A contract of work is a controversial contract. The contractor does the work for a certain price in which the work owner has promised. The work owner’s prime debt is to pay this price ( Borçlar Kanunu (Code of obligation- hereafter will be referred to as BK) Art. 364-365). If the parties have agreed on a certain price beforehand, than the price is lump sum price. (BK 365). On the other hand if the price has approximately been decided before and the certain amount of the work will be defined after the work is completed then this price is an “approximate price”.
Why is an approximate price defined for a work contract? In a work contract the contractor will do his work in an activity which takes time. In the time the contract has been established there is no work present. For this reason, the costs the contractor will make will not be certain until the contractors debt has ended.
Especially in contracts which will consist of long term activities such as construction contracts it is hard to decide on a certain price at the beginning of the work. Therefore in order to define more or less the costs which the contractor will make the regulations on approximate price have been made. The approximate price is usually presented by the contractor to the work owner during negotiations under a contract which has the name of expedition contract. However this is not obligatory. An expedition report which also includes the approximate price may be prepared by the work owner or also by both sides together as well as also be given to a third party so that they will prepare it for them.
In the doctrine if there is indecision about the price, the general view is that the price has been decided as an approximate price.
The Conditions for Annulment when the Approximate Price has been passed exceedingly
In a work contract made between the parties, in the case that the production costs exceed the price which had been agreed on, not only may the contractor be affected negatively from this but the work owner may also be faced with the danger of paying an amount at the end of the work which they did not expect. The lawmaker, in order prevent such a situation which may be a threat to both sides has made it possible for the work owner to annul the work contract when the conditions shown below are present. According to the article 367 of the BK the first and most important condition in order to annul a work contract is that the price shown in the contract has been decided approximately.
1. In Work contracts the costs must have exceedingly passed the approximate amount which was decided
Article 366 of the BK has regulated the matter of defining the price according to the value of the thing and the costs of the contractor when the price has not been decided on beforehand or when it has been approximately decided, article 367 of the BK has regulated the matter of the right of the work owner to annul the work contract when the costs made exceedingly passes the approximate price which was decided on. According to article 367 of the BK; “If the cost of the work exceedingly passes the approximately agreed price decided upon with the contractor in a manner which the work owner may not be able to cover then the work owner may annul the contract during the production of the work or after as well”. As may be understood from this article the amount which has exceeded must be high, in other words it must be too much for the work owner to bear.
In an approximate priced work contract as a rule the work owner is obligated to pay the price which has been notified to them. However if the costs have exceeding passed the decided approximate price and as expressed above if the amount has exceeded the amount the work owner may bear then the work owner has the right to annul the contract.
It is hard to define when the amount above the approximate price is considered as exceeded. If the limit of the exceeded amount is shown in the contract then in this case it is easy to define if the amount is considered as exceeding or not. As a natural result of the principle of contract liberty the parties may define such a limit. However if such a limit has not be regulated in the contract then in this case the decision of when the costs of the work will be accepted as exceeding will be decided by the speciality of the substantial events in the light of the honesty principle. According to the most accepted view, if the work owner would not have done the contract if he/she knew the cost of the work beforehand then it is accepted that the cost has passed the approximate amount exceedingly. Different from German and Swiss law, Turkish law has not defined an increase percentage. The Turkish doctrine does not find defining a percentage in this way as correct, and in their opinion defining if the costs have exceeded the approximate amount should be done by using the righteous and honesty principles for every event.
2. The work owner should have not given reason for the approximate amount to be exceeded
Even if the costs of the work overly exceeds the approximate amount and if this situation is caused from a reason in which can be related to the work owner than the annulment right shown in article 367 of the BK may not be used. The work owner will have to pay the exceeding costs. The lawmaker has made decisions by pointing out that there is no relationship bond. For example if the overly exceeding costs are born because the work owner does not perform an obligation shown in the contract or performs it in a wrong manner or prevents the contractor from doing his/her work then the work owner does not have the right to annul the contract. It must be clearly underlined that fault is not taken into consideration here. The important factor is that the work owner must have not increased the costs with his/her own actions.
For example if the work owner has personally promised to provide equipment and materials and even though he had no fault if this promise could not have been executed and therefore if there is a rise in the cost then the work owner may not use his/her right to annul the work contract.
Apart from this, every time the cost of the work over exceeds the approximate price outside the work owner’s activity, even if the contractor has no fault the work owner has the right to annul the contract.
3. The exceeding cost of the approximately price should not be accepted by the work owner
In the doctrine the accepted view is that, the work owner have not right of annulment if at the stage of construction of the work the cost of the work over exceeds the approximate price even the reasons do not fall outside the work owner activity if the work owner have not been asserted any reservations against the exceeded cost claimed by the contractor or if the work owner has been implicitly or explicitly accepted the cost.
For example, if the work’s project already has been drawn and finalized but the work owner would like to some additions to be done and he knows or supposes to know that because of additions the cost exceeds then it would be accepted that the work owner accepts the cost exceeding in advance.
In special cases the work owner may assure to contractor that the exceeding cost of approximate price will be accepted by him. For example, if the work owner declares that the quality is more important than the costs and he remains in silent when the cost has been exceeded then the contractor will be seen to be right to think that the work owner accepts the situation. However, in order for protecting the assurance of the contractor the work owner should be responsible for providing the reassuring atmosphere.
The work owner once again may have a right to cancel the contract if certain amount of exceeding costs have been explicitly or implicitly accepted by him in consideration of the contract and if new cost have born and they exceed the approximate costs.
According to 367/2 of the BK, if the approximate cost (the expedition report) has been overly exceeded and the work is being built on the land of the work owner then the work owner will have a right to claim for an appropriate deduction in the price. Besides that, similarly with article 369 of the BK, the contract may be annulled if the work has not been finished and if compensation has been paid within equitable bases taking into account of the completed parts of the work.
In a decision given by the 15th Civil Chamber of the Court of Appeals with 2004/6552 E. 2005/4281 K. is also in the same direction which stated that“…the price has been determined approximately not as lump sum in the contract made between the parties. If the cost has been exceeded without any fault of the work owner then the work owner may annul the contract. If the work is being built on the work owner’s land, the work owner may claim reduction in the work price or if the work has not completed yet he may pay compensation to the contractor and annul the contract…”
4. The contractor should avoid building the work with an approximate price
The work owner does not entitle to cancel the contract if the contractor has not claimed any exceeding costs from him even though the approximate price has been overly exceeded and the exceeding amount has been occurred outside the business activity of the work owner. In other words, in spite of the cost has been overly exceeded if the contractor does not claim the exceeding cost from the work owner and bears them then the work owner will not have the right of cancellation. The contractor may inform the work owner that he waives the exceeding costs claims against him every stage of the work and by this way the work owner will not have any rational for performing the cancellation right as regulated by article 367 of the BK.
Opposite view look at , Öz, M.Turgut, İş Sahibinin Eser Sözleşmesinden Dönmesi, Kazancı Kitap Tic. A.Ş.,1989, S.70.
Öz, M.Turgut, İş Sahibinin Eser Sözleşmesinden Dönmesi, Kazancı Kitap Tic. A.Ş.,1989, S.71
Öz, M.Turgut, İş Sahibinin Eser Sözleşmesinden Dönmesi, Kazancı Kitap Tic. A.Ş.,1989, S.71
In Sweeden when the cost exceeds 10% it is accepted as exceeding.
Güleç, Şafak, Eser Sözleşmesinin Beklenilmeyen Haller Nedeniyle Feshi, S.102; Öz, S.71
Baygın, Cem, Türk Hukukuna Göre Ücret ve Tabi olduğu hükümler; İstanbul 1999, S.161
Ergezen, Muaz, İstisna Sözleşmesinde Tarafların Sözleşmeyi Sona Erdirme Hakkı, Ankara 2007, S. 111
Öz, M.Turgut, İş Sahibinin Eser Sözleşmesinden Dönmesi, Kazancı Kitap Tic. A.Ş.,1989, S.75-76
Güleç, S.103; Öz, S.76; Baygın, S.165.
Karataş, İzzet, Eser (İnşaat Yapım) Sözleşmeleri, Ankara 2004, S.342.
Güleç, S 103.
Bühler, T., Kommentar zum schweizerischen Zivilgesetzbuch, Band V, Das Obligationenrecht, Teilband V, Der Werkvertrag, Zürich 1998, Art 367-371 OR, Nr5 zu Art. 375.