CoVID- 19, Force Majeure and its Effect on Contracts
The epidemic that started in 2020 as the Corona Virus Disease (CoViD-19) in China has spread to Europe and other continents and has also affected our country significantly. Various precautions are taken as the outbreak seriously threatens the health of our people. As a result of these measures, it affects our commercial life, the work of the courts and the future of existing contracts.
The purpose of this article is to provide a brief explanation of the effect of the measures taken on the contracts.
The CoviD-19 outbreak and the possibility of its spread may create obstacles for the parties to fulfill their obligations to the existing contracts. As a result of these obstacles, problems may arise such as opening lawsuits due to the failure of the performance concerning the contracts, eliminating the applicability of the contract rules, adapting the contracts to the new situation and the sustainability of the contracts.
First of all, it is necessary to examine whether the epidemic disease is accepted as a “force majeure”. There is no doubt that the epidemic will be considered as a “force majeure” because it is transmitted from person to person, spreads over a wide geographic area, and measures taken in this regard impose restrictions on business life.
In this case, first of all, it is necessary to check whether there is a force majeure arrangement in the existing contracts and what results are connected to it. It is striking that in many contracts epidemic disease is not written under this article. However, it is necessary to acknowledge that the events considered related to force majeure are not exemplary and that the epidemic will be included in the general definition of force majeure. As the epidemic disease will be considered as force majeure, the regulations stipulated by the contract in case of it will be applied.
Force majeure in theory and practice is generally defined as “an extraordinary, irresistible and unpredictable event, which occurs outside the activity and business of the debtor and violates a general norm of behavior or debt in an inevitably and absolutely way. For an event to be considered as force majeure, a compulsory or compelling event must have occurred. This
event can be a natural, social and legal event, or it can be a behavior of human kind. While earthquakes and hurricanes can be given as an example to the first of these, events such as war and impact can be an example of the second. Furthermore, the force majeure must be an external event outside the debtor’s activity and business. In other words, there should be no link between the damaging event and the business in which the event occurred. Moreover, force majeure should be an inevitable event. The concept of inevitability also includes the concept of unavoidability. Another element of force majeure appears as unpredictability. The unforeseen issue should be perceived as the consequences which the event will cause. There must be a proper causal link between force majeure and the violation of the norm or contract.
Force majeure cuts the causal link and frees the debtor from responsibility. Therefore, the debtor who acts against the contract because of force majeure cannot be held responsible for the negative consequences of this violation. As a rule, the force majeure eliminates the fault of the responsible person, because the concept of fault is incompatible with the three elements of force majeure; externality, unpredictability and inevitability.
As a result of the force majeure, the debtor may be in breach of the contract, may not perform the performance at all (impossibility), may not perform in time, that is, being in default or not performing properly. If we consider these situations briefly, we have the following view:
If the performance of the debt becomes impossible afterwards without the fault of the debtor, then the obligation to perform the debt will cease. According to article 136/1 of the Turkish Code of Obligations, which regulates this type of non-contractual agreement, “If the performance of the debt becomes impossible due to the reasons that the debtor cannot be held responsible, the debt ends.” According to Article 136/2 of the Turkish Code of Obligations, ‘’the debtor, who has been rescued from debt due to impossibility in synallagmatic contracts, is obliged to return the performance he received from the other party in accordance with the provisions of the unjust enrichment, and loses his right to demand the action that has not yet been performed to him. Cases in which the damage, arising before the performance of the debt, is imposed on the creditor by the law or contract are excluded from this provision.’’
The debtor should not be in fault in making the performance impossible, he should not be responsible for this. If the fulfillment of the performance becomes impossible as a result of the force majeure, then the ‘next impossibility’ for which the debtor is not responsible will be in question. Thus, the debtor of the performance, which became impossible as a result of force majeure, is freed from his debt without paying any compensation. On the other hand, in synallagmatic contracts, in case of the ‘next impossibility’ what the debtor is not responsible for, the obligation to counter-performance also ends and the debtor is obliged to return the performance fulfilled to him in accordance with the provisions of the unjust enrichment.
In the event that a debt whose fulfillment is possible is not performed on time due to force majeure, as a rule, the debtor default provisions will be applied (TCO Article 117 ff.).
According to Article 117/1 of the Turkish Code of Obligations, which regulates the default of the debtor, "the debtor of a due debt will be in default to the creditor's warning". In the second paragraph of the article, it is determined that there is no need for a warning with “certain term debts” and in some other cases. Accordingly, in order for the debtor to be in default, the fulfillment of the performance must be possible, the debt must be due, the debtor must be cautioned, the creditor must be ready for the acceptance of the performance, the debtor should not have the right to refrain from the fulfillment of the performance and non-performance must be an act against the debt.
Fault is not necessary for the debtor to be in default, and if these conditions will occur, the debtor will default, whether he is faulty or not.
According to Article 118 of the Turkish Code of Obligations; "The debtor who falls into default is obliged to compensate for the damage of the creditor due to the late performance of the debt unless he proves that he has no fault to be in default." Since the force majeure will cut the causal link between the behavior of the debtor and the damage, the creditor will not be able to ask for a compensation of the damages incurred due to default. Further Article 119 of the Turkish Code of Obligations includes the provision that; “The debtor, who is in default, is responsible for the damage that may arise due to the unexpected situation. The debtor can escape from this responsibility by proving that he has no fault to be in default, or even if he had performed his debt in time, the unexpected situation would harm the subject of the performance.” The term "unexpected state" mentioned in the article covers unexpected events in a broad sense as well as in the strict sense as unexpected events and force majeure.
The terms and results of the default of the debtor in synallagmatic contracts are regulated in the Articles 123-125 of the Turkish Code of Obligations.
In order to apply the provisions of Article 125 of the Turkish Code of Obligations, there must be a contract that imposes full debt on both sides. In these contracts, the debted performance and the counter performance are in the mutual exchange relationship, and in such contracts, each party is both the debtor and the creditor of the other. For example, in the contracts of work this is the case.
In order for the creditor to exercise his right of choice, the debtor must be in default. There is no need be in fault for the default. According to Article 123 of the Turkish Code of Obligations, in a synallagmatic contract, if one of the parties is a person in default, the other party may give the debtor a suitable period to perform the debt.
However, Article 124 of the Code of Obligations regulate the cases for which no term is provided; If it is understood from the status and attitude of the debtor that giving time will be ineffective, if the fulfillment of the performance after the debtor’s default becomes useless for the creditor and if there is a procedure with definite term. The procedure with definite term is the procedure which is decided absolutely by the parties to be performed in a certain term or a certain period of time. It can be clearly understood from the will of the parties that the procedure is definite termed, as well as the behavior and facts can show such a will. In such procedures, the parties decided to fulfill the performance on a certain date and this precision or certainty constitutes an important element of the performance. Therefore, there is no need to give the debtor a new period at this point. With the term or period given, the debtor automatically defaults, and the creditor does not need to be given time to exercise his right of choice. Essentially, this is the difference between a certain term contract and a definite term contract. If the term or period expires in a certain term contract, the debtor becomes a person of default without needing a warning. However, an additional period of time must be given to the debtor to exercise the right to choose. However, with the expiration of the time in definite term contracts, the both the debtor becomes a person of default and also the creditor can use the right choose without the need for an additional period. However, in definite term procedures not the right of the creditor to demand the performance but the possibility of the debtor for fulfillment disappears.
The debtor must be in faulty in default so that optional rights, particularly compensation and rights of return, can be exercised. The debtor must refute this presumption only by proving that he is faultless, because there is a fault presumption to the detriment of the debtor.
If the debtor does not fulfill the performance within the given term, the creditor can choose one of the following two elective rights: The creditor first requests the delay compensation with the specific performance of the debted performance according to the first elective right granted to him in Article 125 of the Turkish Code of Obligations. TCO Article 125/1 provides the provision that “If the debtor in default has not fulfilled his debt within the given term or if there is a situation that does not require a term, the creditor always has the right to demand compensation due to the debt and delay.’’ If the creditor immediately informs the debtor that he has given up this right (specific performance and delay compensation), the second elective right is born. TCO Article 125/2 states that ‘’The creditor may request the compensation of the damage arising from the failure of the fulfillment of the performance and return from the contract, by immediately notifying him that he has given up his right to demand the specific performance and the compensation due to its delay.’’ TCO Article 125/3 states that “In case of returning from the contract, the parties are freed from their obligations of mutual performance and they may request the actions they have performed before. In this case, if the debtor cannot prove that he has no fault in default, the creditor may also request the compensation of the damage suffered due to the invalidity of the contract.’’ Accordingly, the creditor either wants the compensation for the positive damage by keeping the contract or return from the contract and demands for the compensation of the negative damage.
If the debtor in default has fallen into default due to force majeure, it will be freed from the consequences of default. For example, he will be freed of paying a compensation to the creditor who has given up his right for specific performance and instead demands a compensation for his positive damage. If the creditor returns from the contract, the debtor is freed from paying the negative damage. TCO Article 126, which regulates the results of the
default in continuous performance contracts, states that ‘’In continuous performance contracts where the fulfillment has already started, the creditor, in case of the debtor’s default, may request compensation for performance and delay or he may terminate the contract and demand for the damage arising from the expiration of the contract before the given term.’’ In this case, because of the fact that in case of a default all compensations depend on fault, the debtor who is faultless due to force majeure will be freed of compensating the damage.
However, it can be mentioned both of the impossibility of performance and performance on delay but also of hardship due to force majeure. In accordance with TCO Article 138; if there is an emergence of an extraordinary situation that was not foreseen and expected to be foreseen by the parties at the time of the contract, this situation did not originate from the debtor, the current cases at the time of the contract were changed against the debtor to the extent that it was contrary to the rules of honesty and the debtor has not yet performed his debt or performed by reserving his rights arising from hardship he may ask the judge to readjust the contract in accordance with the changing conditions. If this is not possible, he may return from the contract.
Advt. Prof. Dr. Arzu Oğuz
Academic Member of Ankara University, Faculty of Law
Founder of the law firm Arzu Oğuz
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