One of the fundamental concepts of contract law, "penalty clauses" function as an important security for the creditor in the event that the debtor fails to properly perform their obligation. As an extension of the principle of freedom of contract, the parties may agree in advance to the payment of a specific amount in case the obligation is not performed at all or not performed correctly, thereby encouraging performance and easing the burden of proof for any damages that may arise.
One of the fundamental concepts of contract law, "penalty clauses" function as an important security for the creditor in the event that the debtor fails to properly perform their obligation. As an extension of the principle of freedom of contract, the parties may agree in advance to the payment of a specific amount in case the obligation is not performed at all or not performed correctly, thereby encouraging performance and easing the burden of proof for any damages that may arise. Although the penalty clause is explicitly regulated in the Turkish Code of Obligations and is frequently used as a security mechanism in practice, it has also been subject to various debates regarding its legal nature, function, and applicability. This study will examine the legal nature and validity conditions of the penalty clause, along with the place of reductions in penalty clauses in Turkish law, its practical implications, doctrinal views, and judicial precedents.
II. Legal Framework
Ii. ITurkish Code of Obligations Artilces 179-182: Nature and Function of the Penalty Clause
The creditor is freed from the burden of proving damages in the event of a breach of contract or failure to properly perform the obligation and is provided with the opportunity to claim the predetermined penalty amount to compensate for both direct and indirect damages. This provision encourages the debtor to perform the obligation, creating a deterrent sanction, while also ensuring the compensatory nature of the contract. According to Article 182/II of the Turkish Code of Obligations, the penalty clause becomes due together with the main debt; if the main debt is eliminated, the penalty clause cannot be claimed.
ii. Conditions for the Validity of the Penalty Clause
The validity of the penalty clause depends on both general contractual provisions and some special conditions specific to the penalty clause. The Turkish Code of Obligations explicitly stipulates that in order for this institution to be considered valid, there must be a valid principal obligation relationship, the parties must have expressed their will in this respect, and these expressions of will must not be contrary to the law, morality, public order and personal rights.
The first condition for the validity of a penalty clause is the existence of an explicit or implicit agreement between the parties. As a rule, a penal clause is a voluntary provision and does not arise automatically unless agreed upon by the parties. Within this framework, although it is not legally obligatory for the penal clause to be in writing, it is a common practice to apply to the written form as it provides an easiness on the burden of proof in practice.
Secondly, the main performance on which the penalty clause is based must be valid act. As a rule, a penalty clause based on an invalid debt relationship is also considered invalid. However, there are opinions that, exceptionally, some penal clauses that are independent from the main debt relationship may be deemed valid. Especially in the case of independent (detached) penalty clauses, the validity of the penalty clause itself should be evaluated separately.
Thirdly, the subject matter of the penal clause must not be contrary to law, morality and public order. For example, a penal clause stipulating a penal clause in return for not committing an illegal act will be deemed invalid by the legal order.
III. Reduction in Penalty
Finally, the penalty clause must remain within reasonable limits so as not to create a disproportionate burden between the parties. Otherwise, penalty clauses may have severe consequences for the debtor, and in this case, the judge's power of reduction comes into play in order to ensure the balance between the freedom of contract and the protection of the debtor.
i. Reduction Authority Regulated under Article 182 of the Turkish Code of Obligations (TCO)
The mandatory rule regarding the reduction of the penalty clause is stated in Article 182/.3 of the TCO as "The judge shall automatically reduce the penalty clause that he deems excessive."
The parties may freely determine the penalty clause within the limits of freedom of contract. The penalty clause, which is generally agreed in the form of a definite or determinable monetary payment, is primarily subject to inspection in terms of performance and amount pursuant to Article 278 of the TCO. However, if the amount of the penalty clause exceeds the limits of freedom of contract, it may be directly limited by the legislator. In installment sale contracts, the maximum penal clause limit is determined mandatorily, and penal clauses exceeding this limit are reduced to the legal limit.1
The legislator has authorized the judge to reduce the penalty clause in order to prevent the strong party from exploiting the weak party with excessive penalty clauses and to ensure a fair balance between the assets. Excessive penalty clauses may lead to exploitation of the debtor and disruption of the balance of assets. The judge shall not deem the excessive penalty clause as null and void, but shall reduce it to an appropriate amount with the authority arising from the mandatory legal provision.2 The judge may not abolish the penalty clause completely or change the nature of the performance; however, when it is necessary to reduce an indivisible obligation, the judge may convert the penalty to a monetary amount.3
ii. Exception to the Authority to Reduce the Penalty Charge under Article 22 of the Turkish Commercial Code (TCC)
Article 22 of the TCC explicitly regulates that the merchant4 may not request the reduction of the penalty clause and constitutes an exception to Article 182/3 of the TCO, which authorizes the judge to reduce the penalty clause. This provision states that the merchant or debtors held liable as merchants may not apply to the court for the reduction of the excessive penalty clause. Thus, the amount of the penalty clause agreed by the parties cannot benefit from the reduction provided by Article 182/3 TCO for the merchant debtor.5
Article 22 of the TCC does not limit whether the penalty clause is related to the merchant's commercial enterprise. However, in doctrine and practice, the prevailing view is that the obligation must be related to the merchant's commercial enterprise. This condition is considered as an interpretation in accordance with the purpose of the provision and limits the claims of debtors with merchant status for penalty clause deductions.
iii. The Court of Cassation's Approach to Reduction in Penal Terms
In practice, the Court of Cassation has ruled that the penal clause undertaken by the debtor merchant should be evaluated in terms of whether it will destroy the economic freedom, jeopardize the economic future, and whether it is contrary to morality and decency.6 The Court of Cassation emphasizes that penal clauses will be evaluated under more flexible conditions between merchants, but the judge may intervene in cases where exorbitant penal clauses are determined. The following criteria are particularly important:
- Excessiveness and Economic
Destruction: In many decisions of the Court of
Cassation, it is stated that in order to reduce the penalty clause
if the parties are merchants, the penalty clause must be at a level
that jeopardizes the economic existence of the relevant party.
- Reduction Limit between Merchants: According to the decisions of the Court of Cassation, although the penalty clause in commercial contracts is determined by the free will of the parties, excessive terms that may lead to the economic destruction of one party may be reduced to a reasonable level with the intervention of the judge.
iv. Precautionary Provisions that can be added to the Contract Regarding the Penalty Clause
- Equity and Proportionality: It strengthens the will of the parties before the courts that the parties negotiate on behalf of the penalty clause determined in the contract and that the provisions are understood by the parties and declared fairly in advance. The Court of Cassation takes into account the statements that balance the bargaining power of the parties.7
- Determination of the Upper Limit: In the decisions of the Court of Cassation evaluating the penalty clause reduction, the criterion is whether the penalty amount exceeds a certain percentage of the total contract price. For this reason, preserving the upper limit of the penalty clause to be determined will reduce the risk of restitution.8
- Specifying whether the penalty clause is cumulative or alternative: Pursuant to Article 179/II of the TCO, unless otherwise agreed, the creditor may not demand both the penalty clause and performance. In this case, the creditor must demand either the performance or the penalty fee. This issue should be clearly regulated in the contract, otherwise, the requests to be made in this regard will cause disputes.
v. Conclusion and Assesment
Although the penalty clause in Turkish law is a matter that can be freely agreed by the parties within the framework of freedom of contract, it is shaped within certain limits by the TCO, TCC and its provisions. Especially in recent years, the Court of Cassation applies plausibility checks to penalty clauses even if the parties to the contract are merchants. The main criteria here are whether the penalty clause is excessive to the extent that it threatens the economic integrity of the party, whether the parties acted with free will during the bargaining process, and whether the penalty clause is compatible with the general balance of the contract.
Especially in commercial contracts, the validity of the penalty clause is evaluated according to the balance of excessiveness, economic destruction and the will of the parties. In this respect, determining the penalty clauses in proportion to the total contract price, the benefit expected by the parties from the contract, clearly stating the upper limits and demonstrating that a real bargaining process has been carried out between the parties with the contract documents in the contract drafting process reduces the risk of adjustment in practice.
In the dispute resolution process, the quality of the documents submitted to the court is determinative when making defenses for the adjustment of the penalty clause. In this context, the defense should be made by taking into account factors such as the negotiation process documents between the parties, economic data (balance sheets, financial statements), the reasons that disrupt the commercial balance and the transaction volume of the parties. In particular, claims that the penalty clause will lead to economic ruin for the merchant party should be supported by solid economic data.
In conclusion, penalty clauses continue to be an effective security instrument in contract practice today. However, when due diligence is not exercised in the preparation and implementation process, serious risks and disputes arise for the parties. In light of the recent Court of Cassation decisions, the duty of contract drafters is to draft penalty clauses in a manner that is not only deterrent, but also reflects the economic balance and the will of the parties. Thus, penalty clauses will strengthen the legal security environment between the parties and prevent possible disputes.
Footnotes
1 Ahmet M. Kılıçoğlu, Borçlar Hukuku Genel Hükümler, s. 793; Nil Karabağ Bulut, Medeni Kanun'un 23. Maddesi Kapsamında Kişilik Hakkının Sözleşme Özgürlüğüne Etkisi, İstanbul, On İki Levha Yayıncılık, 2014, s. 192.
2 Tekinay/ Sermet Akman/ Haluk Burcuoğlu/ Atilla Altop, Borçlar Hukuku Genel Hükümler, İstanbul, Filiz Kitabevi, 1993, s. 341 vd.
3 M. Kemal Oğuzman / Turgut Öz, Borçlar Hukuku Genel Hükümler, C.II, 11. Bası, İstanbul, Vedat Yayıncılık, 2014, s. 536; Bkz. IV. Bölüm, C, 2.
4 Tacir tanımından, Türk Ticaret Kanunu (TTK) m. 12 uyarınca bir ticari işletmeyi kısmen dahi olsa kendi adına işleten gerçek veya tüzel kişinin anlaşılması gerekir. Tacir sıfatı, ticari işletme kavramına dayanır ve gerçek kişilerde bu işletmenin kendi adına işletilmesi şarttır; ancak, TTK m. 12/f.2'deki özel durumlar dışında ticaret siciline kaydolma, bu sıfatın kazanılması için zorunlu değildir. Tüzel kişilerde ise ticaret şirketleri doğrudan, dernekler ticari işletme işlettiklerinde, kamu tüzel kişileri ise belirli şartlarla tacir sayılır (TTK m. 16). Tacirler, faaliyetlerinde basiretli bir iş adamı gibi hareket etmekle yükümlü olup (TTK m. 22), aşırı cezai şartın indirilmesi gibi himaye hükümlerinden yararlanamazlar. Tacir sıfatı, cezai şart taahhüdünün kararlaştırıldığı anda belirlenir ve iyi niyetli üçüncü kişilere karşı sorumluluk doğurur. Bu çerçevede, tacir kavramının, ticari işletme faaliyetine dayalı bir sıfat olarak anlaşılmalıdır. English: Pursuant to Article 12 of the Turkish Commercial Code (TCC), a merchant is a natural or legal person who operates a commercial enterprise, even partially, on its own behalf. The title of merchant is based on the concept of commercial enterprise, and in the case of natural persons, this enterprise must be operated on their own behalf; however, registration with the trade registry is not mandatory for the acquisition of this title, except for the special circumstances under Article 12/f.2 of the TCC. As for legal entities, commercial companies are deemed merchants directly, associations are deemed merchants when they operate commercial enterprises, and public legal entities are deemed merchants under certain conditions (Art. 16 TCC). Merchants are obliged to act as a prudent businessman in their activities (Art. 22 TCC), and cannot benefit from protection provisions such as the reduction of excessive penal clauses. The merchant status is determined at the time of the penal clause commitment and gives rise to liability against bona fide third parties. In this framework, the concept of merchant should be understood as a title based on commercial enterprise activity.
5 Yarg. 11. HD., 10.03.1997 T., 1997/1132 E., 1997/1439 K. sayılı kararı. "...Gerek Borçlar Kanunu'nda gerekse Ticaret Kanunu'nda sözleşme serbestîsi ilkesi benimsenmiştir. Tarafların, cezai şartı diledikleri şekilde tespit etmeleri mümkündür. Ticaret Kanunu'nun 24. Maddesi, tacir sıfatı bulunan borçlunun taraflarca tayin edilen ücret ve cezanın fahiş olduğunu ileri sürerek indirim talep edemeyeceğini hükme bağlamıştır. Ancak bu ceza tacirin ekonomik olarak yıkımına neden olacak bir miktar da ise bu halde cezai şart Borçlar Kanunu'nun 19 ve 20. Maddeleri hükümleri gözetilerek ahlak ve adaba aykırılık nedeniyle indirime tabi tutulabilir. O halde, tarafların tacir oldukları, cezai şartın tahsili halinde davalının ekonomik açıdan yıkıma uğrayacağı yönünde bir savunma bulunmadığı dikkate alınmadan ve hiçbir gerekçe gösterilmeden yazılı şekilde re'sen cezai şartın tenkisine karar verilmesi doğru görülmemiş, hükmün bozulması gerekmiştir..." gerekçeleriyle tacir sıfatını haiz davalının cezai şartın ekonomik açıdan yıkımına neden olacağı yönünde bir savunmasının olmadığını belirterek mahkeme tarafından yapılan re'sen indirimi yerinde görmeyerek bozma kararı vermiştir. Aynı doğrultuda Yarg. 6. HD., 18.12.2024 T., 2023/2637 E., 2024/4977 K. Sayılı kararı ''...Bu durumda mahkemece yapılacak iş; dosya kapsamı ve tarafların ticari defterleri üzerinde bilirkişi incelemesi yaptırmak suretiyle hükmolunacak cezanın davacının ekonomik olarak mahvına sebep olup olmadığını belirlemek, mahvına sebep olacak olması halinde makul oranda indirim yapmak suretiyle cezaya hükmederek oluşacak sonuç dairesinde karar vermekten ibaret olup, bu hususlar gözetilmeden yazılı şekilde karar verilmesi doğru olmamış, kararın bozulması uygun görülmüştür.'' Gerekçeleri ile tacir sıfatına haiz davacının cezai şartın ödenmesi halinde ekonomik olarak yıkımına sebep olup olmayacağı incelenmeden verilen kararın bozulmasına karar verilmiştir. English: According to Court of Cassation 11th Civil Chamber decision dated 10.03.1997, docket number 1997/1132 and 2021/6899, and merit number 1997/1439 it was decided that the title of merchant, did not have a defense that the penalty clause would cause economic destruction. Therefore the Court of Cassation did not find the ex officio reduction made by the court appropriate and made a decision of overturning. "...Both the Code of Obligations and the Commercial Code adopt the principle of freedom of contract. It is possible for the parties to determine the penal clause as they wish. Article 24 of the Commercial Code stipulates that the debtor, who has the title of merchant, cannot request a reduction by claiming that the fee and penalty determined by the parties are excessive. However, if this penalty is in an amount that will cause the economic destruction of the merchant, then the penal clause may be subject to reduction due to breach of morality and decency, taking into account the provisions of Articles 19 and 20 of the Code of Obligations. In that case, without taking into account that the parties are merchants, that there is no defense that the defendant will be economically ruined in case of collection of the penalty clause and without any justification, it was not deemed correct to decide to reduce the penalty clause ex officio in writing, and the judgment had to be annulled.." In the same direction Court of Cassation 6th Civil Chamber decision dated 18.12.2024, and numbered 2023/2637 (docket) 2024/4977 (merit) it was decided to overturn the decision rendered without examining whether the plaintiff, who has the title of merchant, will be economically ruined if the penalty clause is paid. "..In this case, the work to be done by the court consists of determining whether the penalty to be imposed by having an expert examination on the scope of the file and the commercial books of the parties, determining whether the penalty to be imposed will cause the plaintiff's economic ruin, and if it will cause the plaintiff's economic ruin, to decide on the result to be formed by imposing a penalty by making a reasonable discount, and it was not correct to make a written decision without considering these issues, and it was deemed appropriate to revoke the decision.''
6 Yarg. 3.HD.,13.12.2021T., 2021/6899E., 2021/12850 K.,''...Tacirler bakımından kararlaştırılan ceza tutarı borçlunun iktisaden arsılmasına, çöküntüye uğramasını mucip olacak ise kaldırma veya indirim isteyebileceği Yargıtay HGK'nın 2014/19-743 E. 2016/437 K., Dairemizin 2019/6040 E. 2020/2033 K. ve 2017/15056 E. 2017/17040 K. sayılı kararları ile istikrarlı olarak kabul edilmektedir. Taraflar tacir olmakla ticaret hukukunda cezaî şart, miktarı yönünden sadece, Türk Borçlar Kanunu'nun 27. maddesindeki "ahlâka aykırılık" kavramı ile sınırlanmış bulunmaktadır. Buna göre; cezai şart miktarı tacirin, iktisaden mahvına neden olacak ve onun eskisi gibi ticarî faaliyetini devam ettirmesine imkân tanımayacak derecede ağır ve yüksek ise, o zaman böyle bir cezaî şartı ahlâk ve adaba aykırı bir şart olarak kabul ederek, kısmen veya tamamen iptali cihetine gitmek mümkündür...'' English: Court of Cassation, 3rd Civil Chamber, Decision dated 13.12.2021, File No: 2021/6899, Decision No: 2021/12850:"It has been consistently accepted by the Court of Cassation General Assembly (Case No: 2014/19-743, Decision No: 2016/437) and by our Chamber (Case No: 2019/6040, Decision No: 2020/2033 and Case No: 2017/15056, Decision No: 2017/17040) that, in commercial transactions, where the amount of the agreed penal clause is of such magnitude that it would cause the debtor's severe financial distress or lead to their economic collapse, the debtor may request a reduction or cancellation of the penalty. Since both parties are merchants, the enforceability of a penal clause in commercial law is limited solely by the concept of 'immorality' as defined in Article 27 of the Turkish Code of Obligations. Accordingly, if the amount of the penal clause is so excessive and disproportionate that it would result in the merchant's financial ruin and prevent them from continuing their commercial activities as before, such a penal clause may be deemed contrary to morality and public order, and thus may be annulled partially or entirely.
7 Kenan Tunçomağ, Türk Hukukunda Cezai Şart, İstanbul, Baha Matbaası, 1963, s. 146; Cevdet İlhan Günay, Cezai Şart, Ankara, 2002, s.182; Köksal Kocaağa, Türk Özel Hukukunda Cezai Şart, Ankara, Yetkin Yayınları, 2003, s. 231.
8 Hilal Gülseven, Türk Hukukunda Cezai Şartın İndirilmesi, İstanbul Üniversitesi, 2015, s. 103
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