A cash-strapped company sells machinery far below market value, a new business signs a one-sided deal with an experienced supplier, or shares are transferred in a hurry at a low price: can such transactions later be undone on the ground of exploitation? This article starts from the Majalla’s rule on gross deception (ghabn fahish), then covers “excessive benefit” (gabin) under Article 28 of the Turkish Code of Obligations, the special position of merchants, the English law approach and international arbitration practice.
The Majalla: ghabn fahish and deception
The Majalla distinguishes between minor price differences that are normal in the market (ghabn yasir) and gross deception (ghabn fahish). Article 165 sets numerical thresholds: a difference of about one twentieth of the value for goods, one tenth for animals and one fifth for land counts as gross.
Under the Hanafi view followed by the Majalla, however, a price gap alone does not undo a sale. As a rule, gross deception allows rescission only when it is accompanied by misleading conduct (taghrir). For specially protected property, such as that of orphans, waqf property and state property, gross deception allows rescission even without misleading conduct. This two-layer structure is a historical counterpart to today’s formula of “objective imbalance plus subjective exploitation” in Article 28 of the Turkish Code of Obligations.
Turkish law: excessive benefit under TCO Article 28
- Objective element: there must be a clear imbalance between the parties’ performances at the time the contract was made. Unlike the Majalla, the Code sets no fixed ratio; the imbalance is assessed on the facts.
- Subjective element: the imbalance must result from exploiting the injured party’s distress, thoughtlessness or inexperience. The other party must have knowingly taken advantage of that weakness.
- Choice of remedy: the injured party may declare that it is not bound and reclaim what it performed, or it may stay bound and ask for the imbalance to be corrected. The second option matters to a party that wants to keep the business relationship.
- Time limits: the right must be exercised within one year of learning of the situation and in any event within five years of the contract. In cases of distress, the one-year period starts when the distress ends.
- Difference from adaptation: Article 28 concerns an imbalance existing when the contract is made. An imbalance caused later by extraordinary change is a matter of hardship (TCO Art. 138); see our article on adaptation.
Can merchants rely on excessive benefit?
Article 22 of the Turkish Commercial Code expressly bars a merchant debtor from relying on certain protective rules: reduction of excessive fees, of an excessive penalty and of excessive remuneration in a contract for work (TCO Arts. 121/2, 182/3, 525). Article 28 is not on that list, so the route is not closed to merchants by statute. However, since every merchant must act as a prudent businessperson (TCC Art. 18/2), a merchant’s plea of “inexperience” or “thoughtlessness” is, as a rule, rarely accepted in practice. For merchants, the more realistic subjective element is usually distress, such as a severe cash crunch. For the comparison on penalty clauses, see our article on penalty clauses.
In practice, excessive benefit claims arise mostly in share transfers, distressed asset sales and transfers within family companies. The imbalance is usually proven by expert valuation, and the subjective element by correspondence, payment pressure and the timing of the transaction.
The English law view: no general doctrine of gross disparity
English law does not treat an imbalance between performances as a ground for setting a contract aside on its own; courts as a rule do not review the adequacy of consideration. Protection comes instead through fraud, misrepresentation, undue influence, economic duress and the narrow doctrine of unconscionable bargains.
- Lloyds Bank Ltd v Bundy [1975] QB 326: Lord Denning proposed a general principle of relief based on inequality of bargaining power. Later cases did not adopt it as a general rule.
- National Westminster Bank plc v Morgan [1985] AC 686: the House of Lords held that inequality of bargaining power alone does not make a transaction unconscionable; some wrongful or unfair conduct by the stronger party is required.
- Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173: a transaction between a financially troubled garage business and an oil company was upheld, as weakness alone was not enough; a typical example of how narrowly the doctrine applies in commercial dealings.
- Pakistan International Airline Corporation v Times Travel (UK) Ltd [2021] UKSC 40: the only direct carrier threatened to end its relationship with a travel agent unless a new contract was signed. The Supreme Court accepted that lawful act duress exists, but held that the threshold is high and was not met on the facts, and dismissed the claim.
Comparison: Turkish law lets the injured party escape the contract or correct the balance where a clear imbalance and the exploitation of weakness come together. In English law, imbalance between commercial parties has no effect on its own; pressure or improper conduct must be proven, and the threshold is high. Relying on a gabin-type protection in a contract governed by English law is much harder than under Turkish law.
Examples from international arbitration
In international commercial arbitration, the counterpart of gabin is the “gross disparity” rule of the UNIDROIT Principles of International Commercial Contracts (Art. 3.2.7; Art. 3.10 in the 1994 edition). It looks at whether the contract gave one party an excessive advantage at the time it was made, taking into account unfair advantage taken of the other party’s dependence, economic distress, inexperience or lack of bargaining skill.
- ICC Case 13009: a Liechtenstein seller argued that a settlement agreement with a Spanish buyer had been signed under economic duress and was grossly unbalanced. Applying the UNIDROIT Principles, the tribunal found the parties’ rights and duties under the settlement to be balanced and rejected the gross disparity claim.
- ICC Case 9029 (1998): the validity of a partnership agreement was challenged on grounds of gross disparity. The tribunal held that the gross disparity and hardship defences could not go beyond the conditions set by the Principles, and that the disadvantaged party could rely on its ignorance only for facts that arose before the contract and that it could not have known.
These awards show that tribunals approach imbalance claims between commercial parties with caution: unless the imbalance at formation and the unfair exploitation of weakness are shown by concrete evidence, the contract stands. Settlement agreements are not immune from review, but because they involve mutual concessions they are hard to characterise as grossly unbalanced.
Frequently asked questions
I sold an asset cheaply; is the price gap enough? No. Article 28 requires, in addition to a clear imbalance, proof that the other party exploited your distress, thoughtlessness or inexperience. The Majalla, too, generally required misleading conduct on top of the price gap.
Can I have the price corrected instead of undoing the contract? Yes. The injured party may stay bound by the contract and ask for the imbalance to be corrected.
How much time do I have? One year from learning of the situation (in cases of distress, from when the distress ends) and in any event five years from the contract.
My company is a merchant; is excessive benefit ruled out? The statute does not close the route, but the prudent-merchant standard makes a plea of inexperience hard to win. Serious distress, knowingly exploited by the other side, has to be shown concretely.
For general information only; not legal advice. An excessive benefit claim depends on the facts of the case. Sources: Majalla Art. 165 (as reported in secondary sources); Turkish Code of Obligations Arts. 28, 121/2, 138, 182/3, 525; Turkish Commercial Code Arts. 18/2, 22; Lloyds Bank Ltd v Bundy [1975] QB 326; National Westminster Bank plc v Morgan [1985] AC 686; Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173; Pakistan International Airline Corporation v Times Travel (UK) Ltd [2021] UKSC 40; UNIDROIT Principles Art. 3.2.7; ICC Case 13009; ICC Case 9029 (1998) (as summarised in Unilex).