Conditions for Reduction of Penal Charge in Commercial Law
(HGK-K.2021/984)
If the penalty clause is heavy and high enough to cause the economic ruin of the merchant debtor, the court may decide to annul the penalty clause in whole or in part, as this will be deemed contrary to general customs and morals.
The penal clause [penalty clause in the Turkish Code of Obligations (TCO)] is regulated under Articles 158 to 161 of the same Code.
A penalty clause is a separate performance with a financial value that must be paid in case of non-performance or incomplete performance of the existing obligation. The elements of a penal clause can be easily deduced from this definition. These elements consist of the existence of a real principal obligation, the existence of a separate and independent performance in addition to it, the interdependence of these two, and the determination of this separate and independent performance in a transaction that gives rise to a provision in health (Tunçomağ, p. 6).
The penalty clause is a secondary of the principal obligation; it is a performance that is dependent on but separate from it, and the realization of the damage is not necessary for the realization of the penalty clause.
Article 158 of the abrogated Code of Obligations No. 818 regulates three different types of penalty clauses. These are optional penalty clause, penalty clause added to performance and penalty clause preventing performance.
Article 161 of the abrogated Code of Obligations No. 818 titled “Nullity and Restitution of Penalty” states that “Contracts are free to determine the amount of the penalty. If the penalty is stipulated to confirm an obligation contrary to law or morality, or if the performance of the obligation has become impossible due to a situation that does not require the liability of the debtor, the payment of the stipulated penalty cannot be demanded. The judge is obliged to reduce the penalties he deems excessive.”
The provision is included.
While investigating whether the penalty is excessive or not, the judge shall take into account the damage suffered by the creditor due to the breach of obligation, the degree of fault of the debtor, the common fault of the creditor and the economic situation of the parties (especially the debtor). When these factors are taken into account, if there is a clear disproportion between the damage suffered by the creditor and the agreed penalty that is incompatible with the measures of equity, the penalty shall be reduced. When assessing whether the penalty clause is excessive, it should be taken into account that the purpose of the penalty clause is to improve the creditor’s situation.
The first paragraph of Article 161 of the Code, which is related to the penal clause, after accepting the principle (Contracts are free to determine the amount of the penalty), obliges the judge to compensate the penalty that he deems excessive with the provision of the third paragraph. However, the provision of Article 24 of the abrogated Turkish Commercial Code No. 6762 (TCC), which was in force at the time of the signing of the contract and which should be applied in terms of the concrete case, after accepting the principle that the parties, who have the title of merchant, can freely determine the amount of the (penal clause), adopts that they cannot request the reduction of this penalty, i.e. its offset.
Article 24 of the abrogated Turkish Commercial Code No. 6762 stipulates that “A debtor who has the title of merchant may not ask the court to reduce a fee or penalty on the grounds that it is excessive in the cases stipulated in paragraph 2 of Article 104, paragraph 3 of Article 161 and paragraph 3 of Article 409 of the Code of Obligations.”
In our commercial law, the penal clause is limited in terms of its amount only by the concept of “unethical behavior” in Article 20 of the Code. Pursuant to Article 24 of the abrogated TCC, it is not possible for the merchant to request for the adjustment of the penal clause that he owes; however, the principle of freedom of contract granted to the merchant and his contractor by the aforementioned article is limited by the provision of Article 20 of the Code of Civil Procedure, which is a limiting provision for all contracts.
If the amount of the penal clause determined by the parties in the contract is so heavy and high that it will cause the economic ruin of the merchant who is in debt and will not allow him to continue his commercial activities as before, then it is possible to consider such a penal clause as a clause contrary to morality and decency, and to cancel it partially or completely. This is because the nullity of a penal clause in a contract due to breach of morality and decency is a general principle of law. It is not possible to think that the provision of Article 24 of the abrogated TCC would be excluded from this general sanction. Any penal clause that reaches a level that may jeopardize or destroy the economic and commercial activities and existence of a debtor is contrary to morality and decency.
While deciding on this matter, the court should investigate whether it is possible for the company to continue its commercial life as before in the event of the collection of the agreed penal clause by taking the opinion of an expert, if necessary. The same examination should also be made for the real person merchant. As a matter of fact, the same principles were adopted in the decision of the General Assembly of Civil Chambers dated 18.06.2019 and numbered 2017/19-922 E., 2019/706 K.
When the concrete case is evaluated in the light of these principles and explanations; a sales contract was signed between the parties on 01.01.2012, and Article 16 of the contract. In the event that the defendant operator does not operate the business partially or completely within the contract period, transfers the business or makes a business change in the business or violates any of the provisions specified in this contract and causes the termination of the contract, the plaintiff will pay the company in cash all of the debts in the company’s records and all of the financial aid, contributions and all kinds of fixed investment expenditures received from the company and the discount amounts applied, together with the interest to be calculated, including the interest accrued from the date of issue, and also 16. 000 USD penalty clause, as well as any damages incurred by the company, including loss of profit, without objection.
It is fixed that the defendant caused the breach of the contract by transferring the business in violation of the contract during the continuation of the contract. However, while the court ruled a penal clause against the defendant due to the breach of the contract by the defendant, it was stated that Article 22 of the TCC No. 6102 does not provide for a discount from the penal clause, that the defendant is a merchant and should act prudently when making a contract, and no discount was made from the penal clause amount, however, if the penal clause is heavy and high enough to cause the economic ruin of the merchant debtor, it is possible for the court to decide to cancel the penal clause in whole or in part, since this issue will be deemed contrary to general customs and morality.
In this case, before the court makes a decision on the penal clause, the economic situation of the parties on the date of the contract, the solvency and ability of the defendant debtor to pay should be taken into consideration, the books and records of the defendant should be examined in this direction and an expert report should be obtained in a way that is suitable for audit and a decision should be made according to the result, but the decision to resist based on incomplete examination and erroneous justification is not appropriate.
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