At the foundation of a contract lie declarations of the parties that correspond to one another and have been formed freely. In practice, however, cases are frequently encountered in which a person signs, by falling into a mistake, by being deceived or by remaining under threat, a document that person would never have signed of their own free choice.
The Turkish Code of Obligations No. 6098 gathers these situations under the heading of defects in consent. In such a case the question to be answered is a clear one: will the party whose consent has been vitiated be regarded as bound by the terms of the document signed, or is there a possibility of escaping the contract? Answering that question correctly determines both the legal character of the dispute and the course the parties will follow.
Below we address the statutory framework governing mistake, fraud and duress, the effect these have on the binding force of the contract, the question of damages, and the period allowed to the party whose consent has been vitiated.
Does Fundamental Mistake Remove the Binding Force of the Contract?
Mistake, which the legislation expresses through the concept of error, releases the party who falls into it from being bound by the contract concluded where it has arisen on the essential points of the contract. The basis of that outcome is Article 30 of the Turkish Code of Obligations No. 6098:
Turkish Code of Obligations No. 6098, Art. 30
“A party who falls into a fundamental mistake when the contract is concluded is not bound by the contract.”
The criterion emerging from the provision is this: for consent to be said to have been vitiated by mistake, the mistake must be fundamental in character. Put otherwise, the point wrongly known or wrongly assessed must carry a weight that is decisive for the conclusion of that contract. A mistake as to secondary details that are not determinative in the formation of the contract, by contrast, does not render consent vitiated and does not affect the validity of the contract.
The statute regulates mistake under three headings: mistake arising in the declaration, mistake as to motive, and mistake in transmission.
In Which Cases Is a Mistake in the Declaration Regarded as Fundamental?
The failure of the statement a party makes on concluding the contract to reflect that party’s true intention, that is, error in the declaration, is dealt with in Article 31 of the Turkish Code of Obligations No. 6098. Not every manifestation of this type of mistake is accepted as fundamental; the statute expressly lists certain situations that are also frequently encountered in practice.
Accordingly, a party’s declaring its intention in the direction of a contract different from the one it wished to conclude, or making a declaration concerning a subject other than the one intended, counts as a mistake in the declaration. In the same way, making a declaration of intention addressed to someone other than the person with whom the party wished to conclude the contract falls within this scope. Where the contract was to be made on the basis of a person thought to hold particular qualities but the declaration is made in respect of another person, the case is again assessed under the same heading. Finally, a party’s declaring its intention to undertake a performance considerably more onerous than the one it actually had in mind, or to accept a counter-performance considerably lower than the one it expected, is likewise among the cases of mistake in the declaration.
Do Calculation Errors Vitiate the Contract?
Simple errors of calculation made in the course of transactions, by contrast, are not characterised as fundamental mistake. In such cases the fate of the contract is not in issue; the matter rests with correction of the erroneous calculation alone.
The Exception Where a Mistake as to Motive Is Regarded as Fundamental
Motive may be defined as the internal factor that leads a person to enter into a given legal transaction, the motivation lying behind it. As a rule, the impulse with which a party signed the contract is not a matter concerning the other party. For that reason a mistake as to motive is in principle not regarded as a fundamental mistake. Article 32 of the Turkish Code of Obligations No. 6098 nevertheless introduces an exception to that rule:
Turkish Code of Obligations No. 6098, Art. 32
“Where the party in error regarded the motive as to which it was mistaken as the basis of the contract and this accords with the rules of good faith applicable in commercial dealings, the mistake is regarded as fundamental. This situation must, however, also have been capable of being known by the other party.”
The provision requires two conditions together. The motive as to which the party was mistaken must be capable of being seen, within the framework of the rules of good faith, as the basis of the contract; in addition, that situation must be of such a nature as to be capable of being known by the other party as well. Where both conditions are met together, a mistake as to motive is likewise accepted as a fundamental mistake.
Is an Intermediary’s Error in Transmission a Fundamental Mistake?
Where the declaration of intention relating to the conclusion of the contract is conveyed incorrectly to the other party, error in transmission arises. Under Article 33 of the Turkish Code of Obligations No. 6098 this case too is assessed as a fundamental mistake. Here the declaration itself has been formed in conformity with the party’s intention; the defect arises at the stage of conveying the declaration to its addressee. In transactions in which a messenger, a representative or a similar intermediary is used, this possibility should not be overlooked.
Is the Mistaken Party Held Liable in Damages?
Because mistake removes the existence of the mutual and corresponding declarations of intention that constitute the contract, it leads to the invalidity of the contract. That at least one of the parties suffers loss by reason of that invalidity is an ordinary possibility.
Article 35 of the Turkish Code of Obligations No. 6098 imposes on the party who, through its own fault, falls into a mistake and thereby causes the contract to be invalid an obligation to make good the other party’s loss arising out of that invalidity. The exception to this liability is that the contract was signed notwithstanding that the other party knew of the mistake or was in a position in which it ought to have known of it; in such a case no obligation to pay damages arises on the part of the mistaken party.
The Fate of a Contract Concluded by Fraud
In the decisions of the higher courts, fraud (deceit) is defined as one person causing another to accept an outcome to which that other would not have consented had the truth been known. Where the existence of such conduct is established in the dispute, judgment is given within the framework of the conditions relating to fraud.
Under Article 36 of the Turkish Code of Obligations No. 6098, a person who concludes a contract as a result of fraud by the other party is not regarded as bound by the contract. The point of note here is that, unlike in mistake, no requirement of fundamental character is sought. Regardless of whether the mistake arising as a result of the fraud is fundamental, the fact that the party has been defrauded is regarded as sufficient to escape the contract.
The practical consequence of that difference is clear: while the party alleging mistake must demonstrate that its mistake was determinative for the contract, no such burden arises in an allegation of fraud. What must be established instead is the fraudulent conduct and the connection between that conduct and the contract signed.
Is a Contract Signed Under Duress Valid?
Duress may be defined as informing a person that harm will be suffered should that person fail to carry out a transaction it does not wish to carry out. Under Article 37 of the Turkish Code of Obligations No. 6098, it makes no difference whether the duress comes from a party to the contract or from a third person; a party who makes a contract under the effect of duress cannot be held bound by that contract.
Does the Party Subjected to Duress Incur Liability in Damages?
In some cases one party to the contract is wholly unaware of the situation while a third person, a stranger to the contract, obtains the signature by applying various methods of threat to the other party. Where the party compelled to make the contract under duress has been subjected to duress by a third person and the other party neither knew nor was in a position to know of that situation, a liability in damages may arise for the party subjected to duress who asserts the invalidity of the contract.
Under the arrangement in Article 37 of the Turkish Code of Obligations No. 6098, if, following an assessment of the particular case, the conclusion is reached that equity so requires, the party subjected to duress is held liable to pay a certain sum in damages to the other party, who had no knowledge of the duress, by reason of the contract having become invalid.
The One-Year Notification Period in Contracts Concluded with Vitiated Consent
The Turkish Code of Obligations No. 6098 expressly provides that contracts made under the effect of mistake, fraud and duress, which it regulates as cases of vitiated consent, are to be regarded as invalid. The statute does not, however, attach that outcome to a mechanism that operates automatically; it imposes on the party whose consent has been vitiated and who does not wish to remain bound by the contract an obligation to manifest its intention to that effect within a specified period. The relevant provision reads as follows:
Turkish Code of Obligations No. 6098, Art. 39
“A party who makes a contract by reason of mistake or fraud or as a result of duress is deemed to have ratified the contract if, within one year from the moment at which it learns of the mistake or the fraud or at which the effect of the duress ceases, it does not give notice that it is not bound by the contract or does not demand back what it has given.”
Under that provision, if the party whose consent has been vitiated does not give notice to the other party within 1 year that it is not bound, it is deemed to have ratified the contract by implication and becomes bound by its terms from that point on. The starting point of the period varies according to the type of defect in consent: in mistake and fraud the date of learning is taken as the basis, whereas in duress the one-year period begins to run on the date on which the effect of the duress comes to an end.
Conclusion
In summary, contracts signed under the effect of mistake, fraud or duress are accepted as invalid. For that outcome to take effect, the party whose consent has been vitiated must give notice to the other party within the one-year period that it is not bound by the contract; failing that, the contract acquires binding force as regards that party.
The debtor’s default in performance under a validly concluded contract imposing obligations on both parties, and the details of the alternative rights afforded to the creditor in that event, are the subject of a separate examination; on that matter the notes entitled Debtor’s Default and the Rights of the Creditor may be consulted.
Independent Legal Assessment
Allegations of defective consent are in practice for the most part bound up with problems of proof. The party asserting the invalidity of the contract must demonstrate not merely the existence of a mistake or of pressure, but also that it was determinative in the formation of the contract. The structure of the file must therefore be built upon pre-signature correspondence, witness statements and records relating to the history of dealings.
The one-year period, for its part, is in practice the heading that most often gives rise to the loss of rights. Because the moment at which the period begins to run is tied to different dates according to the type of case, that date must be established at the very outset when managing the process. In a concrete dispute the following points should be assessed first:
- Determining whether the mistake alleged can be regarded as fundamental for the formation of the contract
- Characterising clearly which of the headings of mistake, fraud or duress the case falls under
- Supporting the starting moment of the one-year period with documents and giving notice by a method capable of proof
- Gathering evidence as to whether the other party knew of the defect in consent, since this bears directly on liability in damages
- Asserting, together with the notice, the claim for restitution of performances rendered under the contract
Independent Legal provides advisory services and litigation support in disputes arising out of contractual relationships, from the assessment of allegations of defective consent through the conduct of the notification process to the litigation stage.