Abuse of Form Requirements During Property Transfers in Turkey

Orçun Çetinkaya, LL.M. and Burak Baydar - December 28, 2018

Freedom of contract stems from the freedom of will principle in civil law. Accordingly, persons can reach any legal arrangement or consequence by adequately revealing their will in this respect, within legal limits. This principle is guaranteed under Article 48 of the Turkish Constitution and Article 26 of the Turkish Code of Obligations (“TCO”). Some contracts, on the other hand, are subject to form requirement under the Turkish Legal System. Form requirements are a mechanism which require an obligatory pattern and record for declaring the parties’ wills. Contracts concluded for transferring ownership of immovable property are subject to form requirements.

However, in some cases, claiming a violation of form requirement can be regarded as an abuse of right. For instance, sale of immovable property involving foreigners or people with low education levels, since both groups may lack knowledge about the necessary legal procedure. In this context, despite fulfilling the performance obligations, failures to meet official form requirements are generally not performed intentionally and maliciously by the parties with the intention of defraud.

In this article, we will discuss the form requirement and the consequences of a violation to the form requirement in immovable property sales; whether claiming a violation of form requirement despite fulfillment of the contract shall constitute an abuse of right. We will also evaluate whether contracts concluded without complying with the form requirement can be validated by the application of the good faith principle as per Article 2 of the Turkish Civil Code (“TCC”) and if not, what alternative principles can be invoked for to ensure the price is returned.

FORM REQUIREMENT AND CONSEQUENCES OF FORM DEFECTS IN GENERAL

In principle, the validity of a contract is not subject to any particular form unless otherwise specified by law (Article 12 of the TCO). However, there are some exceptions to this rule if one of the below applies to the contract:

  1. The form protects one or both parties as the requirement of form urges parties to fully consider the transaction.
  2. The form provides legal certainty for parties or third persons [1].
  3. The form ensures public registries have solid legal grounds.

Having said that, form requirements also have drawbacks. For instance, making the legal process difficult, causing loss of time and money, as well as arguably prioritizing form over merit.

The TCO sets forth two forms of contracts:

– Simple written form: The parties sign a bill without the involvement of any officials.

– Official written form (or shortly, official form): An official is involved who holds the authority to formalize legal transactions as per the procedures and principles set forth in laws  [2].

Contracts concluded without duly satisfying the specified form do not enter into effect (Article 12/2 of the TCO).

There are various views in the doctrine about the consequences of form defects, such as:

– View of non-existence,

– View of being voidable,

– View of invalidity,

– View of being distinctive (sui generis) void.

The opinion adopted by the Supreme Court and the prevailing opinion in Swiss-Turkish practices is the view of invalidity [3]. According to this, a legal transaction which fails to meet form requirement would not be effective from the moment that the transaction took place, would not be validated after a period of time, nor after being approved by the other party. Also, courts consider such a defect in form ex officio and it can also be raised by third parties.

While the view of distinctive (sui generis) void is mostly accepted in Swiss Law practices, it also has supporters in Turkish doctrine. According to this view, the transaction is ineffective from the moment it is made. However, unless one of the parties claims its nullity, the transaction would have its regular consequences, which make it seems that courts and third parties cannot claim the nullity of the transaction. Moreover, there are possible ways to recover this nullity (e.g. mutual fulfillment of obligations).

FORM REQUIREMENT AND CONSEQUENCES OF FORM DEFECTS IN CONTRACTS TRANSFERING PROPERTY OWNERSHIP

As stated in Article 706 of the TCC, “Contracts aiming the transfer of immovable property ownership are deemed valid under the condition that they are drafted in the official form”. The purpose of requiring these contracts be made in an official form is, along with those pointed above, to provide as much security and clarity as possible to the transaction which will be the reason for request of registration [4]. Indeed, it becomes harder to object to a contract concluded in official form with respect to incompetence and/or defective intention of the parties [5].

Land, independent and continuous rights recorded on separate pages in the land registry and independent sections registered on flat ownership registry constitute the subjects of immovable property sale contracts (Article 704 of TCC. Such contracts burden both parties with an obligation (synallagmatic) in which one party is under the obligation to transfer the ownership, while the other party is under the obligation to pay the price. In the TCC, the articles on the contract of sale are drafted based on movable property sale contracts. Although there are articles regarding the sale of immovable properties in law (TCO Article 237 ff.), it does not outline the parties’ obligations in detail for sales of immovable property [6].

The TCO or TCC do not contain explicit provisions regarding which public officers must be involved in performing the official form for immovable property sale contracts. However, this authority is given to land registry officers by Article 26 of the Land Registry Law. In order for a sale of immovable property registered with the Land Registry to be valid, it is stipulated that authenticated deed shall be drafted by the land registry and it shall contain mutual wills of the parties [7]. Therefore, public notaries do not have the competence of drafting immovable property sale contracts, yet notaries have the authority to draft promise to sell immovable property agreements.

In immovable property sales, conducting a sale without meeting the official form requirement is called an “external sale”. This is a common occurrence in practice and such contracts are void due to defect of form.

Since it is a common occurrence in practice, there are number of decisions by the Supreme Court in this regard. According to the unified decision dated and numbered as 10/07/1940 and 2/77, the buyer who has paid the price and received ownership of the immovable property with a contract of external sale must return the ownership of the immovable property due to the contract’s invalidity. If the seller does not fulfill its obligation to return the amount paid, it also cannot invite the buyer to fulfill his/her obligation of return. Thus, the buyer can hold the possession of the immovable property until the seller returns the paid amount and vice versa [8]. In case of holding the possession, the buyer does not have to make adequate payment for the time he/she uses the property.

If the creditor made a payment to the owner, without being the possessor of the property, based on a void contract resulting from the defect of form, the creditor can file an unjust enrichment lawsuit with the legal grounds of unrealized cause and the payment of a non-debt. In unjust enrichment cases, according to the Supreme Court, while the contract is being liquidated for the invalid contract, an equilibrium should be sought and the amount paid as the purchase price should be returned in the amount having an equal purchasing power at the time of the decision. Otherwise, a partial return would occur and the debtor would be unjustly enriched [9]. As per the well-established Supreme Court’s decisions, the amount to be returned shall be calculated considering to changes in inflation, consumer price index, increase in gold and foreign currencies, increase in public servants’ and private sector employees’ wages from the date when the payment of the purchase price was paid to the date this amount is returned.

Another contract that raises the obligation of ownership transfer is the construction contract in return for land share (arsa payı karşılığı kat yapım sözleşmesi). In this contract, the constructor is obliged to build independent areas on the owner’s land in return for ownership of a number of land shares [10]. The contract is a mixed contract constituting both a contract of sale and a contract of work. Although the part of the contract obliges the constructor to perform its obligations is not subject to official form, the obligation of the owner regarding the ownership transfer of land shares is subject to these in accordance with TCC Article 706 and TCO Article 237. In practice, generally a promise to sell contract is agreed using this mixed contract approach. According to a Supreme Court decision, if the transfer of the deed is not performed in accordance with the promised sale, the obligation of “specific performance” would turn into the “obligation of compensation”. [11]

PROHIBITION ON ABUSE OF RIGHT

TCC Article 2 reads as follows and explicitly bans the abuse of right: “Legal order does not protect explicit abuse of right”. This prohibition arises from the contradiction between drafted laws (legislations) and real laws (true and just law) and is based on the requirement that everyone act in accordance with the real laws and the social common belief in this regard [12].

In order to implement the prohibition on the abuse of right, the use of a legally recognized right must be contrary to good faith in an explicit way and others must be harmed or threatened to be harmed by its use in contradiction with good faith.

As a rule, a legal transaction bearing a defect of form would be void and claiming its nullity is not contrary to good faith. However, in some cases, to claim the defect in form can be regarded as an abuse of right [13]. According to the rule in TCC 2/2, which finds application in all fields of Civil Law, claiming nullity due to a defect in form may constitute an abuse of right in some cases of immovable sales which are explained below.

In this context, initially, it would be appropriate to mention two methods used in determining the circumstances in which a claim defect of form is an abuse of the right in immovable property sales. The first method, which is applied by German Federal Court, is that in order to restrict nullity of a defect of form in a case, such nullity must present not only a “serious consequence” but also “absolutely unendurable results”.

According to this approach, whether the abuse of the property has taken place will be determined by the court on a case-by-case basis, considering all aspects of that case at hand [14]. It can be said that Swiss Federal Court and Turkish Supreme Court also adopted this view. In fact, this method was used in the Supreme Court’s General Assembly on the Unification of Judgments’ unification decision dated 30 September 1988, numbered 1987/2, 1988/2 to which is frequent references are made in doctrinal discussions and explanations. In this unification decision, the Supreme Court discussed if,

  1. Both parties fulfilled their obligations arising from construction contracts, and
  2. Contracts pertaining to properties are subject to independent sections indicated in Law of Property Ownership numbered 634 in return for land share (in other words, construction contracts where the contractor undertakes to build apartment buildings in return for land shares),

claiming the nullity due to defect in form constitute an abuse of right.

Within this context, the Supreme Court indicated that “the requirement of form and prohibition on abuse of right are in contradiction in such cases, thus, the characteristics of the case at hand must be given utmost importance when determining which rule will prevail.”  In the light of this principle, the Supreme Court concluded that as a general rule, a land registration claim should be dismissed if the sale agreement is void due to the defect of form. However, in case both parties fulfilled their obligations in construction contracts pertaining to independent sections (apartments) subject to Law of Property numbered 634 in return for land share (which means in case the contractor completes and hands over the apartment and the buyer transferred the land share), contractor’s plea based on defect of form will be deemed to be against TCC Article 2/2 (abuse of rights) and buyer’s land registration claim can be heard by the court from the merits and accepted. However, the unification decisions are only applicable within the scope of dispute addressed in the decision and therefore it is not possible to expand its scope of application to all external sales. This unification decision only applies if:

  1. A construction contract pertaining to apartment buildings is executed between a contractor and a landowner,
  2. The form requirement for the transfer of apartment building is not met,
  3. Both parties fulfill their obligations under this contract, and
  4. The contractor does not transfer the property of the apartment building nevertheless.

The second method has emerged due to concerns that the first method may lead to arbitrary decisions and has evolved to identify certain groups of events and the principles to be applied to them in order to avoid any lack of legal security that may arise. This method seeks the existence of three criteria:

– Complete or almost complete fulfillment by the parties

In cases where parties completely or almost completely performed their obligations by knowing the defect, TCC Article 2 (honest behavior) can be applied smoothly. Examples would be the sales bearing a defect of form and yet the price of the immovable property has been paid and the actual transfer of property has taken place. In practice, this type of sale is generally made to foreigners. In such cases, the seller and the buyer have fully performed their mutual obligations regarding the sale without complying with the form requirement. In accordance with this criterion, claiming defect of form would constitute an abuse of right under such circumstances.

– Actions towards the fulfillment of obligations began but have not completed

In this case, the obligations are not fully performed by both parties or the fulfillment of obligations by the parties took place without knowing the defect of form and therefore, abuse of rights cannot be raised directly without the existence of additional circumstances.

An example would be a situation in which the party creating a reasonable trust in the other party regarding the fulfillment of the contract, despite the defect in form, but resorting to the defect of form in the lawsuit against himself/herself filed by the claimant who has fully or almost fully performed its obligations. The promise to sell immovable property agreements with form defects, the sales of which price are not paid partially or in full are the other examples for these situations.

Precisely at this point, abuse of rights can be raised with the help of the rule on the ban of acting in contradiction (venire contra factum proprium nemini licet). The Supreme Court has various decisions in which it accurately applied this principle [15]. (… “The abuse of right must not be contrary to good faith rule regulated in TCC Article 2/2. In such a case, the nullity would be rendered ineffective” …)

Another example is the situation in which the claim of defect in form is raised by one of the parties irrelevantly to the protective purpose of the form. Nevertheless, there is no consistency of decisions about given by Swiss Federal Court in this regard [16].

– The parties have not yet performed their obligations

In order to file a lawsuit of specific performance in this case on the basis of TCC Article 2/2, the party basing its claims on the defect of form must have caused this defect intentionally in order to resort to the nullity caused by the defect in case he/she seeks to get away with his/her non-performance of such contract or one of the parties must have caused the defect in form by taking advantage of his/her dominant position.

It should be once more noted that the common aspect of the three criteria is the performance and that the degree of fulfillment of the performance is decisive.

EFFECT OF ABUSE OF RIGHT ON NULLITY

As referred to the explanations in section 1, a null legal transaction would not be effective from its inception since the law regulating the nullity prevents such transaction from being valid. According to prevailing opinion in German Law (on which judges can act ex officio), TCC Article 2 would restrict the application of the law which renders such transactions null (Teleologische Reduktion) and, thus, they (despite defect of form) must be construed valid [17]. In such cases, the contract would be regarded as valid from its inception rather than revived later as TCC Article 2/2 is applied.

However, in all cases which lead to the application of TCC Article 2/2, the validity of the contract based on this clause may only be for the benefit of the party who were subject to injustice [18].

EVALUATING SUPREME COURT DECISIONS

When we examine Supreme Court decisions rendered over time, it can be said that the Supreme Court has generated principles and guidelines through case-law on this topic. The approach of the Supreme Court can be summarized as follows:

If a person,

– Prevents the fulfillment of requirements as to form for his/her own benefit or hinders the fulfillment requirements of form with its deceptive actions,

– Eventually decides that the contract is not beneficial for oneself and his/her attempt to render the contract invalid contradicts with morals or he/she uses the defect of form as a reason to abstain from performing his/her obligations instead of relying on the forms protective effect,

– Confirms that he/she will perform all his/her obligations after the contract has been effective and gains the trust of the other party towards the fulfillment of the contract unjustly, [19]

claiming nullity based on defect of form would constitute an abuse of right and this claim would not have legal protection.

Thereby, especially in the immovable sales in which the price has fully been paid, actual transfer and delivery has taken place, sellers request for return of the immovable property by claiming defect of form would constitute an abuse of right.

Also, it would not be fair for courts to dismiss the title deed cancellation and registration cases solely based on the defect of form in immovable sales in which the buyer and seller have fully performed their obligations.

CONCLUSION

The legal requirement as to form in immovable property sales has emerged to assure the universal human rights of right to property ownership and freedom of residence. Therefore, the legal requirement as to form is foundational in immovable property sales and defect of legal form causes nullity.

However, claiming the requirement as to form as a condition for validity in immovable property sales does not necessarily provide the targeted legal protection. In fact, in some cases, seller’s claim of defect of form can constitute an abuse of right.

Indeed, although legal form has a role in establishing legal certainty, resorting to defect in form and claiming the nullity of the transaction in immovables sales in which the buyer and the seller have fully and actually performed their obligations, would constitute an abuse of right. In such a case, establishing the transaction’s validity is required by TCC Article 2/2 and registration for the title deed for the sake of fairness. As stated in one of the Supreme Court’s decision, “events and facts of our country which cannot be ignored, show once again that an importance on this must be placed as a requirement of justice.”

In this perspective, it is not surprising to confront these kinds of defect in forms in the areas with low literacy rates or in the sales made to foreigners. In such immovable sales, claiming defect of form in cancellation and registration lawsuits would not be just and would constitute an abuse of right.

For this reason, lack of legal form should not be regarded as the only criterion especially in immovable sales to foreigners and to low-educated persons. In this context, parties’ fulfillment of obligations should be determined and evaluated, and whether claiming defect of form would constitute an abuse of right should be considered.

In such cases, therefore, even if the formal form requirement is not fulfilled, provided that the price of the immovable property has fully been paid by the buyer, and the property is transferred and delivered by the seller and has been used by the buyer for a significant time, the buyer can claim specific performance and file a lawsuit for title deed registration. The buyer also should have a right to claim compensation as a substitute for the specific performance in accordance with TCO Article 112 if the specific performance is not possible because of the seller’s fault.

 

 

 

[1] Kemal Oğuzman- Turgut Öz, Borçlar Hukuku Genel Hükümler Cilt 1, Gözden Geçirilmiş 11. Bası, İstanbul 2013, s.143

[2] KOCAYUSUFPAŞAOĞLU/HATEMİ/SEROZAN/ARPACI, Borçlar Hukuku Genel Bölüm Birinci Cilt, 2010 5. Bası’dan 6. Tıpkı Bası, İstanbul, §25, s.276

[3] Yargıtay, İBK, 30.09.1988, E. 1987/2, K.1988/2

[4] Necip Kocayusufpaşaoğlu, Borçlar Hukuku-Genel Hükümler, İstanbul, 2010 sah.271 vd.

[5] OĞUZMAN-SELİÇİ- OKTAY-ÖZDEMİR, Eşya Hukuku, Yenilenmiş ve Mevzuata Uyarlanmış 17. Baskı s.355

[6] ZEVKLİLER-GÖKYAYLA Borçlar Hukuku, Özel Borç İlişkileri 14.Bası, Ankara 2014, s.58

[7] Yargıtay, 8HD. 13.10.1993, E.7297, K.10079 (Sınmaz, Karataş s.1068)

[8] OĞUZMAN-SELİÇİ- OKTAY-ÖZDEMİR, Eşya Hukuku, Yenilenmiş ve Mevzuata Uyarlanmış 17. Baskı s.365

[9] Yargıtay, 13HD, 1.3.2005, 2004/15304 E., 2005/3040K

[10] Yavuz, s.509

[11] Yargıtay, 3. HD, 2012/13401 E. , 2012/18413 K.

[12] Çeliktaş, Demet- Şekle Aykırılık ve Şekle Aykırılığı İleri Sürmenin Sınırı Olarak Hakkın Kötüye Kullanılması Yasağı, Yüksek Lisans Tezi, Dokuz Eylül Üniversitesi

[13] ZEVKLİLER-GÖKYAYLA Borçlar Hukuku, Özel Borç İlişkileri 14.Bası, Ankara 2014, s.60

[14] KOCAYUSUFPAŞAOĞLU/HATEMİ/SEROZAN/ARPACI, Borçlar Hukuku Genel Bölüm Birinci Cilt, 2010 5. Bası’dan 6. Tıpkı Bası, İstanbul, §30, s.313

[15] Yargıtay, 13 HD, 1996/8841 E. 1996/10366 K.

[16] BGE 112.II.336.

[17] Serozan, Die Überwindug der Rechtsfolgen des Formmangels im Rechtsgeschaft nach deutschem, schweizerischem und türkischem Recht, Tübingen 1968, s.78 vd.

[18] KOCAYUSUFPAŞAOĞLU/HATEMİ/SEROZAN/ARPACI, Borçlar Hukuku Genel Bölüm Birinci Cilt, 2010 5. Bası’dan 6. Tıpkı Bası, İstanbul, §30, s.325

[19] Yargıtay, 13.HD 1991/7217 E. 1991/10901 K.; Yargıtay, HGK 1996/13-701 E. 1996/840 K.