The reduction and annulment of penalty clauses in term of merchants

In accordance with the principle of freedom of contract, the parties to a contract may freely stipulate the amount of a penalty, as well as a penalty clause (Turkish Code of Obligations 2011, hereinafter TCO, Art. 179-182). Nevertheless, the law (TCO, Art. 182/3) empowers judge store duce exofficio an excessive penalty clause, On the other hand,the law (Turkish Code of Commerce 2011, hereinafter TCC, Art. 22) bans merchant debtors from demanding reduction of a penalty clause. This study examines penalty clauses, reduction of excessive penalty clauses and the status and outcomes of them in case the debtor is a merchant. In particular, the study elaborates the status of merchants vis-a-vis an excessive penalty clause, its voidness and the possibility of its reduction. In the first part, under the title of Introduction, general information is given on the thesis and its sub-sections. In the second part, the concept of penalty clause is explained in terms of its historical origin, legal character, purpose, functions, forms and it is compared with similar in stitutions, as well as its relation to the concepts of fault and damage is explained. The third part deals with the reduction of a penalty clause(TCO, Art. 182/3), and it portrays the views regarding the purpose and legal character of this legal institution. This part also touches upon the conditions of the reduction of a penalty clause exofficio by judges and the formalities concerned. Finally, the fourth part analyzes the status and outcomes of a penalty clause, if the debtor is a merchant. Following to the explanations on the basis and conditions of the ban on the reduction of a penalty clause former chant debtors(TCC, Art. 22), the study ends with the inquiry on the situations on which merchants can claim annulment or reduction of a penalty clause.