Can Errors in Predicting Future Facts Be Considered Fundamental Errors?
Introduction
According to Article 30 of the Turkish Code of Obligations (“TCO”), which is based on the principle of the freedom of will, a party falling into a fundamental error when entering into a contract shall not be bound by that contract. In fact, not being bound by the contract is an option for the party falling into an error situation. The party can either approve the contract, prevent its invalidity by staying silent for one year starting from being aware of the error, or he/she can cancel such contract by notifying the counter-party within the said time period that the contract is not binding upon him/her.
Article 30 of the TCO denotes that the error shall be fundamental; whereas, Article 31 lists the cases of fundamental errors - these are “error in the characteristics of the contract (subparagraph 1),” “error in the subject of the contract (subparagraph 2),” “error in the party of contract (subparagraph 3),” “error in the person that the contract relates to while entering into such contract (subparagraph 4),” and “quantitative error (subparagraph 5).”
Article 31 of the TCO begins with the rule that in principle, given that the error relates solely to the reason for concluding the contract, it shall not be deemed fundamental. However, it defines that under certain circumstances, the error in the reasoning to conclude the contract may be considered fundamental, and the party falling into such error shall have the right to cancel the contract.
Below, the notion of error will be explained; afterwards, in line with the title of this article, the possibility of the application of the provisions regulating errors in the predictions concerning future facts will be discussed.
Fundamental Error
As stated above, in principle, given that the error relates solely to the reason for concluding the contract, the provisions regarding error shall not be applied. However, provided that the conditions specified under Article 32 of the TCO are realized, the party falling into such error may cancel the contract. The above mentioned provision reads:
“If the error relates solely to the reason for concluding the contract, it shall not be deemed fundamental. The error shall be fundamental when the party falling into the error in the reason for entering into such contract considers this as the base of the contact and when this consideration is also in conformity with the good faith principles required in business life. However, this situation shall also be known by the counter party.”
According to this provision, as accepted in the doctrine, an error is considered fundamental provided that the following conditions are realized[1]:
- The error that a party falls into shall relate to an issue that influences the formation of the will for entering into the contract.
- The subject of the error shall constitute a condictio sine qua non for conclusion of the contract for the party falling into the error.
- The error relating to the reason for entering into the contract shall be able to be known by the counter party.
- In accordance with the good faith principles required in business life, the effect of the error on the validity of the contract entered into shall be deemed reasonable.
As an example, when a person leases an apartment in anticipation of being appointed to a certain province, and later finds out that he/she was actually appointed to another province, he/she may cancel the lease agreement as per the provisions regulating error – insofar as the above conditions are fulfilled.
The fact causing the error may be related to the past or present. It is debated, however, whether the error in predicting future facts constitutes a fundamental error or not. Following the example, above, the answer to the question as to whether a later change of the province that the person has been appointed to constitutes an error, depends on the outcome of this discussion.
Below, the points of view in the doctrine on the above discussion will be addressed.
Different Opinions on the Predictions of Future Facts Constituting Fundamental Error
The majority opinion on this subject in both Swiss Law[2] and Turkish Law[3] argues that the provisions regulating error cannot be applied in the case of errors in predictions concerning future facts. In this case, the effect of later changes to a contract after the conclusion thereof relates to the theory of improvisation, and Article 138 of the TCO regulating hardship shall be applied[4]. In this case, there is no difference between the facts that influence the will to enter into a contract and the current facts at the time the contract is concluded.
Another opinion argues that the provisions regulating error can be applied with certain restrictions even for errors in predicting future facts[5]. It must be emphasized that the Swiss Federal Court accepts this latter view. Indeed, the Swiss Federal Court accepted the errors in predicting future facts, provided that they are “foreseeable.”[6] In other words, although solely concerning foreseeable facts, the Swiss Federal Court accepted the provisions regulating error as applicable for predictions concerning future facts. According to these decisions, only if both parties to the contract consider the predictions on future facts to be certain, and then they do not occur, the provisions regulating error could be applied. However, in the following decisions of the Swiss Federal Court, in line with the views in doctrine, it was ruled that the error does not necessarily need to be in question for both parties. If one party falls into error –in other words, the predictions about future facts made by one of the parties are not realized, although these are considered certain by the said party – under the condition that the counter party is aware of this issue, it shall be sufficient in terms of provisions regulating error to be applied[7]. Currently, the Court of Cassation does not take a position on this subject.
Conclusion
Whether the error in predicting future facts constitutes a fundamental error or not is debated in both Turkish and Swiss doctrines. Although the Swiss Federal Court accepts the implementation of the provisions regulating error under certain restrictions, the position of the Court of Cassation on this subject remains uncertain.
[1] Kemal OĞUZMAN/Turgut ÖZ, Borçlar Hukuku, Genel Hükümler, Volume: 1, Istanbul 2014, p. 101 ff.
[2] Please see: KOCAYUSUFPAŞAOĞLU Necip, Borçlar Hukukuna Giriş, Hukukî İşlem, Sözleşme, Istanbul 2010, p. 403, fn. 32.
[3] As an example, OĞUZMAN/ÖZ, p. 105.
[4] According to this provision; “If an extraordinary situation ocurs, which was not predicted and also unpredictable by the parties when concluding a contract, and is not related to the debtor and changes the circumstances of the contract to the detriment of debtor in a way that performance of such contract could not be expected from the debtor according to good faith principles and if the debtor has not yet fulfilled his obligation or fulfilled it by keeping all his rights reserved arising from hardship, shall have the right to demand adaptation of the contract from the court and if not possible, he/she shall have the right revoke the contract. For long term contracts, the debtor shall use his/her right of termination instead of revocation.
This provision shall also apply to foreign currency debts.”
[5] KOCAYUSUFPAŞAOĞLU, p. 403; Fikret EREN, Borçlar Hukuku, Genel Hükümler, Istanbul 2006, p. 353.
[6] ATF 109 II 110; ATF 79 II 275.
[7] ATF 118 II 297; ATF 117 II 218.
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