Turkey: Defective Performance Of The Contract And The Warranty Of The Supplier In Commercial Sales Contracts

One of the most significant problems confronted by the parties of a commercial transaction is the defective performance of the contract. Although in most of the contracts, the consequences of the defective performance are regulated in detail, some contracts do not include any provision regarding the same or such provision appears to be not sufficient to solve the dispute arising out of defective performance of the contract. At this point, the parties to such contract shall refer to the Code of Obligations in order to be able to handle the situation and determine their rights and obligations regarding such defective performance.

Although there are some general provisions in the Code of Obligations numbered 818 (the "Code") regarding the consequences of defective performance of the contract, this issue has been regulated in detail particularly under the title "Warranty of the Supplier" which will be analyzed herein.

I. WARRANTY OF THE SUPPLIER

1. General

In accordance with Article 194 of the Code "The supplier is obliged to provide that the product sold does not contain deficiencies which affect the value or the adequacy of such product with respect to its prescribed intended use."

As it can be understood from such Article, the supplier is under the commitment to provide that the product which he/she supplied is free from defects. It is possible to define the term "defect" as "the absence of the qualities which should normally be present or the presence of the illicit flaws which should not exist in a product". In other words, "defect" is the divergence of the sold product from its normal qualities1. Defect in a product should be determined in consideration with the prescribed intended use of the same.

The term "defect" may be divided into two main topics as "obvious defect" and "hidden defect". "Obvious defect" may be determined by the usual examination of a product; however, "hidden defect" cannot be determined by a usual examination that may be expected from the purchaser.

2. Conditions of the Warranty of the Supplier

2.1. Fundamental Conditions:

  1. Defect should be significant

    The provisions of the Code regarding the Warranty of the Supplier do not cover minor flaws which do not affect the expected qualities or the value of a product. In that respect, the defect in the product should be effective on the value or the adequacy of the same with respect to its prescribed intended use2.
  2. defect should be present at the time of the delivery

    In order for the purchaser to benefit from the provisions regarding the Warranty of the Supplier, the sold product should be defective before it was delivered to the purchaser3. Therefore, the supplier, unless he/she is in default, is not responsible for the defects which occur after the delivery of the respective product.
  3. The purchaser should purchase the product without the knowledge of the defect

    In case the purchaser knows that the sold product is defective, he/she shall be deemed to accept the defect in the product and the supplier will not be responsible for the same.
  4. Warranty of the Supplier should not be removed or limited by the contract

    It is possible for the parties to remove or limit the Warranty of the Supplier provided in the Code by a contract. Unless such a contract is executed, the related provisions of the Code shall apply.
  5. Fault of the Supplier is not a condition

    It is not a condition for the supplier to be in default in order to apply the provisions of the Warranty of the Supplier. In accordance with the second paragraph of article 194 of the Code of Obligations, the supplier is liable for the defects in the sold product even if he/she does not know the existence of the same.

2.2. Formal Conditions

  1. Examination and Notification

    The formal conditions of the Warranty of the Supplier may be defined as the obligations of the purchaser which must be fulfilled in order to attribute the liability for the defective product to the supplier. The formal conditions are examination of the purchased product and notification of the defect to the supplier.

    In accordance with Article 198 of the Code, which is a general provision, the purchaser should examine the sold product whenever it is possible in accordance with the usual customs. However, a limited term for such obligation is provided in the Turkish Commercial Code numbered 6762 for the merchants as a special provision. In that respect, in accordance with the third paragraph of the Article 25 of the Turkish Commercial Code, in case the defect in the sold product is clearly apparent at the time of the delivery, the purchaser should inform the supplier of the situation in two days as of the delivery of the same. In the event that the defect is not clearly apparent at the time of the delivery; the purchaser should examine the sold product in eight days as of the delivery of the same and inform the supplier regarding the defect within the same term. However, since the respective provision only applies for the obvious defects, the periods provided therein shall not be applicable for the hidden defects. In that respect, the purchaser should inform the supplier regarding the hidden defects immediately after the determination of the same.

3. Consequences of the Defective Performance of the Contract and the Warranty of the Supplier

In case all the fundamental conditions required for the Warranty of the Supplier exists as well as the fulfillment of obligations of examination and notification regarding the defective product, the purchaser shall be entitled to choose from the below cited optional rights regulated in Article 202 of the Code:

3.1. Right of Termination of the Contract

In case the purchaser terminates the contract in relation with the procurement of the defective product, the contract shall be void from the very beginning of its execution. In accordance with Article 205 of the Code, the consequences of termination of the contract are the following;

  1. The purchaser should return the sold product (or the remaining part) and the gains provided from the same,
  2. The supplier should return the moneys together with its interest which was received for the sold product,
  3. The supplier should compensate all the direct damages and costs of the purchaser incurred as a result of the defective product,
  4. Unless the supplier proves that no fault can be attributed to him/her, the supplier should compensate all kinds of damages of the purchaser, including the indirect damages occurred as a result of the defect.

In order for the supplier to compensate the damages and costs incurred as a result of the defective product, there should be a causal connection between the defect and the losses. It is not a condition for the supplier to be in default in order to be liable for the defective product. On the other hand, the existence of the fault is effective on the extent of such liability. In accordance with the above mentioned provision, although the supplier is liable for the direct damages regardless of the existence of any fault, the supplier shall merely be liable for the indirect damages in case of the existence of the fault of the same. In this regard, in consideration of the Supreme Court decisions, unless the supplier proves that he/she is not in default in relation with the defective product, the supplier should compensate all kinds of damages of the purchaser, including the direct and the consequential damages, which occurred as a result of such defective product. In that respect, since the burden of proof is on the supplier, in order not to be liable for the consequential damages of the purchaser, the supplier should prove that he/she is not in default with respect to the existence of the defect.

3.2. Reduction of the Price

In case the defect in a product is not very significant which makes it unusable or impossible to be accepted by the purchaser, the purchaser may request from the supplier to reduce the price of or repair the same. If repairing the defective product would cost an exorbitant price, the purchaser cannot choose this option4.

3.3. Right of Compensation

Unless the supplier proves that he/she is not in default regarding the existence of defect, he/she should compensate the losses of the purchaser in addition to the above mentioned options which should be proven by the same.

4. Lapse of Time

In accordance with Article 25/III of the Turkish Commercial Court, actions for compensation regarding the defective products subject to a commercial sale should be filed within six (6) months as of the delivery of the same. However, in case there is a fraudulent act of the supplier such as hiding defects intentionally in the product sold, the respective provision shall not apply and the purchaser shall be entitled to file the case within ten (10) years as of the delivery of the same.

II. GENERAL PROVISIONS

Apart from the special provisions regarding the Warranty of the Supplier, there are also general provisions envisaged in the Code regarding the "Noncompliance with the Contract". In accordance with Article 96 of the same Code, the party who does not perform his/her obligations under a contract in full shall compensate the damages incurred from the same. There is no obligation of the purchaser regarding the examination of the sold product in order to benefit from this provision. In addition the lapse of time to file a law suit based on the respective provision is ten (10) years.

In that respect, in case the purchaser does not fulfill his/her obligations of examination and notification under the provisions of the Warranty of the Supplier or does not file a law suit within six (6) months as of the delivery of the defective product, the purchaser may file a law suit in accordance with Article 96 of the Code within ten (10) years starting from the delivery of the defective product5. However, in that case, the purchaser should prove that the supplier is in default in relation with the procurement of the defective product.

III. CONCLUSION

The rights of the purchaser who purchases a defective product are protected by the Code under the title Warranty of the Supplier. In order for the purchaser to benefit from such rights he/she should fulfill the obligations of examination and notification and also claim his/her rights in a limited lapse of time. Although, the purchaser who does not fulfill the respective obligations has the right to claim its damages in accordance with the general provisions of the Code, the provisions of the Warranty of the Supplier are more advantageous for the same, since the burden of proof is on the supplier in case of the application of the special provisions.

Footnotes

1 Karahasan, Mustafa Reşit, Türk Borçlar Hukuku Özel Borç İlişkileri Öğreti Yargıtay Kararları İlgili Mevzuat-2, İstanbul 2002, p.267.

2 Yavuz, Nihat, Ayıplı İfa, Ankara 2010, p. 93

3 Yavuz, Nihat, Ayıplı İfa, Ankara 2010, p. 92

4 Karahasan, Mustafa Reşit, Türk Borçlar Hukuku Özel Borç İlişkileri Öğreti Yargıtay Kararları İlgili Mevzuat-2, İstanbul 2002, p.296.

5 Karahasan, Mustafa Reşit, Türk Borçlar Hukuku Özel Borç İlişkileri Öğreti Yargıtay Kararları İlgili Mevzuat-2, İstanbul 2002, p.175.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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