The coronavirus (Covid-19), first seen in Wuhan, China, and then spread around the world, was declared a “pandemic” by the World Health Organization (WHO), meaning an epidemic disease that spreads across and affects a wide area of the entire world. After coronavirus cases appeared in Türkiye as well, a series of measures such as curfews and quarantines were introduced, raising many questions about commercial life. In this article, we assess the consequences of lease agreements not being performed because of the pandemic.
Force majeure is not defined in Turkish statutes, and this gap has been filled through Court of Cassation decisions. In its decision under Docket No. 2017/1190, Decision No. 2018/1259, the Court of Cassation Assembly of Civil Chambers defined force majeure as follows and emphasized that epidemic diseases also fall within its scope: “Force majeure is an extraordinary event that occurs outside the activity and business of the liable party or the debtor, that absolutely and inevitably causes the breach of a general norm of conduct or of an obligation, and that can be neither foreseen nor resisted (Eren, F.: Borçlar Hukuku Genel Hükümler, Ankara 2017, p. 582). Natural disasters such as earthquakes, floods, fires and epidemics are considered force majeure.”
When a lease agreement is first concluded, the parties may freely agree on its term and the rent within the framework of freedom of contract. Under the principle of pacta sunt servanda, as a rule, even if extraordinary changes affecting the rent arise to the tenant's detriment after the parties conclude the lease, these changes should not affect the performance the tenant has undertaken. The main exception to the pacta sunt servanda principle is the collapse of the foundation of the transaction.
The principle of the collapse of the foundation of the transaction has recently become widespread in legal doctrine and practice as a basis for adapting contracts. This principle is rooted in the rule of good faith. Accordingly, if circumstances change extraordinarily after the contract is concluded and make performance so burdensome for one party that it can no longer be expected of them, the rule of good faith provides the legal basis for a corrective intervention that restores the balance of performances in a contractual relationship the parties entered into in line with freedom of contract.
Article 138 of the Turkish Code of Obligations (No. 6098) sets out the principle of adapting a contract to changed circumstances under the heading “excessive difficulty of performance.” The legislative rationale of the Code explains the basis for applying this article by reference to the theory of the collapse of the foundation of the transaction.
In summary, the decision of the Court of Cassation 13th Civil Chamber, Docket No. 2013/16898, Decision No. 18895, dated June 13, 2014, on this subject reads: “The plaintiff alleged that ‘he had taken out a housing loan indexed to the Swiss franc from the defendant bank, but the installments had increased because of the rise in exchange rates and paying the debt had become impossible.’ He requested a decision ‘primarily declaring the contract invalid because no pre-contractual information form was provided as required by Article 10/b of the Consumer Protection Law (No. 4077), and if this request is not accepted, adapting the contract to the changed circumstances, determining the excess amount he had paid in monthly installments over the last 2 years, setting that amount off against the existing loan and fixing the remaining balance at a rate of 1.1 TL per 1 CHF.’ The defendant requested ‘dismissal of the action.’
The court dismissed the action, and the plaintiff appealed the decision on points of law. Our law recognizes the principles of adherence to contracts (pacta sunt servanda) and freedom of contract. Under these principles, a contract must be performed exactly as it stood when it was made. In other words, even if the terms of the contract later become more burdensome for the debtor and the balance of performances changes because of subsequent events, the debtor must perform its obligation under the contract as agreed. Indeed, as a requirement of legal certainty, honesty and good faith, the principle of adherence to contracts is the fundamental principle of contract law. However, this principle is limited by other principles of private law. The balance that existed between the reciprocal performances when the contract was made may later be upset to a large extent, and to an intolerable degree for one of the parties, by an extraordinary change in circumstances. In that case, a conflict arises between the principles of adherence to contracts and contractual justice, and strict adherence to the former comes to create a situation contrary to the rules of justice, equity and objective good faith (Civil Code, Articles 4 and 2). The law seeks to resolve this conflict through the principle of clausula rebus sic stantibus (the unforeseen circumstances clause, that is, adapting the contract to changed circumstances). If the circumstances that shaped the parties' intentions and led them to conclude the contract later change very significantly, strikingly and unforeseeably through events that lead to injustice, the parties are no longer held bound by that contract. In the face of these changed circumstances, it becomes necessary to restructure the contract by relying on Article 2 of the Civil Code. Examples of extraordinary circumstances that upset the balance between the performances and in which adherence to the contract cannot be expected include war, severe economic crises that shake the country, sudden and excessive spikes in inflation, shock devaluation and a significant fall in the value of money. When the balance between the performances in a reciprocal contract is overturned by extraordinary changes and performance of the obligation becomes significantly more difficult, the “COLLAPSE OF THE FOUNDATION OF THE TRANSACTION” comes into play. In that case, depending on the facts of the specific case, the judge may decide to increase the debtor's performance in favor of the creditor, or to release the debtor wholly or partly from its obligation to perform in favor of the debtor, and adapts the contract to the changed circumstances by intervening in it. When adapting a contract to new circumstances, one first looks at whether the contract, and then the law, contains adaptation provisions on the matter. If neither the contract nor the law contains such a provision, it is examined whether the contract should be adapted to the changed circumstances. Sometimes, even though the contract contains a positive or negative adaptation clause, relying on that clause to demand that the contract be applied exactly as written may amount to an abuse of rights within the meaning of Article 2/2 of the Civil Code. In such a case, if an excessive disproportion has arisen between the performances despite the adaptation clause, the contract should still be adapted. Articles 1, 2 and 4 of the Civil Code serve as the sources for resolving disputes over the collapse of the foundation of the transaction. Taking into account that the foundation of the transaction has collapsed is a requirement of the rule of good faith. In other words, insisting on the contract when circumstances have changed is conduct contrary to the rule of good faith. If the changed circumstances upset the contractual justice inherent in the contract, there is a gap in the contract, because the parties took no measures for these unforeseeable circumstances. This gap is filled through interpretation, giving weight to the meaning of the contract and the intentions of the parties, and in accordance with the rule of good faith (Civil Code, Article 1). This method is called correcting the contract through interpretation, or adapting it to changed circumstances.
Adaptation mostly arises in long-term and continuing contractual relationships.
As for the conditions required for intervening in the contract: the events arising during performance after the contract was concluded must be extraordinary and objective in nature. In addition, the balance between the performances the parties undertook must have been upset excessively and clearly because of the changed circumstances. The plaintiff requesting adaptation must not have caused the extraordinary circumstances through its own fault. The changed circumstances must not have been foreseeable, expected, ordinary or capable of being taken into account by the parties in advance. Alternatively, even if the events were foreseeable, their effects on the contract must not have been anticipated to this extent in scope and form (See Assoc. Prof. Dr. İbrahim Kaplan, Hakimin Sözleşmeye Müdahalesi, Ankara 1987, p. 152 et seq. and Hatemi/Serozan/Arpacı, Borçlar Hukuku Özel Bölüm, 1992, p. 186 et seq.). As noted above, the former Code of Obligations (No. 818) contained no provision on what effect it would have on the obligation if performance had not become impossible but had become excessively difficult for reasons for which the debtor was not responsible. The Turkish Code of Obligations (No. 6098), which entered into force on July 1, 2012, contains a general provision on this matter. Article 138 of the Turkish Code of Obligations, under the heading “Excessive Difficulty of Performance,” provides that certain circumstances arising after the conclusion of a contract constitute grounds for adapting or terminating it. Under Article 138, the following conditions must be met for the judge to rule in line with an application by one of the parties to the contract. 1) After the contract was concluded, the balance between the parties' performances must have been upset to such a great extent that the debtor cannot be expected to bear the consequences. If the excessive difficulty of performance already existed when the contract was concluded and was merely unknown to the parties, the contract may be annulled not under Article 138 but under the provisions on mistake (Article 30 et seq. of the Turkish Code of Obligations), if their conditions are met. The subsequent difficulty of performance does not necessarily have to lead to the debtor's economic ruin or cause it serious harm. The article considers it sufficient that the change operates “to the detriment of the debtor to such a degree that demanding performance from the debtor would be contrary to the rules of good faith.” Of course, the position of the other party will also be taken into account in this assessment. 2) The change in the balance of performances must stem from an extraordinary situation that was not foreseen, and could not be expected to be foreseen, when the contract was made (such as war, economic crisis, devaluation, natural disasters, or bans and restrictions on imports and exports). This may also be described as “imprévision.” Although the article says “not foreseen by the parties,” it should be sufficient that the extraordinary event was unforeseeable, at the time the contract was concluded, only for the party facing excessive difficulty of performance. It is not enough for that party to prove that it did not foresee the situation when the contract was made. The situation must have been one that “could not be expected to be foreseen” by that party. If the party failed to foresee the event because of its own lack of care or attention, it cannot benefit from Article 138. 3) The event creating the excessive difficulty of performance must not originate from the debtor. Not only must the event itself not originate from the debtor, the fact that it creates excessive difficulty of performance must not originate from the debtor either. 4) The performances must not yet have been rendered. As a rule, once performance has been made, a party cannot rely on excessive difficulty of performance to seek adaptation or rescission of the contract. However, if the debtor performed while reserving the rights that had arisen in its favor, it may exercise these rights after performance as well. In that case, depending on the outcome of the adaptation, or in the event of rescission, it may reclaim the performance it rendered, in whole or in part, under the provisions on unjust enrichment. Under Article 138, once these conditions are met, adaptation must first be requested from the judge. Adaptation may take the form of reducing the obligation to perform or increasing the counter-performance, or any other form the judge deems appropriate, such as changing the due dates or the manner of performance. The judge may also adapt the contract in a way the plaintiff did not envisage in its request. However, if the obligation is not suitable for adaptation, or if any adaptation that would make the difficulty of performance bearable would in turn create a situation the other party could not be expected to bear, only then may the debtor exercise the right to rescind the contract. Furthermore, the last paragraph of the article expressly provides: “This article also applies to foreign currency debts.” It has thus been accepted, with a clarity that leaves no room for doubt, that this article also applies to borrowings indexed to foreign currency. Turning to the specific case in light of these explanations: the plaintiff alleged that on May 22, 2008 he took out a housing finance loan indexed to the Swiss franc (CHF), that an excessive exchange rate difference had arisen between the date he took out the loan and the present, and that he therefore had difficulty paying the loan installments. He requested primarily a determination of whether the contract was valid and, if it was found valid, the adaptation of the contract terms to the current situation. As of the filing date, the Turkish Code of Obligations (No. 6098) was in force, and it must be taken into account that adaptation may be requested for foreign currency borrowings. The court emphasized that in foreign currency borrowings, the loss of value of the Turkish lira is something that can easily be known and foreseen. However, in reaching this conclusion, it did not explain what objective criteria existed and merely pointed to previous crises. As can be understood from the above, upon request, the judge is tasked with intervening in the contract where its terms have changed excessively and unforeseeably to the detriment of one party. The judge is therefore obliged to investigate whether these conditions exist and, if necessary, should order an expert examination and obtain the opinion of specialist experts. Article 266 of the Code of Civil Procedure (No. 6100), which entered into force on October 1, 2011, provides: “In cases where resolution requires special or technical knowledge outside the law, the court shall decide, upon the request of one of the parties or of its own motion, to obtain the vote and opinion of an expert. An expert may not be consulted on matters that can be resolved with the general and legal knowledge required by the judicial profession.” This provision mirrors Article 275 of the former Code of Civil Procedure (No. 1086). This is in fact also a requirement of the “right to be heard,” which is an element of the “right to a fair trial.” In other words, the judge must hear the parties' claims and defenses, collect the parties' evidence in line with those claims and defenses, discuss and evaluate that evidence, and give a reasoned decision explaining which evidence it accepted or rejected in resolving the dispute and why. What the court must do is collect all evidence relating to the parties' claims and defenses in line with the principles explained above, obtain a report from a specialist expert or a panel of experts, evaluate all the documents and evidence in the case file together, and render a decision based on the outcome. Rendering the decision as written, on the basis of an incomplete examination and without regard to the rules and methods explained for the adaptation of contracts, is contrary to procedure and law.
CONCLUSION: For the reasons explained above, it was unanimously decided on June 13, 2014 to reverse the judgment in favor of the plaintiff and to order the defendant to pay the plaintiff an attorney's fee of 1,100.00 TL for the hearing.