Adaptation in Turkish Contracts Law and Volatile Currency Exchange Rate as An Adoption Reason

Zeynep Erkan, LL.M.

On Effects of Volatile Exchange Rate on Contracts in Effect and How Parties Can Protect Them Against Unforeseeable Conditions.

Depending on extraordinary circumstances that arise after the conclusion of contracts, it may not be possible for the parties to fulfill their obligations as originally undertaken in accordance with the principle of good faith. In legal doctrine, this situation is expressed through the theory of "imprevision" which constitutes an exception to the principle of "pacta sunt servanda" (agreements must be kept). The term "extraordinary circumstance"seems to refer to rare occurrences by its definition. However, when we quickly look back at the recent past, climate crises, pandemics, wars, and economic crises have shown that encountering such extraordinary circumstances is, unfortunately, quite common worldwide, contrary to what the term suggests.

As is known, Turkey has been experiencing a serious currency crisis for the past few years, making it necessary to legally examine how contracts, especially those with significant importance on the continuity of commercial activities, will be affected by this crisis.

When the mentioned extraordinary circumstance occurs, as explained in the Turkish Code of Obligations, two possibilities will arise: 1) Performance of the obligation may become excessively difficult. 2) Performance of the obligation may become impossible.If the performance of the obligation becomes impossible, there will no longer be any obligation that can be fulfilled, and therefore, it cannot be stated that the contract will be adapted to the changing conditions. In this case, terminating the contract will be the solution. Consequently, the adaptation of contracts pertains not to the impossibility of performance but to the excessive difficulty of performance.

The conditions for the application of the adaptation institution, within the framework of Article 138 of theTurkish Code of Obligations, can be listed as follows:

  1. An extraordinary situation must arise after the conclusion of the contract.
  2. The extraordinary circumstance must be an unforeseen event or an event that was not expected from the parties within the framework of good faith.
  3. The extraordinary circumstance should not be caused by the party requesting adaptation.
  4. Due to the extraordinary circumstance, the balance between the parties' obligations must have been disrupted to such an extent that fulfilling them cannot be expected within the framework of     good faith.
  5. The debtor must have performed his debt while reserving his other rights that may arise due to the disruption of the balance between the obligations.

It should be noted that this provision is not mandatory, and if there is a special arrangement regarding changing conditions in the contract concluded between the parties, it will be necessary to apply that arrangement.

The article text clearly states that the changing conditions must be of an unforeseeable nature by the parties.The main issue is whether the currency crisis in Turkey has such a nature or not.

In the past two years, the increase in the exchange rate in Turkey has been stable in a way that cannot be described as unexpected or unforeseeable. (See: )

Therefore, in our opinion, adaptation requests arising from the increase in the exchange rate may face the risk of being rejected due to the failure to meet the conditions for adaptation listed above. To avoid this risk, contracts should be prepared to better meet the needs of the parties. Erkan Attorney Partnership is at your service with its experienced team to provide legal support during the contract preparation process.

that's the loader image