Turkish Code of Obligations numbered 60981 ("TCO") includes significant issues concerning passing of benefit and risk in sale agreements. While the former Turkish Code of Obligations numbered 818 regulates the moment of the passing of benefit and risk in sales agreements to the buyer; the new TCO indicates that until such time the benefit and risk will be belonged to the seller. Additionally, the previous code set forth the passing of benefit and risk by making a distinction in terms of substitutable debt and non-substitutable debt. On the other hand, the TCO has abandoned this distinction and prescribed a new distinction based on the movable – immovable. As a result, the condition of being distinguished for debts of sort with respect to passing of benefit and risk is not included in the TCO.
2. The Purpose of the Regulation
The scope of the new regulation is clarified in the preamble of the TCO. Before the TCO is entered into force, it was criticized by the doctrine that although the buyer does not keep the possession of the goods, being obliged to accept the damage of goods and to pay the consideration by the buyer was not fair. In accordance with these comments, it has been regulated in the TCO, with no exception, that the seller holds the risk until the transfer of actual control for the movable and the registration of the immovable. Similarly, in case of transferring the sold goods to a place different than the place of performance upon the request of the seller, benefit and risk will pass to the buyer at the moment of delivery of goods to the carrier.
3. Passing of Benefit and Risk within the scope of TCO
Although the terms of benefit and risk are not defined in the TCO, it would be useful to clarify a few points in relation to these terms. Benefit is the surplus obtained from something by itself or by standard effort. As for the risk, on the other hand, passing of risk can be interpreted in a narrow way or in a broad sense. There exist two meanings being narrow and broad sense. If the broad sense is used, it refers to the detrimental situations happened to the goods due to breaking, impairment, derogation. As to the later approach, it reflects the view that the danger which threatens one of the parties or both parties and develops out of impossibility caused by the acts that cannot be imputed to the debtor and occurs in the period between the creation and discharge of debt and used solely in terms of the obligation.
Article 208 of TCO provides that benefit and risk on sold goods are on the seller up to the transfer of the actual control for the movable and registration of the sale transaction with the land registry for the immovable.
Having provided with the general rule regarding the passing of benefit and risk, it is equally important to note that there are some exceptions as per the TCO. According to Article 208 of TCO, the passing of benefit and risk may show variation in terms of (i) law, (ii) necessity of circumstances and (iii) the situations results from the special conditions stipulated in the contract. To that end, Article 245 of the TCO serves as a good example by stating the exceptions provided by law. This particular article refers to the situation where a period is determined through an agreement for receiving an already sold immovable by the buyer at a later time after registration at the title deed, risk and benefit of this immovable will pass to the buyer through the delivery. Another exception refers to the situation where the parties agree on that benefit and the risk may pass to the buyer at any other time than the delivery time pursuant to Article 208.
ii Passing of benefit and risk in case of default of buyer
As per Article 208 (2) of TCO, where there is sale in relation to the movable, if the buyer fails to meet his obligations of taking the actual control of the sold goods then benefit and risk passes to the buyer as in transfer of actual control.
iv Passing of benefit and risk in distant sales
According to Article 208 (3) of TCO, if the seller transfers the sold goods to a place different than the place of performance, upon the request of the buyer, benefit and risk will pass to the buyer at the moment of delivery of the sold goods to the carrier.
4. Passing of Benefit and Risk within the scope of International Sales Law
The United Nations Convention on Contracts for the International Sale of Goods2 ("CISG") includes detailed provisions with respect to passing of risk on movable sales.
The rule stipulated in Article 208 of the TCO was embodied in Article 69 of the CISG. Accordingly, in movable sales, the risk passes to the buyer when the buyer takes the goods or if he does not receive them in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery. In case of a circumstance that the buyer is required to receive the goods in a place apart from the seller's place of business, delivery debt should become due (come to maturity) for passing of risk. While the CISG is establishing the general rule in this way, it also presents a detailed set of contrary regulations.
Article 66 of the CISG states that loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss of damage is due to an act or omission of the seller. This article brings two exceptions to that rule. If the benefit or risk results from the (i) activity or (ii) inactivity of the seller, the buyer is released from his obligation to pay the contract value. In other words, even after the risk passes to the buyer, in case of the contract goods are damaged because of any kind of conduct or negligence of the seller, the buyer is discharged from an obligation to pay.
Regarding the distant sale similar with the rule in the TCO, it is regulated in Article 67 of the CISG that in case of the seller is not obliged to deliver the goods in a certain place, the risk passes to the buyer together with the delivery of the goods to the first carrier in compliance with the contract for the purpose of transferring the goods to the buyer. However, this rule contains an exception within itself. If it is determined that the goods will be delivered to the carrier in a certain place, the risk is not passed to the buyer until the goods delivered to the carrier in that place; as a matter of fact, even if there is more than one carrier, the risk is not passed to the buyer.
Unlike the TCO, Article 68 of the CISG provides a crucial rule regarding the person holding the risk accruing at the moment of conclusion of contract for the goods subject to sale in process of transport. As per the abovementioned provision, the risk related to the goods sold in process of transport concerns the buyer from the moment the concluding the contract. In other respects, the seller who knows or needs to know the loss and damage has to endure the detriment that may come out of this situation.
The TCO contains parallel provisions with the CISG regarding the passing of benefit and risk. It is clear that the TCO benefits from the provisions of the CISG in a great extent in respect with the subject of passing of risk. While the CISG is regulating special provisions for the passing of risk in terms of sale contract for movable goods, the TCO contains provisions for sale contract for both movable and immovable goods. In this manner, in the event it is determined that the Turkish Law will apply to the international movable sales, the CISG rules relating to passing of risk will be implemented together with the TCO. In the contracts for immovable sales, the TCO will be applied since there does not exit related provision in the CISG.
1 Published in the Official Gazette numbered 27836 and dated February 4, 2011 and entered into force in July 1, 2012.
2 Accepted by the representatives of 42 countries in the conference assembled in the Vienna in April 11, 1980 within the body of United Nations and entered into force in January 1, 1988. The Contract was entered into force in August 1, 2011 for Turkey.
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