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Adaptation of Contracts Against Hardship: The Turkish Way

According to principle of adaptation of the contracts, the contract must be adapted to the changing circumstances if the performance of relevant obligations cannot be honored by a party due to unforeseen situations that causes hardship. Incidents and situations that are qualified as hardship emerge because of unpredicted events that fundamentally alter the equilibrium of a contract resulting extreme burden placing shoulders of one of the parties.
Abdülkadir Güzeloğlu & Tarık Kurban

Principle of adaptation of the contracts constitutes an exception to the general principle of contract law, pacta sunt servanda i.e. (promises must be kept). Pacta sunt servanda reflects that clauses of the contract that have been drafted by the parties as being the "law" between them. Therefore, any breach of the clauses would entail a breach of the pact.

According to principle of adaptation of the contracts, the contract must be adapted to the changing circumstances if the performance of relevant obligations cannot be honored by a party due to unforeseen situations that causes hardship. Incidents and situations that are qualified as hardship emerge because of unpredicted events that fundamentally alter the equilibrium of a contract resulting extreme burden placing shoulders of one of the parties.

The primary purpose of the Hardship provisions is to protect the balance of the contracts. By adapting to the changing circumstances, the contract balance, which is destroyed due to changed circumstances that caused hardship, ultimately attempted to be restored. 

Hardship is defined by the Article 6.2.2. by the UNIDROIT Principles of International Commercial Contracts ("PICC") as follows:

"There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished, and

(a) the events occur or become known to the disadvantaged party after the conclusion of the contract;

(b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;

(c) the events are beyond the control of the disadvantaged party; and

(d) the risk of the events was not assumed by the disadvantaged party.
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Turkish Code of Obligations: Conditions for the application of Article 138          

Article 138 of the Turkish Code of Obligations ("TCO") regulates the adaption of the contracts in the event of hardship. Preamble published by the Legislator for the Article 138 of the TCO explains how the obliteration of the basis of the transaction shall be evaluated. As stated by such, the subject matter shall be evaluated by the principle of the good-faith in order to detect whether the basis of the transaction has collapsed or not.

In order to assume that the basis of a transaction is collapsed, the hardship that affect one of the parties must reach inarguably a serious level. Because every disorder and deviation encountered during the performance process does not allow the adaptation of the contract to take place. As a matter of fact, the Legislator stated that the hardship provisions should be applied as ultimate ratio (ultimum remedium).

That said, in order to adapt a contract based on a drastic change of parties’ obligations, the following conditions should be met:

The relevant situation or incident that gave rise to change of the contract equilibrium must not have already existed when the contract was concluded between the parties.

The occurred situation or incident must be unpredictable and unforeseen.

Due to changed circumstances, it must be against good faith to expect a party to fulfill its obligations.

In order to utilize Article 138 of the TCO, the following conditions are stipulated by the preamble of the article:

•The situation must be occurred that could not be foreseen at the time when the parties draft the contract.

•The unforeseen event must be occurred without any negligence of the disadvantaged obligor.

•This situation must change the circumstances of the contract.

•Due to changed circumstances, the expectation of the performance of the contract must become contrary to good faith.

•The disadvantaged obligor must not have fulfilled the obligation at the time of the adaptation request or if the obligation has been already fulfilled the obligor must have reserved the right to adaptations of contracts at the time of the fulfillment.

If these conditions are met, the obligor has the right to apply the judge to adapt the contract with the new and fair conditions. If such adaptation found impossible by the court, the obligor has the right to revoke the contract.

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Author: Abdülkadir Güzeloğlu & Tarık Kurban
Relevant Fields: Corporate Law and Commerce
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