay önce taşınmazda kiracı olarak oturmakta iken üstelik bir müzayaka olmadan yabancı para üzerinden kira sözleşmesi yapması, basiretli bir tacir olarak davranmadığını göstermektedir. Dolayısıyla, somut olayda, tacir olan davacı yönünden, uyarlamanın temel koşullarından biri olan ‘Sonradan ortaya çıkan olguların tahmin edilemez nitelikte olması veya olgular tahmin edilebilmekle birlikte, bunların sonuçlarının somut olaya etkilerinin bu derecede ağır olabileceğinin öngörülememiş olması’ unsuru gerçekleşmemiştir.”
However, if the government was stable at the time the contract was concluded and the 15 July coup attempt had not yet taken place in the country, the increase in the US dollar can be considered unforeseeable.
In past periods, while an economic crisis was once again on the agenda, the Council of Ministers issued decrees in favour of the contractor. However in the decision of the Joint Civil Chambers of the Court of Cassation dated 24.11.1986 and numbered 1986/2 E. 1986/2 K. By including these criteria, the application of the decrees has been left to the judge's discretion.
This result is also in accordance with the provision in Article 365 of the Code of Obligations. Because Article 365/1 of the Code of Obligations generally establishes the rule that the contractor is obliged to construct the work for the agreed price, whereas the second paragraph of the article states that “if circumstances that were either unforeseeable or foreseeable but not taken into consideration by both parties prevent the performance of the work or render it extremely difficult, the judge may, by virtue of the discretionary power vested in him, either increase the determined price or terminate the contract,” thereby accepting that if conditions arise that make the performance of the work extremely difficult, the price may be increased or the contract may be rescinded.
Therefore, the judge is not under an obligation to deliver a judgement in accordance with the aforementioned decrees, nor is it necessary for these decrees to have been published in order for the judge to make an adjustment and increase the fee. In other words, the judge has broad discretion in this case.
That makes the performance of contracts conditional on circumstances not changing Clausula Rebus Sic Stantibus Even if the idea does not fully correspond to reality, strict and rigorous adherence to the principle of pacta sunt servanda is not always fair. Today, the principle predominantly relied upon in Swiss-Turkish Law is the resolution of disputes in accordance with the rule of good faith. Again, according to this theory, the circumstance causing the collapse of the basis of the transaction shall also be determined in accordance with the rule of good faith. That is to say, a force majeure event may be evaluated within the framework of the rule of good faith regarding the termination of the contract.
Indeed, in the decision of the 13th Civil Chamber of the Court of Cassation dated 12.06.2003 and numbered E. 2003/4175 the following expressions are included:
“In the event that the existence of unexpected force majeure events causes the basis of the transaction to collapse if the conditions at the date of the contract are complied with, adaptation may be requested in this case. In an environment where the Turkish Lira is constantly losing value against foreign currency, the claimant, who requests adaptation against the defendant who concluded a lease agreement in foreign currency with the aim of protecting against inflation, must prove the existence of force majeure and that the basis of the transaction has collapsed.”
Termination or Withdrawal Rights
If the adaptation lawsuit filed by the contractor is dismissed, the contractor is granted the rights to withdraw from the contract and to terminate it for a justifiable reason pursuant to Article 480/2 of the Turkish Code of Obligations (TCO). However, in circumstances required by the rules of good faith, the contractor may only exercise the right of termination. The rule of good faith shall again be determined here in accordance with equity.
The purpose of this regulation is that termination takes effect for the future, whereas rescission takes effect retroactively. Therefore, the rights of rescission and termination shall be possible in the event that the judge rules in the adaptation lawsuit that adaptation is not possible.