Hardship and Adaptation in Commercial Contracts

1. Introduction: The Binding Force of Contracts and Changing Circumstances The cornerstone of our law of obligations is the principle of *pacta sunt servanda*—agreements must be kept. Under this principle, parties are bound by the contracts they freely conclude and must perform their obligations exactly as agreed. As a rule, this binding force continues even if circumstances change after the contract is formed, because the predictability of economic life and commercial trust require contracts to survive.

This rule, however, is not absolute. Sometimes, after a contract is concluded, extraordinary developments that the parties never foresaw and could not have been expected to foresee arise—such as the exchange rate multiplying in a short time, hyperinflation, a severe economic crisis, a pandemic, or war—rendering the balance of performance unbearable for one party. This is where the doctrine of “hardship” regulated in Article 138 of the Turkish Code of Obligations (TCO) and the related possibility of “adaptation” comes into play. In this article, we objectively examine the conditions, limits, and consequences of adaptation, particularly for commercial contracts, in light of current case law.

2. What Is Hardship? (TCO Art. 138) TCO Art. 138 codifies the principle known in doctrine as the “collapse of the basis of the transaction” and in international practice as *clausula rebus sic stantibus* (things thus standing). Under the article, if an extraordinary situation that was not foreseen and could not have been expected to be foreseen by the parties at the time the contract was made arises for a reason not attributable to the debtor, and changes the facts existing at the time of formation against the debtor to such a degree that demanding performance would be contrary to the rule of good faith, the debtor may request the judge to adapt the contract to the new conditions or, where this is not possible, withdraw from the contract.

Hardship must be distinguished from impossibility of performance (TCO Art. 136). In impossibility, performance is no longer physically or legally possible, and the obligation is extinguished. In hardship, performance is still possible but has become unbearably onerous for the debtor. Therefore, the consequence is not the automatic termination of the obligation, but the re-establishment of the contract’s balance (adaptation) or, as a last resort, withdrawal/termination.

3. Conditions for an Adaptation Claim Reading the established case law together with the statutory text, four conditions must be met simultaneously for a party to request adaptation from the judge:

1. There must be an extraordinary and unforeseeable situation. An extraordinary development that the parties did not foresee and could not reasonably have been expected to foresee at the time of contracting must arise. Ordinary economic fluctuations and routine exchange-rate or price movements do not fall within this scope.

2. The situation must not stem from the debtor. The fact causing the hardship must not arise from the debtor’s fault or conduct; it must rest on an external, objective cause.

3. The basis of the transaction must collapse against the debtor. The new situation must have disrupted the balance existing at the time of formation to such a degree that demanding performance would violate the rule of good faith (Civil Code Art. 2). The disproportion between the obligations must exceed the “bearable” limit.

4. The obligation must not yet have been performed. The debtor must not yet have performed, or must have performed while reserving the rights arising from hardship. Adaptation cannot later be requested for an obligation performed without reservation.

4. The “Prudent Merchant” Standard and the Nature of Commercial Contracts The standard is stricter for commercial contracts. Article 18/2 of the Turkish Commercial Code (TCC) requires every merchant to act like a prudent businessperson in the activities related to their trade. This standard expects the merchant to foresee ordinary market risks, account for exchange-rate and price fluctuations, and, where necessary, include protective provisions in their contracts.

For this reason, the Court of Cassation approaches adaptation claims between merchants more cautiously. Exchange-rate or inflation movements that are known and reasonably foreseeable within our country’s economic conditions may not qualify as an “unforeseeable extraordinary situation” for a prudent merchant. For adaptation to be accepted, the risk must clearly exceed ordinary commercial risk and carry a genuinely unexpected, exceptional character.

5. Exchange Rates, Inflation, and Extraordinary Situations In practice, adaptation claims most often arise in foreign-currency contracts, long-term supply and lease relationships, and construction contracts. The decisive question is whether the development is a “foreseeable ordinary risk” or an “unforeseeable extraordinary situation.”

The Court of Cassation does not treat every increase in the exchange rate as grounds for adaptation on its own; it requires the rate to spike suddenly and excessively, far beyond reasonable expectations, completely destroying the balance of performance. Developments such as lockdown measures during the pandemic (COVID-19), sudden export/import bans, or war-driven supply crises may, depending on the concrete circumstances, be assessed as extraordinary situations. Under TCO Art. 138/2, these provisions also apply to foreign-currency debts.

6. Consequences of Adaptation: Preserving the Contract First The law sets a clear order of priority in adaptation. The judge first tries to keep the contract alive: rebalancing the performance and counter-performance according to the new conditions, increasing the price, changing the payment plan or term, or updating the agreed exchange rate. The aim is not to abolish the contract, but to repair the disrupted balance fairly.

If adapting the contract is objectively impossible or cannot be expected of the parties, the debtor may withdraw from the contract; in continuing-performance contracts (such as lease, supply, or service), the right of termination is used instead of withdrawal. Adaptation is, as a rule, achieved through a court decision (adaptation lawsuit); the requirement that the parties first attempt to reach agreement through negotiation is also a corollary of the good-faith rule.

7. A Preventive Solution: Including Hardship Clauses in Contracts The healthiest path, before taking a dispute to court, is to manage the risk at the contracting stage. By adding hardship clauses, parties can agree in advance that, once certain thresholds are exceeded (for example, when an exchange rate or index passes a specified ratio), the price will be updated automatically, an obligation to renegotiate will arise, or an arbitration/mediation mechanism will be triggered.

A well-drafted hardship clause clearly defines the triggering event, the index or formula to be applied, the renegotiation period, and the method to be used in case of disagreement. Such provisions both increase predictability and, by setting out the parties’ intent, shorten the judicial process in a potential dispute.

8. Conclusion Hardship and adaptation form an exceptional doctrine that preserves the balance between the binding force of contracts and the rule of good faith. The threshold is high in commercial contracts because of the prudent-merchant standard; not every economic fluctuation gives rise to a right of adaptation. Therefore, both carefully assessing whether an adaptation claim fits the concrete circumstances in existing contracts, and structuring preventive hardship clauses in new contracts, are of critical importance for the sustainability of commercial relationships.

_This content is for informational purposes only and does not constitute legal advice. We recommend consulting a specialized lawyer for the adaptation of your contracts or any related disputes._