Defects in Sales Contracts
Introduction
Sales contracts are the most common and most important contracts of commercial life[1] . Determining the rights and obligations of the parties as a result of the defects encountered in the goods subject to the sale is one of the most common legal problems in commercial sales. This is because it is not enough for the seller to acquire the ownership of the goods in a timely and quantitatively complete manner; the goods must also be complete and of high quality in terms of the promised or assumed promised qualities[2] .
Liability arising from defects in contracts of sale is regulated by the provisions of the Turkish Code of Obligations numbered 6098 (“TCO”) and the Turkish Commercial Code numbered 6102 (“TCC”) in national law, and by the provisions of the 1980 Vienna Convention on Contracts for the International Sale of Goods (“CISG”), to which the Republic of Türkiye is a party. In this respect, the source of liability arising from defects in contracts of sale are the provisions of the TCO, TCC and CISG.
This article discusses the rights and obligations of the parties as a result of defects in commercial sales.
Definition and Legal Nature of Defect
The seller’s liability for defects in sales contracts is regulated under Articles 219 - 231 of the TCO. Liability arising from defects is defined as the liability of the seller against the buyer arising from the absence of the qualities declared by the seller in the sale and the qualities that eliminate or significantly reduce the value of the sale in terms of its intended use or the benefits expected from it[3] .
Under Article 35/2/a of the CISG, the goods sold and delivered to the buyer must be suitable for the intended use to which goods of the same kind are customarily put. Article 35/2/b of the CISG states that the goods sold and delivered to the buyer must be suitable for any special purpose for which they were expressly or implicitly notified to the seller at the time of the conclusion of the contract.
Liability arising from defects is complementary to the seller’s obligation to transfer ownership[4] . The provisions of the TCO regulating liability for defects are not mandatory, but regulatory rules of law[5] . Therefore, agreements restricting or abolishing the seller’s liability for defects (non-liability agreements) may be concluded. Non-liability agreements should be interpreted narrowly[6] . In addition, in cases where the seller is grossly negligent, an irresponsibility agreement cannot be concluded, this is clearly stated in Article 221 of the TCO.
Conditions of the Seller’s Liability for Defects
For the seller to be held responsible for the defects of the sale, the following conditions must be met:
Defects in the Sale at the Time of Transfer of Benefit and Damage to the Buyer
Under Article 219 of the TCO, “The seller shall be liable to the buyer not only for the absence of the qualities declared by him in any way, but also for the presence of material, legal or economic defects that are contrary to the quality or quantity affecting the quality, that eliminate or significantly reduce its value for its intended use and the benefits that the buyer expects from it”.
According to this article, defects may be material, legal, or economic. While material defect is the lack of quality in the physical condition of the goods, legal defect is the existence of a legal prohibition or limitation that prevents the use of the goods[7].
Another important point is the nature of the quantity deficiency. As a rule, the lack of quantity in the sale is not considered a defect, but it still gives rise to the seller’s liability for failure to perform as required. However, in some exceptional cases where the quantity affects the quality, the lack of quantity is considered a defect. Examples such as the width of the house, the diameter of a tool, and the missing pattern on a fabric can be considered as exceptional examples of this situation[8].
Buyer’s Ignorance of Defect
According to Article 222 of the TCO, “The seller is not liable for defects known to the buyer at the time of the conclusion of the sales contract. The seller shall be liable for the defects that the buyer can see by adequately inspecting the goods sold, only if he has separately undertaken that there is no such defect”.
As it is clearly understood from the provision of the article, if the buyer knows the defects at the time of the conclusion of the contract, he is deemed to have accepted them and the seller cannot be held liable for these defects. Ignorance of the defect means not only ignorance of the defect, but also ignorance of the importance and consequences of the defect[9]. According to CISG Art. 35/3, for the seller to be held liable for the conformity of the goods subject to sale, the buyer must not enter into the contract of sale knowing or being unable to know such conformity.
Liability arising from Defect is not abolished by the Contract
Article 221 of the TCO stipulates that any agreement that removes or limits the seller’s liability for defects is null and void if the seller is grossly negligent in transferring the goods in a defective condition. As mentioned above, it is possible to conclude an agreement limiting or removing the seller’s liability for defects. In cases where the seller is grossly negligent if he fraudulently conceals a defect that he knows to be present in the goods sold, or if he acts with negligence or intent in the transfer of the defective goods, the agreements concluded regarding the said irresponsibility of the seller shall be invalid.
The Buyer must have fulfilled the obligations imposed by the Law and has not accepted the defect
Under Article 223 of the TCO, “The buyer is obliged to inspect the condition of the goods as soon as he has the opportunity to do so in the ordinary course of business, and if he finds a defect in the goods that requires the seller’s liability, he must notify him within an appropriate period. If the buyer neglects to inspect and notify the seller, he shall be deemed to have accepted the sale. However, this provision shall not apply if there is a defect in the goods that cannot be discovered by an ordinary inspection. If such a defect is discovered later, the seller must be notified immediately; if not, the sale is deemed to be accepted with this defect”.
The obligations imposed on the buyer by law are the obligations to inspect the goods and to notify the seller of alleged defects. The buyer is obliged to inspect the goods and notify the seller of any alleged defects.
The expression “an appropriate period” in Article 223/1 of the TCO, which specifies the notification period, should be understood to mean that the defect should be notified to the seller “as soon as it is possible in the ordinary course of business” after the defect is noticed[10].
Article 23 of the TCC regulates the notification period for commercial sales. Accordingly, “if the defect of the goods is evident at the time of delivery, the buyer must notify the seller within two (2) days. If it is not obvious, the buyer is obliged to inspect or have the goods inspected within eight (8) days after receiving the goods, and if the goods are found to be defective as a result of this inspection, the buyer is obliged to notify the seller within this period to protect his rights. In other cases, the second paragraph of Article 223 of the Turkish Code of Obligations shall apply”.
In cases where the burdens of inspection and notification are not fulfilled by the buyer within the periods stipulated by the law, the buyer is deemed to have accepted the defective goods in question. Under Art. 225 of the TCO, in cases where the seller is grossly negligent, the seller cannot escape liability by claiming that the buyer did not notify the buyer in due time.
Article 38 of the CISG regulates the buyer’s duty of inspection. Accordingly, “The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances”. In the second paragraph of the same article, it is envisaged that “if the contract involves carriage of the goods, the examination may be deferred until after the goods have arrived at their destination.”.
Article 39 of the CISG regulates the buyer’s burden of notification. Accordingly, “The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were handed over to the buyer, unless this time limit is inconsistent with a contractual period of guarantee.”
Optional Rights Arising in Favor of the Buyer Due to the Seller’s Liability for Defects
If the seller delivers defective goods, the TCO grants some optional rights to the buyer. These rights are listed in Article 227 of the TCO. Accordingly, in cases where the seller is responsible for the defects of the goods, the buyer may exercise one of the following optional rights:
- Rescission of the contract by declaring that he/she is ready to return the sold goods.
- Retaining the sold goods and asking for a discount in the sale price in proportion to the defect.
- to have the goods repaired free of charge at the seller’s sole expense, unless this would involve an excessive expense.
- If possible, request the replacement of the sold item with a similar one without defects.
The buyer reserves the right to claim compensation according to general provisions.
The parties can impose various limitations on the buyer’s optional rights or their exercise through an agreement to be concluded between them. For example, a limitation may be imposed that the optional rights may only be exercised through the court.
The seller may prevent the buyer from exercising his optional rights by immediately providing the buyer with a defect-free substitute of the same goods and compensating the full amount of the damage suffered.
If the buyer exercises the right to rescind the contract, the judge may decide to repair the sale or to reduce the sale price, unless the situation does not justify this.
However, if the deficiency in the value of the goods sold due to the defect is very close to the sales price, the buyer may only demand a return or replacement of the goods with similar goods.
Optional rights cannot be exercised if the periods regulated under the TCO and the TCC are missed.
Rescission of the Contract
The consequences of the rescission of the contract are explained in Article 229 of the TCO. Accordingly, the buyer who rescinds the contract is obliged to return the goods to the seller together with the benefits derived therefrom. In return, the buyer may make the following requests from the seller:
- Return of the paid sale price with interest.
- Payment of the costs of the proceedings and the expenses incurred for the sale.
- Recovery of direct damages arising from defective goods.
Since the main purpose of granting the right of return to the buyer is to restore the relationship between the parties to the state it was in before the conclusion of the contract, the buyer must return the goods to the seller in the form in which he received them from the seller, and the seller must return to the buyer the interest income obtained from the price received from the buyer[11].
The seller is also obliged to compensate the buyer for other damages unless he proves that no fault can be attributed to him.
Reduction of the Price
Art. 227 of the TCO gives the buyer the right to retain the goods sold and sue for a reduction of the price for the lack of value. This right aims to restore the contractual balance that has been disrupted due to defective performance and to adapt the relationship between the parties to the changing conditions[12].
Unlike the option to rescind, in the exercise of this optional right, except for the conditions regarding the price, its existence and validity continue. Ancillary rights of mutual receivables shall continue.
In exercising this right, the buyer’s unilateral declaration of will is not sufficient; the seller must also accept a reduction in the price or the buyer must apply to the court.
Replacement of Defective Goods
Another of the optional rights granted to the buyer under Art. 227 of the TCO is the right to demand the replacement of the defective goods with a non-defective equivalent. This right can only be exercised in-kind obligations, and part obligations, this right can only be exercised upon the agreement of the parties[13].
Article 227 of the TCO grants such a right to the buyer and also grants the seller the right to prevent the buyer from suing and exercising the optional rights granted to the buyer, provided that the seller immediately delivers a defect-free similar product and fully compensates the buyer for the damage suffered by the buyer.
Right to Compensation According to General Provisions
Under Article 227 of the TCO, in addition to the optional rights of the buyer, the buyer has the right to demand compensation to the buyer by the general provisions for the damages incurred due to the defective delivery of the sold goods. This right did not exist under the abrogated Code of Obligations No. 818 .
It is controversial whether the buyer fulfills the review and notification obligations imposed on the buyer to be able to claim damages under the general provisions together with or independently of other optional rights. According to the Swiss Federal Court, the obligations of review and notification imposed on the buyer must be fulfilled and the 1-year statute of limitations must not have expired to bring an action for damages under the general provision.[14]
- Serozan, Rona / Baysal, Başak / Sanlı, Kerem Cem: Borçlar Hukuku Özel Bölüm, İstanbul 2019, p. 126.
- Serozan, Rona / Baysal, Başak / Sanlı, Kerem Cem: Borçlar Hukuku Özel Bölüm, İstanbul, s. 192-199.
- Eren, Fikret: Borçlar Hukuku Özel Hükümler, Ankara 2022, pp. 103-104.
- Yavuz, Cevdet / Acar, Faruk / Özen, Burak: Borçlar Hukuku Dersleri (Özel Hükümler), İstanbul 2022, p. 73; Kapancı, Kadir Berk: 6098 Sayılı Türk Borçlar Kanunu Açısından Satış Hukukunda Ayıptan Doğan Sorumluluk ve Sözleşmesel Garanti Taahhütleri, İstanbul 2012, p. 5.
- Eren, Fikret: Borçlar Hukuku Özel Hükümler, Ankara 2022, p. 157.
- Eren, Fikret: Borçlar Hukuku Özel Hükümler, Ankara 2022, p. 158.
- Kapancı, Kadir Berk: 6098 Sayılı Türk Borçlar Kanunu Açısından Satış Hukukunda Ayıptan Doğan Sorumluluk ve Sözleşmesel Garanti Taahhütleri, İstanbul 2012, pp. 12-13.
- Yavuz, Cevdet / Acar, Faruk / Özen, Burak: Borçlar Hukuku Dersleri (Özel Hükümler), İstanbul 2022, p. 77.
- Kapancı, Kadir Berk: 6098 Sayılı Türk Borçlar Kanunu Açısından Satış Hukukunda Ayıptan Doğan Sorumluluk ve Sözleşmesel Garanti Taahhütleri, İstanbul 2012, p. 21.
- Kapancı, Kadir Berk: 6098 Sayılı Türk Borçlar Kanunu Açısından Satış Hukukunda Ayıptan Doğan Sorumluluk ve Sözleşmesel Garanti Taahhütleri, İstanbul 2012, p. 33.
- Yavuz, Cevdet / Acar, Faruk / Özen, Burak: Borçlar Hukuku Dersleri (Özel Hükümler), İstanbul 2022, pp. 98-100.
- Kapancı, Kadir Berk: 6098 Sayılı Türk Borçlar Kanunu Açısından Satış Hukukunda Ayıptan Doğan Sorumluluk ve Sözleşmesel Garanti Taahhütleri, İstanbul 2012, p. 57.
- Eren, Fikret: Borçlar Hukuku Özel Hükümler, Ankara 2022, p. 155.
- BGE 82 II 136 E.3a; BGE 63 II 401; BGE 133 III 337 E. 2.4.1.
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