Coronavirus 2019 (COVID-19) and Contracts

ABSTRACT: The subject of this study is the examination of the rights that Turkish law offers with respect to the termination/amendment of contracts following the COVID-19 outbreak which can be


    The subject of this study is the examination of the rights that Turkish law offers with respect to the termination/amendment of contracts following the COVID-19 outbreak which can be qualified as a social disaster.

    Articles 136 (Faultless Subsequent Impossibility) and 138 (Hardship) of the Turkish Code of Obligations (“TCO”) can be considered as the most relevant dispositions. Given that the TCO art. 136 and 138 are default related provisions, this analysis will touch base also on force majeure and hardship clauses set forth in contracts as well as the relevant actions to be taken following the occurrence of such events. In case of absence or unsuitability of such clauses, considering that the main purpose shall be maintaining the balance of interests of the contracting parties, the application of art. 136 leading to termination of contracts due to force majeure or art. 138 regarding the adaptation of contracts through courts without termination can be considered.

    In the current circumstances, the goal of the contracting parties shall be negotiating in good faith and, if possible, agreeing on the fate of the mutual obligations the balance of which has been disrupted due to the current social disaster. In case the parties are unable to reach an agreement, the abovementioned legal provisions may be applied. Although no disposition is set forth under the TCO regarding the temporary impossibility institution which is accepted by the Turkish Supreme Court, it is evident that the temporary impossibility is arising from the nature of the situation. Therefore, the application of this institution by the judicial authorities may come to the agenda in relation to the contractual obligations affected by COVID-19. In such a case, criterion of toleration period shall be applied and when such period is exceeded, the contract shall be deemed as terminated. In many contractual relationships, in particular the performance of pecuniary debts, it cannot be concluded that the performance of the obligation becomes impossible. In such an event, and depending on the specific circumstances, the hardship of the obligation and the application of art. 138 may be analysed.

    The novel Coronavirus 2019 (COVID-19), which was first detected in Wuhan, China on 31 December 2019, was placed in the pandemic (epidemic) category on 11 March 2020 by the World Health Organization. Following such decision, which will certainly have various legal and economic outcomes, the fate of the currently ongoing contracts has become an actual problem.

    In a situation where a number of countries have been forced to put life on a standstill, there is a risk many contractual relationships to reach deadlock. In Turkey, as in many other countries, the transportation, tourism, culture-art-entertainment are the main sectors adversely affected by the pandemic. However, the negative effect will not be limited to only these sectors and it is already seen that a substantial part of the economic life has been disrupted. Accordingly, business life actors are seeking options enabling them to temporarily or permanently terminate or amend the contracts to which they are parties. However, it may not be possible to terminate or amend all contractual relationships via mutual agreement.

    This means that the legal disputes will increase in the upcoming period. In order to maintain the process management of legal disputes correctly, first of all, the possibilities provided under the Turkish contracts law should be carefully evaluated and the applicable legal provisions should be determined. We will present these possibilities and our interpretations below.


    1. Impossibility of performance as a result of force majeure; or
    2. Performance is still possible, but has become excessively onerous


    Renegotiation will enable the parties to evaluate the changed situation and to restore the balance of a contract, submit an offer/a counter offer in accordance with the good faith principle. Parties should try to reach a mutual agreement to the best of their abilities and should not block and cut the negotiations in a manner contrary to the good faith.


    Decision of Turkish Supreme Court General Assembly of Civil Chambers dated 28.04.2010 with the merits no 2010/15-193, decision no 235: “Impossibility of performance is one of the debt extinguishment reasons. According the TCO art. 117/1 “If the performance of the debt becomes impossible due to reasons that the debtor cannot be held responsible of, the debt extinguishes.” Impossibility of performance is subjected to some divisions considering the reasons of occurrence. One of such divisions is the division of objective impossibility (permanent impossibility)-temporary impossibility. In case the impossibility of performance is in question not only for the contracting parties but for everyone, it is considered as the objective impossibility. In fact, in the event of an objective impossibility, the contract is invalid pursuant to article 20 of (the former) Code of Obligations and the termination of the contract is not required accordingly. However, when temporary impossibility is the case, the performance of the contract depends on the occurrence of certain event. Only if such event occurs, performance of the contract may be claimed. (…) Undoubtedly, the existence of temporary impossibility, brings with the question of how long will the parties be bound by the contract. The relevant rule, in accordance with the ‘pacta sunt servanda’ principle is that the contract is binding to its parties. However, there are some particular events during which accepting the parties as bound with the contract both hinders their economic liberty and eliminates the opportunity to contract with another party. In practise, the period during which parties are kept bound by the contract in case of a temporary impossibility is defined as “toleration period”. It is required to examine whether such period is expired or not taking into consideration in each specific case.”

    It is certain that COVID-19 will have impacts on contracts, but at this stage, both determining its legal results and estimating how it will be analysed in judicial decisions is not possible. Nevertheless, we are of the opinion that in accordance with our explanations, it is really important to consider the below mentioned issues:  

    Finally, it is worth repeating that the answers of to the questions how long this process, which has gained acceleration upon the categorization of COVID-19 as pandemic, will continue or how this process will be completed, are unclear. Therefore, it is early to make any conclusions about how the abovementioned legal explanations will be reflected in judicial decisions and disputes. In case of the risk that contractual obligations are not performed, the situation of the debtor and the creditor should be assessed in accordance with each concrete case. At this point, we are of the opinion that it would be useful for the contracting parties to gather together as much as possible and renegotiate their contractual relationships that have been affected by the current hardship.


    [1] Decision of the Turkish Supreme Court General Assembly of Civil Chambers dated 27.6.2018 with the merits no 2017/90, decision no 2018/1259: “Force majeure is an extraordinary event which occurs outside of activity and enterprise of the responsible party or the debtor leading to the breach of a general behaviour norm or a debt in a manner absolute and inevitable, that cannot be foreseen and resist. Natural disasters such as earthquake, flood, fire, epidemics are considered as force majeure.”


    Decision of Turkish Supreme Court 9th Civil Chamber dated 20.11.2018 with the merits no 2016/14140 and the decision no 2018/21011: “The reasons preventing employee from working should occur around the employee. Reasons arising from the workplace and preventing employee from working are not included within the scope of this article. For example, closing down the work place is not considered as force majeure. (Turkish Supreme Court 9th Civil Chamber, D. 25.04.2008, merits no: 2007/16205 and decision no: 2008/10253) However, the barriers of transportation due to natural disasters such as flood, snow, earthquake, quarantine due to epidemics are force majeur events”.