Penal Clause in Turkish Contract Law

It is important to understand the implementation of Penal Clause (or contractual penalty in other words) within the context of Turkish Contract Law before signing any contract in Turkey. A penal clause is considered as a mechanism to force the debtor to fulfil its obligation duly on time and/or in compliance with the contract. Furthermore; a  penal clause is an arrangement that provides the fulfilment of the debt by putting pressure on the debtor, compensating the damage in case of breach of the debt and most importantly securing the debt. For this reason, foreigners who take part in commercial activities or carrying out transactions with a Turkish counterpart where Turkish law is (or has to be in some cases – purchasing the property) chosen as the applicable law to their contract should know about how penal clause is implemented in the Turkish jurisdiction.

The penal clause carries the nature of accessory consideration. As a result of this, the penal clause may be included in the contract or may be accepted by a separate additional agreement. However, if the contract that issues the original debt requires a condition for validity, then a penalty clause agreement must be drawn in the same validity condition. Otherwise, the penal clause will be invalid. The Parties may freely decide the amount of the penalty and the performance of the penalty. However, the penal clause cannot be contrary to the law, morality and personal rights. The invalidity of the penalty shall not affect the existence of the original debt, but the invalidity of the original debt also invalidates the penalty.

Types of Penal Clause pursuant to Turkish Contract Law,  according to article 179 of the Turkish Code of Obligations;

1)        If the contract is not executed at all or duly;

The creditor may request the execution of the debt or the payment of the penalty fee. However, due to the freedom of contract, the parties can agree on the payment of both the debt and the penalty fee.

2)         If the debt is not executed at the specified place or time;

In this case, the creditor can request both the execution of the performance at the specified place and time and the penalty fee.

3)         Contract Penalty;

The debtor shall have the right to terminate the contract by means of termination or termination by paying the penalty determined in the contract. The contract penalty is not a penalty in nature. There was no violation of the debt in the contract penalty and the debtor was given the opportunity to get rid of the contractual relationship by paying the contractual penalty. The contract penalty may be given for both parties.

Although the debtor is required to pay the penalty term as a result of fault liability, a penal clause in the contract imposes the burden of proof on the debtor. However, not only other absolute liability clauses that are arising from the Turkish Law are reserved. But also ıt is possible to accept the penalty clause in the contract even if the debtor has no fault on violation of the debt.

If the debt is not fulfilled at all or as required or in a timely manner, the debtor should be faulty for the payment of the penal clause, but it is not necessary for the creditor to incur losses for requesting the payment of the penalty fee. However, no additional compensation can be claimed for the damage. The creditor may request compensation for the damage exceeding the penalty amount but in this case, the burden of proof for exceeding losses is on the creditor. 

Amount determined for the Penal  Clause

In Turkish Contract Law, according to the principle of freedom of contract, the amount of penalty fee can be determined freely, but the Turkish courts have the right to abate the amount that is considered excessive. As an exception to this rule, if the contractual debt is a commercial debt and the debtor is a merchant, Turkish courts shall not be entitled to abate the penalty fee.

Our experts in Turkish contract law can assist you and review the contracts from Turkish contract law perspective. Please visit  https://www.cosarakkaya.law/turkish-contract-law/ to have more information about our scope of work.