ABSTRACT
This article thoroughly examines the issue of compensation for damages exceeding the penalty clause, analyzing under what conditions such excess damages can be claimed, in light of legal regulations, doctrinal opinions, and Supreme Court decisions.
I. INTRODUCTION
The ordinary expectation of parties when entering into contracts is, of course, that the contractual relationship will conclude with “proper performance.” However, in practice, it is not always possible for these expectations to be realized and for the contractual relationship to conclude with “proper performance.” This situation implies the existence of certain breaches under the contract. To ensure that these breaches are less frequently or never brought up between the parties, there are certain mechanisms provided by the legislator that can be agreed upon between the parties. One of these legal mechanisms is the “penalty clause,” whose primary function is to motivate the debtor to fulfill their obligation properly1. In other words, the primary function of the penalty clause is to secure the creditor’s claim against the risk of improper performance by the debtor. These two aspects reflect the “security function” of the penalty clause, like two sides of a coin, from the perspective of both the debtor and the creditor. When a penalty clause is agreed upon between the parties, if the debtor does not properly fulfill the obligation secured by the penalty clause, the creditor has the right to demand the performance agreed upon as a penalty clause, independent of the damage suffered.
The penalty clause is an effective tool that can also be used to predict in advance the damage suffered by the creditor in cases of improper, untimely, or nonperformance of the obligation and to relieve the burden of proof. In practice, especially in commercial relations, determining the damage is not always easy and can sometimes become impossible. In this sense, the penalty clause provides the creditor with the opportunity to demand a predetermined amount without proving the actual damage suffered, saving both time and resources. This opportunity corresponds to the “compensation function” of the penalty clause2. Moreover, in practice,the damage often exceeds the predetermined penalty clause amount. This situation brings up the issue of “compensation for damages exceeding the penalty clause,” regulated in the second paragraph of Article 180 of the Turkish Code of Obligations3 (“TCO”), titled “Relationship Between Penalty and Damage.”
II. GENERAL OVERVIEW OF PENALTY CLAUSE
The penalty clause is regulated in Articles 179-182 of the TCO, but it is not defined in the law. In doctrine, there are various definitions such as “the money or economic value that the debtor undertakes to give to the creditor in cases where the contract is not performed at all or properly”4, “an economic value determined by legal transaction that the debtor undertakes to pay to the creditor in case of non-performance or improper performance of an existing obligation”5 and the general definitions in the doctrine define the penalty clause based on its purpose, being an act containing economic value, and being an act subject to a suspensive condition. Accordingly, the penalty clause is a contractual act subject to the suspensive condition of non-performance, improper performance, or untimely performance of the main obligation between the parties6. With the realization of this suspensive condition, the penalty clause will also become due. The penalty clause is an accessory obligation, and the invalidity or subsequent elimination of the main obligation will result in the invalidity of the penalty clause attached to it7 .
There are two types of penalty clauses: alternative penalty clauses and penalty clauses added to performance. The legislator regulates the alternative penalty clause with the expressions in the first paragraph of Article 179 of the TCO8, “If a penalty is agreed upon for the non-performance or improper performance of a contract unless otherwise understood from the contract, the creditor may demand either the performance of the obligation or the penalty” and the penalty clause added to performance with the expressions in the second paragraph of the same article, “If the penalty is agreed upon for non-performance at the specified time or place, the creditor may demand the performance of both the main obligation and the penalty, unless theyhave explicitly waived their right or accepted the performance unconditionally.” In the presence of an alternative penalty clause, the creditor can choose and demand only one of the main acts or the penalty clause. It should be noted that this choice made by the creditor is like exercising a right that creates a new legal situation, and after choosing the penalty clause, the creditor can’t revert and demand specific performance9. In the presence of a penalty clause added to performance, the penalty clause can be demanded together with the main act. The legislator has introduced a presumption in the second paragraph of Article 179 to determine the type of penalty clause. Accordingly, if the penalty clause is agreed upon to prevent the violation of the place and time of performance of the main act, the penalty clause agreed upon between the parties will be considered as a penalty clause added to performance as a rule10. In determining the type of penalty clause, essentially, the common intention of the parties is sought to be determined, and many criteria are listed in the doctrine for this purpose, but the details of this issue are beyond the scope of this article.
A. Relationship Of Penalty Clause With Damage and Fault
Before addressing the issue of compensation for damages exceeding the penalty clause and the regulations regarding the elements of fault and damage related to excess damages, it is important to examine the relationship of the act within the scope of the penalty clause with these two elements; to see the differences that occur when excess damages are claimed and to set forth the legal conditions in case of a claim for excess damages. In this context, first, the relationship of the penalty clause with the elements of damage and fault will be briefly presented in the absence of a claim for compensation for damages exceeding the penalty clause, and then the elements of damage and fault will be addressed in the case of compensation for excess damages.
In Turkish private law, compensation is an institution based on damage, and as a rule, compensation can be claimed in proportion to the existence of damage11. However, the legislator has provided an exception for the institution of the penalty clause, considering the principle of “pacta sunt servanda.” In the first paragraph of Article 180 of the TCO, titled “Relationship Between Penalty and Damage,” it is explicitly regulated that the penalty clause can be claimed without the existence of damage: “Even if the creditor has not suffered any damage, the agreed penalty must be performed.” Accordingly, in the case of improper performance of the obligation, the creditor can demand the penalty clause from the debtor even if they have notsuffered any damage12. It should be added that Article 180/1 of the TCO is not mandatory, and the parties can condition the penalty clause on the existence of damage through their agreement13.
Whether the debtor’s fault is required for the claim of the penalty clause is a controversial issue in the doctrine, but the prevailing view is that fault is required14. However, the general rule15 applies regarding the proof of fault, and the debtor can only be relieved from performing the penalty clause by proving that they are not at fault in the occurrence of the breach.
B. Difference Of Penalty Clause From Similar Institutions
The provisions applicable to clauses in contracts can be determined as a result of the characterization of the relevant clauses. In this context, to determine in which situations the provision16 regarding the compensation for excess damages related to the penalty clause will be applied or not, it is necessary to address the differences in the penalty clause from similar institutions and especially from liquidated damages and to determine the scope of the application area of the relevant provision accordingly. Especially the distinction between liquidated damages and penalty clauses is not always possible in practice, and even according to one view in the doctrine, the penalty clause is considered a liquidated damages act. It should be noted that many institutions in Turkish private law resemble the penalty clause in different aspects, but under this heading, only similar institutions that are important in terms of damages exceeding the penalty clause and need to be evaluated separately will be addressed, and their differences from the penalty clause institution will be examined.
1. Liquidated Damages And Penalty Clause
Liquidated damages are the determination of the amount of compensation to be claimed as a lump sum by the parties in advance for the risk of non-performance or improper performance of the main act17. Before addressing the differences between the institutions of liquidated damages and the penalty clause, the view in the doctrine that the penalty clause is like liquidated damages should be evaluated. This view in the doctrine18, based on the purpose and function of securing the creditor’s potential damages, is that the legal nature of the penalty clause is liquidated damages19. Therefore, according to this view, there is no qualitative difference between penalty clause clauses and liquidated damages clauses, and the provisions of the penalty clause regulated in the TCO should be applied to both. Moreover, in the definition made in the decision of the General Assembly of the Supreme Court of Appeals dated 17.02.197120, with case number 1505 and decision number 85, the penalty clause is considered a lump sum act. It should be noted that in many recent decisions of the Supreme Court of Appeals, reference is made to the definition in the decision of the General Assembly of the Supreme Court of Appeals dated 17.02.1971. Additionally, in a Unification of Judgments Decision dated 08.03.201921, without reference to the decision of the General Assembly of the Supreme Court of Appeals dated 17.02.1971, the penalty clause is defined as a fixed compensation. However, some decisions explicitly evaluate this issue and make a distinction between penalty clauses and liquidated damages22. Likewise, the prevailing view in the doctrine is that the penalty clause and liquidated damages are completely different legal institutions in nature. The concept of liquidated damages is not a concept belonging to the Continental European legal system, but a concept belonging to the Anglo-American legal system, where the tendency to not accept the validity of penalty clause provisions is dominant23. Moreover, the nature of the penalty clause as liquidated damages is not compatible with the provision in the first paragraph of Article 180 of the TCO, which states, “Even if the creditor has not suffered any damage, the agreed penalty must be performed.” There is an inseparable connection between the concept of damage, which is the fundamental basis of Turkish-Swiss compensation law, and compensation. Accordingly, in cases where there is no damage, there can be no mention of compensation, but the existence of damage is not required by the legislator for the compensation of the penalty clause24.
The most fundamental difference between liquidated damages and a penalty clause is that liquidated damages can only be claimed in the presence of damage, while the existence of damage is not required for the claim of the penalty clause. This difference arises from the primary purpose difference between the two institutions. The main purpose of liquidated damages is to prevent the creditor from wasting time with a proof activity regarding the amount of damage after the breach occurs and to relieve them from the difficulties related to proving the amount. The main purpose of the penalty clause, on the other hand, is to create pressure on the debtor regarding the performance of the main obligation and to encourage the debtor to perform the main obligation. To distinguish between penalty clauses and liquidated damages clauses in contracts, it is essentially necessary to determine the intentions of the parties. In this context, the wording of the contract and all the conditions in which the parties are involved should be interpreted within the framework of the principle of trust25. Whether the concept of “damage” is included in the expressions used, whether the clause is included for deterrence purposes, and the amount of the agreed act are criteria that can guide the determination of the parties’ intentions and the distinction between the clauses26.
2. Withdrawal Penalty and Penalty Clause
Among the provisions regulating the penalty clause in the TCO, the institution of a “withdrawal penalty” is also regulated due to its similarity to the penalty clause. Article 179/3 of the TCO regulates the withdrawal penalty with the expression, “The debtor’s right to prove that they are authorized to terminate the contract by performing the agreed penalty by withdrawal or termination is reserved.” The penalty clause and withdrawal penalty are separate institutions with different functions. As detailed in the relevant sections above, the penalty clause contains the purpose of securing the performance of the main obligation. In contrast, the withdrawal penalty provides the debtor with the opportunity to terminate the contract by performing the agreed withdrawal penalty act, without any breach of obligation, depending on the type of act27. The debtor who wants to be relieved of their obligation by performing the withdrawal penalty must prove that the act agreed upon by the parties is a withdrawal penalty28. If there is doubt about whether the condition provided between the parties is a penalty clause or a withdrawal penalty, the existence of the penalty clause should be accepted29.
III. COMPENSATION FOR EXCESS (ADDITIONAL) DAMAGES
As is known, the penalty clause is an instrument used to encourage the debtor to fulfill the main obligation and to secure the performance of the act. For the function of the penalty clause to be effective, the penalty clause must be higher than the anticipated compensation amount. However, when determining the penalty clause, there is not yet a breach of obligation, and therefore no damage has occurred. Considering the complexity and dynamic nature of commercial life, the actual damage can exceed the predetermined penalty clause. In this case, the deterrent and security-providing function of the penalty clause becomes insufficient. To protect the rights of the parties in accordance with the purpose of the contract, it is necessary to compensate for damages exceeding the penalty clause. The legislator, considering this need, has regulated the issue of compensation for damages exceeding the penalty clause in Article 180/2 of the TCO30. It should be added that only the provision in Article 182/3 of the TCO31, which allows the judge to reduce the penalty clause deemed excessive, is accepted as mandatory, and the parties can agree that damages exceeding the penalty clause cannot be claimed within the framework of the principle of freedom of contract32. Likewise, the parties may agree that both the penalty clause and compensation can be claimed separately. In this case, the importance of excess damages will be eliminated, and both the penalty clause amount and the damage incurred within the framework of general provisions33 will be claimed34.
A. Claim For Compensation Of Damages Exceeding The Penalty Clause
1. Conditions For Claiming Excess Damages
The second paragraph of Article 180 of the TCO, titled “Relationship Between Penalty and Damage,” provides the following provision regarding the compensation of excess damages: “If the damage suffered by the creditor exceeds the agreed penalty amount, the creditor cannot claim the excess amount unless they prove the debtor’s fault”35. Accordingly, the conditions for claiming compensation for damages exceeding the penalty clause can be listed as follows: (i) The existence of damage exceeding the penalty clause, (ii) the debtor’s fault in the non-performance, untimely performance, or improper performance of the obligation, (iii) a causal link between the debtor’s breach and the resulting damage.
As explained in the relevant sections above, the existence of damage was not required to claim the penalty clause. However, to claim damages exceeding the penalty clause, the creditor must prove the existence of damage. When determining excess damages, the “actual damage” incurred by the creditor due to the breach will be taken as the basis. Accordingly, the expenses avoided and benefits gained by the creditor due to the breach must be deducted36. Additionally, if there is an alternative penalty clause, the creditor’s counter performance will also be considered in determining the actual damage. If the creditor has not yet performed their obligation, the value of the creditor’s performance will be deducted from the compensation amount according to the difference theory If the creditor has performed their obligation, the creditor’s performance will be considered as a positive damage item in the calculation of excess damages. In the presence of a penalty clause added to performance, the creditor’s claim for performance against the debtor continues. As a result, the creditor will continue to be obliged to perform their obligation against the debtor37. Regarding the deduction of default interest, there are differing opinions on the doctrine. One view in the doctrine argues that default interest should also be deducted from excess damages due to the concern that the creditor may claim default interest separately from the excess damages. According to the view we agree with, default interest should be considered as one of the items of excess damages, and there is no need to deduct default interest separately. It should be noted that, according to both views, there is no difference in the amount the creditor will receive; the creditor only presents their claims under different items38.
Another condition for claiming excess damages is the debtor’s fault in the non-performance of the obligation. The legislator, with Article 180/2 of the TCO39, has introduced a provision contrary to the presumption of fault applicable in contractual compensation claims for the compensation of damages exceeding the penalty clause. According to Article 112 of the TCO40, which is general regarding contractual compensation claims, the debtor is presumed to be at fault in the occurrence of the breach and cannot be relieved from liability unless they prove that they are not at fault. According to Article 180/2 of the TCO41, the creditor is obliged to prove the debtor’s fault in the breach of the obligation to claim compensation for damages exceeding the penalty clause. This provision, which reverses the burden of proof, is criticized by many authors in the doctrine because it is inconsistent with the purpose of the penalty clause42. In our opinion, it is not appropriate to introduce an exception to the general rule in the compensation of damages exceeding the penalty clause. In compensation claims arising from contracts without a penalty clause, the creditor can claim their damage without any proof of the debtor’s fault, while in compensation claims arising from contracts with a penalty clause intended to secure the creditor’s claim, the burden of proving the debtor’s fault is placed on the creditor, creating an inconsistent situation. Moreover, leaving aside the criticisms of the legal provision, the prevailing opinion in the doctrine regarding how the provision will be interpreted in cases of strict liability is that proof of fault will not be required if the claim for compensation of excess damages is based on one of the cases of strict liability43.
The final condition for the compensation of excess damages is the existence of a causal link between the excess damage and the breach of the main obligation, as required in all liability regimes. If there is no causal link between the excess damage and the breach, the claim for compensation of excess damages cannot be made44. The prevailing opinion in the doctrine accepts that the breach here is the breach that makes the penalty clause due, that is, the breach of the act attached to the penalty clause. However, according to one view in the doctrine, this provision allows the creditor to claim compensation for all their damages, and as a result, not only the breach that makes the penalty clause due but also all breaches under the contract that cause damage to the creditor fall within the scope of this provision. Consequently, this minority view in the doctrine interprets the scope of the provision more broadly and considers the causal link more broadly45.
In conclusion, if the main obligation is breached, the creditor can claim the penalty clause without proving their damage, but if there are damages exceeding the penalty clause, they must prove the damage and the debtor’s fault to claim compensation. It should be added that even if the creditor claims their excess damages, they canclaim their damage up to the penalty clause amount without proving their damage and the debtor’s fault, under the same conditions as the penalty clause claimed without an excess damage claim. Accordingly, they can claim their damage up to the penalty clause amount without any proof of activity regarding damage and fault, and they can claim their excess damages by proving the damage and the debtor’s fault. This method can be preferred in cases where there is not a significant difference between the total damage amount and the act agreed upon as a penalty clause. However, it should be noted that in cases where the penalty clause is significantly lower than the total damage amount, the creditor may waive the penalty clause claim and directly seek compensation for their damage under general provisions46. As previously stated, according to general provisions, the debtor is presumed to be at fault in contractual compensation claims, while in the compensation of damages exceeding the penalty clause, the creditor must also prove the debtor’s fault. Accordingly, in cases where the penalty clause is significantly lower than the actual damage, it may be more advantageous for the creditor to waive the penalty clause claim and seek compensation under general provisions.
2. Type Of Act Agreed As Penalty Clause And Excess Damages
It is possible to agree on the penalty clause as money or any act with economic value47. However, there is no regulation in the TCO regarding the effect of the type of act agreed as a penalty clause on the compensation of damages exceeding the penalty clause. In German law, if the penalty clause is agreed as an act other than money, it is accepted that excess damages cannot be compensated due to the difficulty of determining the value of the act agreed as a penalty clause. According to § 342 of the German Civil Code (“BGB”), if an act other than the payment of a sum of money is promised as a penalty clause, excess damages cannot be claimed if the penalty clause is claimed48. In Turkish and Swiss law, however, no difference is foreseen regarding the type of act agreed as a penalty clause for the claim of compensation for damages exceeding the penalty clause. Since no restriction in the TCO prevents the claim of excess damages when an act other than a monetary act is agreed as a penalty clause, it should be accepted that excess damages can be claimed even when the penalty clause is agreed as an act other than a monetary act. Considering the purpose of the penalty clause, it would not be correct to accept the contrary solely due to practical difficulties without a legal restriction, contrary to the intentions of the parties. In a matter not restricted by legal regulation, the intentions of the parties should be given precedence. As a natural result, if it is understood from the expressions used in the declarations of intent of the parties who agreed on an act other than money as a penalty clause that their intention is not to claim excess damages, it should be accepted that excess damages cannot be claimed.
It should be added that this issue is controversial in the doctrine, and some authors argue that if the subject of the penalty clause is an act other than money, damages exceeding the penalty clause cannot be compensated49. However, the prevailing view50, which we also agree with, is that the type of act that is the subject of the penalty clause does not affect the claim for compensation of damages exceeding the penalty clause.
3. Types Of Penalty Clause and Excess Damages
As stated, there are two types of penalty clauses: alternative penalty clauses and penalty clauses added to performance. Regarding the alternative penalty clause, there is a consensus in the doctrine that the claim for compensation of damages exceeding the penalty clause is possible. However, there are different opinions in the doctrine regarding whether excess damages can be claimed in the presence of a penalty clause added to performance. Essentially, Article 180/2 of the TCO51, which regulates the compensation of damages exceeding the penalty clause, does not make a distinction regarding the type of penalty clause. Therefore, it should not be accepted that compensation for damages exceeding the penalty clause added to performance is not possible by making a distinction not foreseen by the law. One view in the doctrine52 states that excess damages cannot be claimed in the presence of a penalty clause added to performance, but the prevailing opinion in the doctrine and the Supreme Court also believe that excess damages can be claimed in this case53. Excess damages exceeding the penalty clause added to performance occur especially in cases where the debtor violates the time of performance.
4. Loss Of The Right To Claim The Penalty Clause
First of all, for the claim for damages exceeding the penalty clause to be possible and meaningful, logically, the penalty clause must be claimable and claimed. As previously stated, the penalty clause is an accessory obligation, and its fate depends on the existence of the main obligation and the validity of the contract in which it is included. Therefore, it is necessary to address the situations that terminate the contract and debt relationship. In this context, the termination of the contract through declarations of withdrawal and termination will come into question. Withdrawal is a right that can be used in contracts with instantaneous performance, while termination is a right that can be used in contracts with continuous performance54.
Regarding withdrawal, which is one of the cases of termination of the contract, as a natural result of the accessory nature of the penalty clause, if the contract is withdrawn from, the penalty clause and consequently the compensation for damages exceeding the penalty clause cannot be claimed. In the event of withdrawal from the contract, according to the prevailing view in Swiss and Turkish law, the contract is terminated retroactively (ex tunc), that is, from the moment it was established. In this case, the creditor can only claim compensation for their negative damage under general provisions55. Regarding termination, in the event of termination of the contract, the claim for the penalty clause and consequently excess damages will be possible for breaches of obligation that occurred until the moment of termination, but the claim for the penalty clause and consequently excess damages will not be possible for breaches of obligation that occur after termination56. The reason for this is that the termination of the contract terminates the contract with future effect. Additionally, it should be noted that all the explanations mentioned are valid if the parties have not made an agreement on these matters in their contracts. Since the provisions regarding the penalty clause are of a supplementary legal nature57, the parties can agree on the contrary to all these matters.
Another situation that leads to the loss of the right to claim excess damages is related to the penalty clause added to performance. According to Article 179/2 of the TCO58, for the penalty clause added to performance to be claimed, the performance must not be accepted unconditionally. Since the creditor who accepts the performance unconditionally cannot later claim the penalty clause added to the performance, they naturally cannot claim their damages exceeding the penalty clause. In this case, the creditor’s right to claim compensation for their damage under general provisions is reserved59. It should be added that there is also a view in the doctrine that argues that even if the right to claim the penalty clause is lost according to Article 179/2 of the TCO60, damages exceeding the penalty clause can still be claimed61.
B. Excess Damages In Terms Of Institutions Similar To The Penalty Clause
As mentioned above, some institutions resemble the penalty clause in different aspects. To present the issue of compensation for damages exceeding the penalty clause more comprehensively and clearly, the issue of excess damages should also be evaluated in terms of institutions similar to the penalty clause.
1. Liquidated Damages And Excess Damages
The differences between liquidated damages and the penalty clause have been addressed in the relevant section above. Accordingly, liquidated damages are the determination of the damage as a lump sum act by the parties before the breach occurs. Regarding whether damages exceeding liquidated damages can be claimed, the solution should be reached according to the intentions of the parties. In this context, there are classifications in the doctrine regarding the types of liquidated damages. Accordingly, liquidated damages are divided into “absolute liquidated damages” and “relative liquidated damages”. This distinction is made based on the criterion of whether it is possible to prove the contrary of the determined amount. Absolute liquidated damages are a classification for the situation where neither party can prove the contrary of the amount determined as a lump sum in the contract. It is stated in the doctrine that absolute liquidated damages clauses are also like exculpatory agreements. Relative liquidated damages are further divided into two. Accordingly, if only one of the parties can prove that the damage is different from the amount determined as a lump sum, “partial-relative liquidated damages” are in question. Regarding clauses where both parties can prove that the actual damage is below or above the amount determined as a lump sum, it is stated that there is a liquidated damages agreement aimed at determining the “pure burden of proof”62. Whether damages exceeding the amount determined as a lump sum can be claimed will be determined according to this classification. If there is an absolute liquidated damages agreement, the intentions of the parties should be respected, and damages exceeding the amount determined as a lump sum should not be claimed63. Additionally, it is stated in the doctrine that abso lute liquidated damages agreements should be considered exculpatory agreements64. Therefore, although it is said that damages exceeding the determined amount cannot be claimed, Article 115/1 of the TCO65, which relates to exculpatory agreements, states that agreements that the debtor will not be liable for gross negligence will be null and void. Therefore, if there is gross negligence, it will be possible to compensate for damages exceeding absolute liquidated damages. In the presence of partial-relative liquidated damages clauses, if the creditor is allowed to prove damage different from the amount determined as a lump sum, it will be accepted that the creditor has the right to claim their excess damages. Additionally, it should be stated that partial-relative liquidated damages agreements are also considered exculpatory agreements in the doctrine66. As a result, according to Article 115/1 of the TCO67, if the debtor is grossly negligent, the creditor can claim their excess damages even if they are not allowed to prove the contrary. In the presence of a liquidated damages agreement aimed at determining the pure burden of proof, since both parties can prove that the actual damage is different from the amount determined as a lump sum, it should be accepted that the creditor also has the right to claim their excess damages.
2. Withdrawal Penalty And Excess Damages
The difference in nature between the withdrawal penalty and the penalty clause has been addressed in the relevant section. Accordingly, while the penalty clause provides security for the performance of the creditor’s claim, the withdrawal penalty, on the contrary, provides the debtor with the right to withdraw from the contract or terminate it by performing the act agreed as a withdrawal penalty, that is, to be relieved from performing the main obligation. In the doctrine, it is stated that in cases where the debtor is relieved from the main obligation by performing the withdrawal penalty, the creditor cannot make any further claims and therefore cannot claim their excess damages. Considering the nature of the legal institution of the withdrawal penalty and the purpose of the legislator in introducing this institution, this approach is appropriate. Indeed, the purpose of the regulation regarding the withdrawal penalty is to enable the debtor to terminate the debt relationship between the parties by performing only the penalty without assuming any other obligation. Therefore, contrary to the purpose of the legislator, it is not acceptable to claim excess damages from the debtor who performs the withdrawal penalty68.
In addition, although it is generally accepted that damages exceeding the withdrawal penalty cannot be claimed, there is a legal exception to this. According to Article 446/2 of the TCO69, which relates to general service contracts, the debtor who wants to be relieved from the non-compete obligation is allowed to be relieved from their obligation by performing the withdrawal penalty. Contrary to the general situation regarding the withdrawal penalty, the creditor is given the right to claim their excess damages in this case70.
IV. CONCLUSION
The penalty clause is an important tool that secures the performance of the obligation in contractual relationships and encourages the debtor to perform. However, due to the dynamic nature of commercial life, it is possible for the anticipated penalty clause not to cover the actual damage, that is, for the penalty clause to be exceeded. In this case, to protect the rights of the parties by the purpose of the contract, the possibility of compensating for damages exceeding the penalty clause is foreseen. Article 180/2 of the Turkish Code of Obligations provides that if the damage suffered by the creditor exceeds the penalty clause, the creditor can claim the excess amount, provided that they prove the damage suffered and the debtor’s fault. This provision deviates from the general rule in contract law regarding the proof of fault and reverses the presumption of fault. In this respect, the relevant provision is said to weaken the deterrent and securitypro viding function of the penalty clause and is subject to many criticisms. The purpose of the legislator is to strike a balance between the interests of the debtor and the creditors.
While the compensation of damages exceeding the penalty clause holds an important place in contract law, it can lead to some uncertainties in practice. Especially the lack of a clear distinction between the penalty clause and liquidated damages can lead to problems regarding whether damages exceeding the penalty clause can be claimed. Therefore, it is important for the parties to use clear and precise expressions when regulating the provisions of the penalty clause in their contracts and, therefore, to prevent possible disputes by determining whether they have agreed on a lump sum act as estimated damage before the breach occurs or whether they have foreseen a contractual penalty to encourage performance. In addition, the type of penalty clause (alternative or added to performance) and the type of act agreed as a penalty clause are also controversial issues in the doctrine regarding whether excess damages can be claimed. Although the withdrawal penalty may confuse due to being regulated in the same section as the penalty clause provisions in the TCO, it is stated in the doctrine that it is not like a penalty clause, and it is accepted that excess damages cannot be claimed in the withdrawal penalty due to its different nature from the penalty clause. Furthermore, in the event of the penalty clause being exceeded, a meticulous examination should be conducted in light of the doctrine and Supreme Court decisions regarding the determination of excess damages and the proof of fault.
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FOOTNOTE
1 Yasemin Kabaklıoğlu Arslanyürek, Penalty Clause – Especially Its Relationship with Damage and Compensation, 1st Edition, On İki Levha Publishing, İstanbul, 2018, p. 6.
2 Bilgehan Çetiner, General Provisions of the Law of Obligations, 1st Edition, İstanbul, 2024, On İki Levha Publishing, p. 696.
3 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
4 Hüseyin Hatemi/ Emre Gökyayla, General Section of the Law of Obligations, 5th Edition, Filiz Publishing, İstanbul, 2021, p. 399.
5 Fikret Eren, General Provisions of the Law of Obligations, 28th Edition, Legem Publishing, Ankara, 2023, p. 1335.
6 Çetiner, Law of Obligations, p. 696; Eren, Law of Obligations, p. 1337.
7 Eren, Law of Obligations, p. 1337.
8 Turkish Code of Obligations, Article 179/1, Official Gazette dated 04.02.2011, No. 27836 (OG).
9 Kemal Oğuzman/ Turgut Öz, General Provisions of the Law of Obligations Volume II, 17th Edition, Vedat Publishing, İstanbul 2022, p. 558.
10 Köksal Kocaağa, Penalty Clause (Contractual Penalty), 2nd Edition, Yetkin Publishing, Ankara, 2018, p. 139- 140.
11 Turkish Code of Obligations, Articles 49 et seq. Article 112, Official Gazette dated 04.02.2011, No. 27836 (OG).
12 Kocaağa, Penalty Clause, p. 174.
13 Elif Beyza Akkanat, “Determination of Compensation as a Lump Sum in American and Turkish Legal Systems”, Liability Law: Seminars 2018, (ed. Başak Baysal), 2019, İstanbul, p. 41.
14 Çetiner, Law of Obligations, p. 699. For detailed explanations on this matter, see: Zeynep Damla Taşkın, “The Effect of the Debtor’s Fault on the Penalty Clause Agreement”, Journal of Legal Studies, 2020, p. 1305.
15 Turkish Code of Obligations, Article 112, Official Gazette dated 04.02.2011, No. 27836 (OG).
16 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
17 Çetiner, Law of Obligations, p. 696.
18 Tekinay/ Akman/ Burcuoğlu/ Aktop, Tekinay General Provisions of the Law of Obligations, 7th Edition, 1993, p. 342; Tiryaki M., Penal Clause in the Field of Private Law, İstanbul, Unpublished Master’s Thesis, 2005, p. 16; Tunçomağ, p. 26 as cited in: Elif Beyza Akkanat, “Determination of Compensation as a Lump Sum in American and Turkish Legal Systems”, Liability Law: Seminars 2018, (ed. Başak Baysal), 2019, İstanbul, p. 38.
19 Doğan Ağırman, Penalty Clause and Similar Institutions in Practice, 1st Edition, Adalet Publishing, Ankara, 2023, p. 73.
20 Supreme Court General Assembly of Civil Chambers, decision dated 26.02.2016, No. 2014/524 E., 2016/192 K.; Supreme Court General Assembly of Civil Chambers, decision dated 17.10.2019, No. 2016/9-573 E., 2019/1086 K.
21 Supreme Court Unification of Judgments General Assembly, decision dated 08.03.2019, No. 2017/10 E., 2019/1 K.
22 Supreme Court 11th Civil Chamber, decision dated 18.01.2021, No. 2020/712 E., 2021/92 K.
23 Yeşim Atamer; “Penalty ClauseLump Sum Compensation Exemption Agreement: Which One?” in: Delays and Defaults in International Construction Contracts (ed. Yeşim M. Atamer/Ece Baş Süzel/Elliott Geisinger), İstanbul, 2018.
24 Ağırman, Penalty Clause and Similar Institutions in Practice, p. 74.
25 K. Berk Kapancı, “Lump Sum Compensation Agreement and Its Distinction from Penalty Clause” in: Festschrift for Prof. Dr. Mustafa Dural, p. 656, Filiz Publishing, İstanbul, 2013.
26 Ağırman, Penal Clause and Similar Institutions in Practice, p. 563-568.
27 Oğuzman/ Öz, Law of Obligations, p. 562.
28 Pierre Tercier/ Pascal Pichonnaz/ H. Murat Develioğlu, Law of Obligations General Provisions, 2nd Edition, On İki Levha Publishing, İstanbul, 2020, p. 478.
29 Mehmet İlarslan, Damages exceeding default interest and penalty clauses in Turkish law of obligations, Master’s Thesis, Eskişehir, 2022, p. 112.
30 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
31 Turkish Code of Obligations, Article 182/3, Official Gazette dated 04.02.2011, No. 27836 (OG)
32 Eren, Law of Obligations, p. 1335.
33 Turkish Code of Obligations, Article 112, Official Gazette dated 04.02.2011, No. 27836 (OG).
34 Burcu Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, 2nd Edition, Seçkin Publishing, Ankara, 2022, p. 219-220.
35 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
36 Ağırman, Penalty Clause and Similar Institutions in Practice, p. 346.
37 Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, p. 218; Ebubekir Uslu, Penalty Clause in Turkish Law with Examples of Supreme Court Decisions, 1st Edition, Seçkin Publishing, Ankara, 2019, p. 162.
38 For opinions, see: Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, p. 218-219.
39 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
40 Turkish Code of Obligations, Article 112, Official Gazette dated 04.02.2011, No. 27836 (OG).
41 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
42 Eren, Law of Obligations, p. 1343; Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, p. 222.
43 Çetiner, Law of Obligations, p. 705; Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, p. 221.
44 Uğur Yıldırım, Penalty Clause/ Panel Clause, Master’s Thesis, Istanbul, 2010, p. 118.
45 Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, p. 220.
46 Turkish Code of Obligations, Article 112, Official Gazette dated 04.02.2011, No. 27836 (OG).
47 Eren, Law of Obligations, p. 1336.
48 Arslanyürek, Penalty Clause, p. 68; Hilal Akkaya, Penalty Clause in Light of Supreme Court Decisions, Master’s Thesis, Ankara, 2019, p. 93.
49 Kenan Tunçomağ, Penalty Clause in Turkish Law, p. 122 cited in: Ağırman, Penalty Clause and Similar Institutions in Practice, p. 345.
50 Yağcıoğlu, Penalty Clause in Turkish and Swiss Law, p. 216.
51 Turkish Code of Obligations, Article 180/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
52 Tunçomağ, Penalty Clause in Turkish Law, p. 122 cited in: Ağırman, Penalty Clause and Similar Institutions in Practice, p. 343.
53 “According to Article 159/2 of the repealed Code of Obligations No. 818, which was in force at the time of the contract, as a principle, it is possible for the creditor who has suffered more damage than the penalty clause amount agreed in the contract to also claim this excess damage if a penalty clause is added to the performance in the contract and the debtor is at fault. In the concrete case, it was correct to accept that the plaintiff has the right to claim damages exceeding the penalty clause amount agreed in the contract, due to the fact that the penalty clause provision agreed in Article 5-e of the promotional contract dated 7.4.2009 between the parties is of the nature of a penalty clause added to the performance as regulated in Article 158/3 of the Code of Obligations, and that an evaluation should be made in accordance with Article 86/1 of the Code of Obligations.” (Supreme Court 11th Civil Chamber, Decision dated 21.03.2016 and numbered 2016/1483 E., 2016/3107 K.).
54 Oğuzman/ Öz, General Provisions of the Law of Obligations Volume I, 27th Edition, Vedat Publishing, İstanbul, 2022, p. 536.
55 Oğuzman/ Öz, General Provisions of the Law of Obligations Volume I, 2022, p. 537.
56 Arslanyürek, Penalty Clause, p. 22.
57 The only exception to this is the provision of Article 182/3 of the Turkish Code of Obligations regarding the judge’s reduction of the penalty clause deemed excessive.
58 Turkish Code of Obligations, Article 179/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
59 Ağırman, Penalty Clause and Similar Institutions in Practice, p. 351.
60 Turkish Code of Obligations, Article 179/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
61 Mehmet İlarslan, Damages Exceeding Default Interest and Penalty Clauses in Turkish Law of Obligations, Master’s Thesis, Eskişehir, 2022, p. 136.
62 Elif Beyza Akkanat, “Determination of Compensation as Lump Sum in American and Turkish Legal Systems”, Liability Law: Seminars 2018, (ed. Başak Baysal), 2019, İstanbul, p. 43-45.
63 Ağırman, Penalty Clause and Similar Institutions in Practice, p. 353.
64 K. Berk Kapancı, “Lump Sum Compensation Agreement and Its Distinction from Penalty Clause” in: Festschrift for Prof. Dr. Mustafa Dural, p. 659, Filiz, İstanbul 2013.
65 Turkish Code of Obligations, Article 179/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
66 Kapancı, “Lump Sum Compensation Agreement and Its Distinction from Penalty Clause” in: Festschrift for Prof. Dr. Mustafa Dural, p. 659, Filiz, İstanbul 2013.
67 Turkish Code of Obligations, Article 179/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
68 İlarslan, Damages Exceeding Default Interest and Penalty Clauses in Turkish Law of Obligations, Master’s Thesis, Eskişehir, 2022, p. 113.
69 Turkish Code of Obligations, Article 446/2, Official Gazette dated 04.02.2011, No. 27836 (OG).
70 İlarslan, Damages Exceeding Default Interest and Penalty Clauses in Turkish Law of Obligations, p. 113.
