ABSTRACT
There are several regulations in various parts of our legislation regarding the “defect” concept indicating the difference between required qualifications in accordance with the contract and existing qualifications of a performance. Defect liability is comprehensively arranged in the Turkish Code of Obligations numbered 6098 (“TCO”) and the Consumer Protection Law numbered 6502 (“CPL”). The main idea of our study is to analyze the defect concept within the scope of Turkish law regulations, Supreme Court’s precedents and arguments in doctrine.
I. INTRODUCTION
Defect concept ıs regulated ın varıous provisions of our legal system. For example with regard to the CPL, a defective good is defined as a good which is in breach of contract by reason of incompliance with the agreed example or model or not having required qualifications which it should objectively have had. In addition to this, defect concept and defect liability are arranged in the TCO, based on especially sales agreement, rental agreement and contract of work1. Defect is described based upon sales agreement solely in the TCO and this definition may be used by comparison for the other contract types. Defects may also occur as an absence of qualifications agreed in any manner by the parties and also as a material, legal or economic defect eliminating or significantly reducing the benefits expected from the sold property. According to the Supreme Court, healthy transfer of a good depends on its being free from faults and defects. When viewed from this aspect, defect is an obstacle preventing spesific performance. In this study, we will examine, first of all, the characteristics of defect types and secondly, the rights and liabilities of parties in sales, work and rental agreements.
II. DEFECT TYPES
Defect is defined as deficiencies making the object considerably difficult to use or decreasing usage value; in other words absence of a material, legal or economic quality that the relevant object must have in accordance with the contract2. Defect concept can be examined under four categories.
A. Clear and Latent Defects
Clear defects can be discovered by way of an ordinary inspection. Whereas, latent defects, in the contrary, are undetectable through an ordinary inspection but subsequently cause failure or malfunction. For instance, a visible tear in a suit whose qualities are determined in the contract is considered as clear defect, however the suit’s poor material quality forms a latent defect. According to the Supreme Court decisions, this differantiation can be decided on whether the defect is clearly visible or difficult to detect3. Latent defects necessitate securing the legal interest extensively because of its nature, as it can remain hidden for a long time. Defect notice periods of clear and latent defects are determined differently. For clear defects, this period begins with transfer and for latent defects, it begins with the emergence of defect4.
B. Important, Less Important and Unimportant Defects
The difference between important and less important defects is related to the rights of the claiming party pursuant to defect liability provisions. For instance, in terms of contract of work, the employer’s right to withdraw from the contract due to defect which exists at the time of transfer, is only possible, if such defect is significant enough to avoid acceptance5. Otherwise, that would constitute a contradiction to the principle of good faith. If the defect is less important, the employer is entitled to retain the work and request a deduction of cost proportionally with the defect or demand a repair free of charge6.
In addition to important and less important defects, unimportant defect concept is also regulated by law for sales agreement and rental agreement. In terms of sales agreement, vendor’s nonliability from unimportant defects is widely accepted by doctrine7. Besides that, in rental agreements, important defects justify the tenant to apply default of debtor provisions, however he does not have such opportunity for unimportant defects8.
C. Material and Legal Defects
Defects relating to physical characteristics of a good are considered to be material defects. In order to assess the condition of a certain good, an identical good may be used for comparison. In case of contracts in which the determined subject matter is manifacturing of a unique good, in order to evaluate the quality of the agreed good the relevant terms has to be interpreted in good faith. Yet in some cases the determiantion of a material defect is impossible, due to the type of the product which does not lend itself for comparison. With regard to rental agreement, the fact that the leased property is not suitable for use in accordance with the purpose defined in the agreement, such defect is considered as a material defect9.
Legal defect is defined as the intervention to usage or utilization of goods, because of a legal issue. For instance, in case of a tenancy, renting a building without occupancy permit is a matter of legal defect because the tenant shall not be able to use the rights arising from rental agreement on a building without occupancy permit10. Legal defects can be derived from public or private law. The cases of a sold property having an illegal brand or a produced work violating someone else’s copyrights also constitute legal defect11.
D. Primary and Secondary Defects
Primary defects exist at the time of transfer or the inspection. Secondary defects arise from primary defects and subsequently appear in time. It may happen, for example, that a construction lacks sufficient concrete and this causes cracks on the wall in time. If the lack of sufficient concrete is perceivable at the inspection, these kind of defects are called primary defects, whereas defects which are detected after an inspection, according to our example the cracks caused by that insufficient concrete, are called secondary defects12. Secondary defects are considered similar to latent defects because of their subsequent nature.
III. DEFECTS WITHIN THE SCOPE OF SALES AGREEMENT
Defects within the context of sales agreement may appear as (i) an absence of qualities of the good that the vendor has informed the buyer about or (ii) defects that significantly reduce or eliminate the value of the good in context of intended use and the benefits expected by the buyer13.
A. Conditions of the Vendor’s Defect Liability
Since a good is already determined in the sales agreement, as opposed to a contract of work, a defect of a good can easily be detected by comparing the defected good with an identical good. For example, the defect of a pullover bought from a shop, can easily be detected by comparing to another identical product, and seen whether there is a button missing. Similarly, the absence of qualities that are outlined in the sales agreement or otherwise specified by the vendor is sufficient for determining defect.
If the defect in the good makes its usage impossible or extremely difficult, that defect is considered as a significant defect. For this, the intended use of the good should be deducted from the joint will of the parties and the general acceptance regarding the good14.
According to Article 222/1 of the TCO, vendor is not liable for defects known by the buyer at the time of forming the sales agreement. In the event the buyer accepts the good with its defect, the buyer is considered to have waived its optional rights. If the vendor is to be held liable for defects that can be seen with a simple inspection, the vendor needs to have explicitly undertaken the absence of such defect15.
The buyer and vendor are, within the freedom of contract, entitled to make a nonliability agreement at the time of transfer or afterwards. However, if the vendor is negligent at the time of transaction, then nonliability agreement shall not be valid16. The Supreme Court specifies that the vendor cannot claim nonliability in cases where the defect is latent, also in all the cases where the vendor is grossly negligent in transrefing a defective good17.
However, in cases where the buyer accepts the good, optional rights in the TCO are no longer applicable18. For example, the buyer who purchased the good with a reasonable price can no longer use this situation in his favour in the future. To think otherwise is inconsistent with the logic of law19.
The buyer is obliged to evaluate the condition of purchased goods within a reasonable period of time and notify the vendor in the event of determining a defect that requires the vendor’s liability20. For latent defects, the buyer reserves the rights and must give immediate notice to the vendor at the moment the defect arises. Otherwise, the buyer will be considered to have accepted the good and the vendor shall not be liable. But even in these cases, the vendor shall not be relieved of his obligations due to not having been notified in time, on the condition that he has been grossly negligent. However, the liability of defects caused by vendors with a certain profession will still exist even if the time for due notice of the defect has been passed21.
B. Rights of the Buyer
In the situation when the defect occurs, the buyer is entitled to withdraw from the contract22. The buyer can demand a refund for the contract price with interests, litigation expenses and direct damages arising from the defective good, in case the buyer withdraws from the contract due to defect of the product. If there are additional losses inflicted, the buyer can even demand compensation for such loss unless he has proven that it is not caused by his own fault23.
Deduction of cost is one of the optional rights of the buyer. The buyer may retain the good and demand a reasonable deduction of cost. As part of the TCO, this right is regulated in accordance with the CPL. The only difference is about the statute of limitations for immovable properties. Both codes indicate the statute of limitation as two years, except the CPL stipulates a different statute of limitation for immovable properties which is five years24.
Optional rights regulated in the former Code of Obligations25 contain the right to demand the repair of the good at the vendor’s expense as a fourth option, differently from the relevant CPL provisions26.
Furthermore, the buyer retains another right which can be brought up to the vendor, in case of common sales whereby the good can be replaced. If the buyer demands replacement of the good, the vendor shall be responsible for replacing the good with an identical or similar good. The buyer is also entitled to claim compensation.
IV. DEFECTS WITHIN THE SCOPE OF RENTAL AGREEMENT
The relationship between the lessee and lessor and the obligation to transfer are all regulated in the TCO27. Pursuantly, the lessor must transfer the leased property under favorable circumstances and keep it as it is during the term of the contract28.
A. Conditions of the Lessor’s Defect Liability
The standard for quality control in cases of leased properties occurs through the application of the standard of “suitability to be used”29. The determination of the suitability of the property occurs either during the transfer of the property or after the transfer.
In order for the lessee to apply for default of debtor or subsequent defect provisions, the defect must be significant enough to eliminate the usableness of the good in context of the agreement. Provisions of subsequent defects shall be also applied for ordinary defects.
In respect of defect notification, lessee is obliged to notify the lessor without any delay30. Differently from sales agreement, the burden of notification has no limitation of time. Lessee’s obligation of notification also includes latent defects.
In order to be able to refer lessor’s liability, presence of fault is not required. Therefore, the lessee is entitled to exercise its optional rights without proving any fault. However, his fault is sufficient for indemnity. In case of a defect arising from lessee’s fault, the lessor shall not be liable pursuant to the provisions of TCO31 and the good faith rule32.
B. The Lessor’s Defect Liability
Defects in leased properties occurs either during the transfer or within the contractual period. The lessee has two rights to claim in case of significant defects. Accordingly the lessee is entitled to file a claim based on the default of debtor provisions or lessor’s liability for subsequent defects33. For minor defects, it is only possible to assert lessor’s liability for subsequent defects. In order to be able to assert lessor’s liability of defects present at transfer time, such defects must be latent. Also, lessee shall not exercise this right for defects within its knowledge34.
Transfer should be convenient to purpose contemplated in the contract35. Rental agreement, as opposed to sales agreement, does not include the transfer of ownership. Therefore, lessor shall be also liable for subsequent defects according to the TCO. For lessor’s liability of subsequent defects arising after transfer, the lessor’s fault is not required36. Subsequent defects might be contrary to agreement, custom traditions, material and moral obligations. In addition to this, defect should not arise out of lessee’s or his relatives’ fault.
V. DEFECTS WITHIN THE SCOPE OF CONTRACT OF WORK
The contractor’s defect liability for contract of work is regulated briefly compared to sales agreement37.
While the contractor was entitled to exercise his optional rights solely at the time of abrogated Code of Obligations, the Supreme Court declared that in its recent decisions, the employer is additionally entitled to demand expenses arising out of the defect38. Supreme Court’s decisions at the time of abrogated Turkish Code of Obligations are today legally regulated in39. The significance of this provision is that the employer is entitled to demand compensation, pursuant to general provisions in the event of failure to comply with notification periods. In addition, contractor’s defect liability can compete with tort liability.
A. Conditions of the Contractor’s Defect Liability
The liability of the contractor, which has arisen due to a defect, cannot be applied for work which is not delivered. However, if the work is delivered, but failed to comply with the standards of the contract, the contractor cannot have recourse on liablity due to defect, but instead, on deficient delivery or false performance. Transfer of an uncompleted work alone constitutes the default in contract.
Another condition which has to be mentioned is that the delivered good must be defective. It has to be noted that due to manifacturing process, the concept of defect is considered differently in contract of work, as to sales agreement. The Supreme Court has determined, in a decision relating to a contract of work, that defect constitutes the following: “Defective good is a good which lacks the qualities it should have according to the contract or provisions; or when it shows failures which it should not have. Briefly; defect is the deifance of qualities of a certain product which its presumes to have.”40 The contractor is obliged to transfer the work suitable for use.
The employer (the party ordering the work) is obliged to comply its duties regarding the inspection and the notification obligations in order to exercise its rights arising out of defects. In case the employer is negligent about inspection or notification, it is assumed that the employer made an implicit admission and forfeited its rights arising from defects liability41. Even in cases where this conditions are not fulfilled, employer reserves the right to refer to general provisions.
Explicit admission of work means a declaration of intention and can be executed directly in person or through a representative. Whereas implicit admission emerges in case of contrariety to obligations of inspection and notification.
The employer is not entitled to exercise its right arising out of defects liability in case the defect is arised from an instruction of the employer, against the contractor’s explicit advise, or another reason for which the employer is held responsible42.
Nonliability agreement between the parties is only effective within the scope of relevant provisions of the TCO43. According to provisions regarding sales agreement in the TCO, in spite of vendor’s gross negligence, agreements limiting or removing the responsibility of vendor are absolute void. In comparison to that clause, the contractor’s gross negligence shall supersede the nonliability clause44.
B. Rights of the Employer
The employer has several optional rights arising out of defects. In addition to private arrangements, the employer is entitled to demand compensation within the scope of general provisions. In case the employer suffers damages due to a defect, it reserves the right to apply provisions of tortious act.
The employer is legally entitled to withdraw from the contract, on the condition that the inflicted defect is essential. The significance of the defect is determined by the utility of the presented work.
Subsequently, the employer is entitled to demand a deduction of the cost, in which case the price determined in the contract will be reduced, in proportion with the decrease in value. The deduction shall be determined considering objective criteria. Even if certain cases have peculiar interest to the employer, objective criteria shall be considered.
The TCO specifically entitles the employer to demand repair of work without any expenses45. However, the employer shall exercise such right only if repairment does not require excessive expense46.
Supreme Court’s decisions enabled employers to make abovementioned claim according to general provisions of law at the time of abrogated Code of Obligations, but now they are regulated in the TCO47 48. Pursuant to general principles of law, in cases optional rights arranged in special provisions are not used, demanding compensation on the basis of general provisions is possible.
VI. CONCLUSION
In conclusion, the concept of defect can be defined by the CPL, the TCO and the Supreme Court decisions. As a result, a lot of definitions are indeed made in the doctrine. In this article, several of these definitions are presented, and types of defects have been examined under four categories. Additionally, provisions of defects liability, defects in sales, rental agreements and contract of work has been explained in terms of Turkish Law of Obligations. As a matter of fact, the single definition of defect in the TCO can be deduced from regulations involving sales agreement. For rental agreement and contract of work, provisions of defects regarding sales agreement can be used comparatively. However, concepts of defect can be distinguished according to the type of agreements used. For example, concept of defect used in sales agreements are different from rental agreements. Since the nature of rental agreements require a continuation of relationship, the lessor is obliged to keep the property fit for use, as long as the legal relationship continues between the parties of the rental agreement. Hence, the law has burdened the lessor with more obligations than the vendor, whereby the nature of the concept of defect is constituted by breach of contract and the principle of good faith. In the case of rental agreements, it is not always possible to detect a defect by comparing with identical products/goods as it occurs with sales agreements. A legal relationship is established between the employer and the contractor based upon a unique good. Eventually, it’s not always possible to find a good to compare the value in order to determine the existence of the defect.
BIBLIOGRAPHY
Cevdet Yavuz, Borçlar Hukuku Dersleri Özel Hükümler, Istanbul 2012
Gülşen Baltalı, Kira Sözleşmesinde Kiracının Ayıptan Doğan Hakları, Unpublished Master’s Thesis, Marmara University, Istanbul 2010
Merve Akça, Eser Sözleşmesinde İş Sahibinin Ayıptan Dolayı Sözleşmeden Dönme Hakkı. Unpublished Master’s Thesis, Bahçeşehir University, Istanbul 2012
M. Murat. İnceoğlu, Kira Hukuku Genel Hükümler Volume 1, Istanbul 2014
Mustafa Alper Gümüş, Borçlar Hukuku Özel Hükümler. Istanbul 2012
Nihat Yavuz, Ayıplı İfa, Ankara 2012 Nurşen Ayan, “Taşınır Satımında Satıcının Kanundan Doğan Ayıba Karşı Tekeffül Borcu”, Selçuk Üniversitesi Hukuk Fakültesi Dergisi 1 (2007), p. 11-37
FOOTNOTE
1 TKHK Art. 8/1.
2 Nihat Yavuz, Ayıplı İfa, Ankara 2012, p.35.
3 Yarg. 11. HD, T. 04.06.1998, E. 1998/2126, K. 1998/4183: “...because this issue can be seen instantly and clearly therefore shall not considered as a latent defect...”
4 Yarg. 15. HD, T. 12.10.1992, E. 1992/1182, K. 1992/4671: “...if clear defects entreated to compensation and a formal request does not prompted hereto from delivery, such defects are unenforceable. Solely subsequent defects’ recovery can be demanded provided that notifying the contractor upon their appearance and remedying existing flaws can be always demanded in limitation period...”
5 TCO Art.475/1.
6 Yarg. 14. HD, T. 26.3.2012, E. 2012/2363, K. 2012/4433: “In case of the defects of work are insignificant, the employer can demand a deduction from cost proportionally with such defect or if remedying the defects required excessive expense, then the employer can demand repair of work from the contractor.”
7 Cevdet Yavuz, Borçlar Hukuku Dersleri Özel Hükümler, Istanbul 2012, p. 71.
8 TCO Art. 304.
9 Yarg. 13. HD, T. 5.12.1994, E. 1994/9668, K. 1994/10845: “...failure to preparing the leased property suitable for use must be accepted as a material defect”.
10 Yarg. 11. HD, T. 17.6.2004, E. 2003/10866, K. 2004/6775: “...if absence of occupation permit of the building known to lessee [...] claimant lessee’s knowledge about presence of defect at transfer time...”
11 Nurşen Ayan, “Taşınır Satımında Satıcının Kanundan Doğan Ayıba Karşı Tekeffül Borcu”, Selçuk Üniversitesi Hukuk Fakültesi Dergisi 1, Konya 2007, p.17 https://www.selcuk.edu.tr/dosyalar/files/004/ cilt_15_sayi_1.pdf (Erişim 27.01.2016).
12 Mustafa Alper Gümüş, Borçlar Hukuku Özel Hükümler, Istanbul 2012, p. 52.
13 TCO Art. 219.
14 Yavuz, Borçlar Hukuku, p. 71.
15 TCO Art. 222/2.
16 TCO Art. 221.
17 Yarg. Hukuk Genel Kurulu, T. 27.3.2015, E. 2013/19- 1696, K. 2015/1109: “Accordingly, not solely in case of fraudulent concealing but in each case the vendor transfers the defective good with gross negligence; nonliability agreement is invalid.”
18 TCO Art. 227.
19 Yarg. 13.HD, T. 4.3.2015, E. 2014/5798, K. 2015/6620: “...the case is rejected on account of the fact that vehicle bought at a approximately 20% cheaper price according to expert’s report which indicates knowledge of damage.”
20 TCO Art. 223.
21 TCO Art. 225.
22 TCO Art. 227.
23 TCO Art. 229.
24 TCO Art. 231.
25 Abrogated Code of Obligations Art. 202
26 Preamble of Art. 227 TCO.
27 TCO Art. 301.
28 M. Murat İnceoğlu, Kira Hukuku Genel Hükümler Volume 1, Istanbul 2014, p.115.
29 TCO Art. 301.
30 TCO Art. 318.
31 TCO Art. 317.
32 Gülşen Baltalı, “Kira Sözleşmesinde Kiracının Ayıptan Doğan Hakları”, Unpublished master’s thesis, Marmara University, Istanbul 2010, p. 6.
33 TCO Art. 304.
34 Yavuz, Ayıplı İfa, p. 209.
35 TCO Art. 301.
36 TCO Art. 305.
37 TCO Art. 473-478.
38 Yarg. 15. HD. T. 9.6.2008, E. 2007/6459, K. 2008/3801
39 TCO Art. 475/2.
40 Yarg. 15. HD, T. 9.6.2008, E. 2007/6459, K. 2008/3801.
41 TCO Art. 477.
42 TCO Art. 476.
43 TCO Art. 115.
44 TCO Art. 221.
45 TCO Art. 475/3.
46 Merve Akça, “Eser Sözleşmesinde İş Sahibinin Ayıptan Dolayı Sözleşmeden Dönme Hakkı”, Unpublished master’s thesis, Bahçeşehir University, Istanbul 2012, p. 5.
47 Gümüş, p. 64.
48 TCO Art. 475/2.
