INTRODUCTION
The principle of freedom of contract is one of the cornerstones of Turkish private law. The parties may freely determine the content of the contract, provided that it is not contrary to law and morality; within this scope, it is also possible to include termination provisions in the contract. In practice, particularly in commercial contracts, it is frequently observed that one of the parties is granted the authority to “terminate without giving any reason and without paying compensation/contractual penalty.” However, it cannot be said that such provisions grant an absolute and unlimited freedom of termination.
In this article, the legal nature of termination provisions without cause and without compensation will be addressed in light of the freedom of contract set forth in Article 26 of the Turkish Code of Obligations No. 6098 (“TCO”), the general terms and conditions regulated between Articles 20 and 25, the principle of good faith and the prohibition of abuse of rights set forth in Article 2 of the Turkish Civil Code No. 4721 (“TCC”), and the current case law of the Court of Cassation and the Regional Courts of Appeal (“RCA”).
LEGAL FRAMEWORK
Balance Between Contractual Freedom and the Principle of Good Faith
Pursuant to Article 26 of the TCO, the parties may freely determine the content of the contract. Within this scope, provisions stipulating that the right of termination may be exercised without cause are, as a rule, valid. However, freedom of contract is not absolute. The principle of good faith and the prohibition of abuse of rights regulated in Article 2 of the TCC also limit the exercise of rights arising from the contract.
As clearly emphasized in the decision of the General Assembly of the Court of Cassation dated 26.04.2022 and numbered E.2019/566, K.2022/599; even if unilateral termination authority is granted by the contract, this authority must be exercised in accordance with the principle of good faith. The decision states that it must be assessed whether the exercise of the right of termination creates confidence in the other party that the contract will continue and whether this confidence is frustrated by a sudden and unjustified termination. In the said decision, this matter is expressed as follows:
“Although the contract grants the defendant the right of unilateral termination, the defendant must exercise this right within the framework of the principle of good faith. In the event that the right of termination is clearly abused, it is not possible for the legal order to protect it. In this case, considering also the duration of the commercial relationship between the parties and the fact that the contract is for a fixed term, it must be assessed whether the defendant created confidence in the plaintiff that it would not exercise its right of termination without any reason and that the contractual relationship would continue; therefore, whether the right of termination was exercised in accordance with the rules of good faith must be assessed.”
Within the framework of this approach, when assessing whether the termination authority has been exercised in a manner contrary to the principle of good faith, the Court of Cassation takes as a basis the duration of the relationship between the parties, whether the contract is for a fixed or indefinite term, whether there is any concrete reason in the termination, and whether a legitimate expectation has been created in the other party. These criteria constitute the basic criteria of review in the application of termination provisions without cause.
On the other hand, the Court of Cassation also accepts that, in certain types of contracts, termination provisions without cause may be legally protected if the termination decision is supported by concrete risks or business reasons. As a matter of fact, in its decision dated 28.01.2016 and numbered E.2015/2827, K.2016/907, the 11th Civil Chamber of the Court of Cassation stated that “the contract between the parties granted the defendant Bank the authority to terminate the contractual relationship at any time without giving any reason; the defendant bank exercised this authority; and negative intelligence information about the plaintiff company was the reason for this”; and in a dispute regarding a member workplace–POS contract, the termination carried out by the bank based on the “termination without cause” provision in the contract was not deemed contrary to the principle of good faith.
Review of General Terms and Conditions
Termination provisions without cause and without compensation may, particularly in standard contracts, bear the character of general terms and conditions. Pursuant to the provisions between Articles 20 and 25 of the TCO, provisions included in the contract without negotiation with the other party and creating an imbalance to its detriment are deemed general terms and conditions and are subject to a special review in terms of validity.
In its decision dated 21.11.2022 and numbered E.2021/4499, K.2022/8102, the 11th Civil Chamber of the Court of Cassation revealed that, in determining general terms and conditions, it is necessary to focus on the nature of the contractual provision rather than the status of the parties. According to the decision, the inclusion of a provision in a contract concluded between merchants does not, by itself, eliminate the review of general terms and conditions; on the contrary, whether the provision was prepared in advance, whether it has an abstract and standard content, and whether a real opportunity for negotiation was granted to the other party become determinative. Provisions bearing these characteristics are accepted as general terms and conditions if they are prepared to be used in a large number of contracts.
The legal validity of general terms and conditions is examined within the framework of a staged review mechanism. In the first stage, it is assessed whether the provision was included in the contract with the knowledge and consent of the other party; provisions added to the contract without sufficient information cannot become effective. In the interpretation review carried out thereafter, if the provision is vague or open to doubt, interpretation is made in a way that will result in consequences against the drafter. In the final stage, within the scope of content review, it is examined whether the provision in question is compatible with the principle of good faith and whether it disproportionately disrupts the contractual balance to the detriment of the other party.
In this respect, provisions granting the possibility to terminate without cause and without paying compensation may lose their validity to the extent that, as a result of content review, they produce severe and inequitable consequences against the other party. Therefore, the legal protection of such termination provisions depends not merely on their being included in the contract text, but on their having been genuinely negotiated at the time of conclusion of the contract and on their being structured in a manner that observes the principle of good faith and the contractual balance.
Termination and Protection of Trust in Continuous Debt Relationships
In contracts giving rise to a continuous obligations relationship, the termination regime is subject to different principles depending on the term of the contract. While, in contracts of indefinite term, the parties are granted the possibility of ordinary termination provided that a reasonable notice period is given to the other party; as a rule, in contracts of fixed term, continuation until the end of the contractual term is essential. In such contracts, termination before the end of the term may be resorted to only through extraordinary termination in the presence of a just cause.
In the decisions of the Court of Cassation and the Regional Courts of Appeal, it is seen that, especially in long-lasting commercial relationships, the principle of “protection of trust” has become a determinative criterion. After one of the parties, through its attitudes and behaviors during the term of the contract, creates a justified expectation in the other party that the relationship will continue, turning to termination abruptly without putting forward any concrete reason is assessed as behavior incompatible with the principle of good faith. It is possible for such terminations to give rise to liability for damages depending on the characteristics of the concrete case.
As a matter of fact, in its decision dated 14.12.2022 and numbered E.2020/1058, K.2022/1411, the 45th Civil Chamber of the Istanbul Regional Court of Appeal stated that “Although the security services contract between the parties granted the defendant the authority to terminate at any time and without cause, it is understood that no reason was stated in the termination notice sent by the defendant and no reason justifying this termination could be presented during the proceedings. In this respect, the termination of the fixed-term contract before the end of its term and without a just cause is unlawful, and the damages incurred by the plaintiff due to this must be compensated.”; and it was accepted that termination of a fixed-term contract before the end of its term and without a just cause is unlawful, and that liability for damages arises with respect to the damages suffered by the other party due to such termination.
A similar approach is also adopted in long-term and investment-requiring contractual relationships such as distributorship, dealership, and franchise. In such contracts, abrupt terminations carried out by disregarding the investments made by the party within the scope of the relationship, the customer portfolio created, and the legitimate expectation regarding the continuation of the contract are accepted as arbitrary in practice and may, for this reason, be subject to various compensation claims, primarily negative damages. As a matter of fact, in its decision dated 28.05.2025 and numbered E.2024/174, K.2025/1029, the 7th Civil Chamber of the Sakarya Regional Court of Appeal also accepted that, in commercial relationships that have continued for many years and in which the plaintiff party has made serious investments, the exercise of the termination authority must be reviewed within the framework of the principle of good faith and the principle of proportionality.
ASSESSMENT AND CONCLUSION
Although provisions granting the possibility to terminate without cause and without paying compensation are, as a rule, accepted as valid within the scope of the principle of freedom of contract in Turkish law, they do not grant the parties an absolute and unlimited termination authority. Such provisions are subject to the review of general terms and conditions within the framework of the principle of good faith and the prohibition of abuse of rights set forth in Article 2 of the TCC and the provisions between Articles 20 and 25 of the TCO, and are limited according to the characteristics of the concrete case. As a matter of fact, the case law of the Court of Cassation and the Regional Courts of Appeal clearly demonstrates that even a termination authority expressly granted in the contract may become arbitrary if, in terms of the manner of its exercise, it is contrary to the rules of good faith, and that, in such case, liability for damages may arise for the terminating party.
In this context, in order to reduce the legal risks that may arise in practice, it is of great importance that termination provisions are genuinely negotiated and agreed between the parties when concluding the contract and that this is recorded with written evidence. When exercising the right of termination, granting a reasonable notice period to the other party; basing the termination decision, to the extent possible, on concrete and objective reasons and ensuring that these reasons are documentable will contribute to preventing disputes that may arise in the future. Especially in long-term and investment-requiring contractual relationships, providing for a transition period that will allow the parties to liquidate their activities upon termination of the contract, or regulating a limited cost reimbursement mechanism for certain investments made by the other party in reliance on the contract should be evaluated as an approach that preserves contractual balance. In addition, it is also important that the termination notice is made duly, clearly, and in a manner leaving no room for doubt.
As a result, the inclusion of termination provisions without cause in contracts does not mean that these provisions will be legally protected in all cases. The validity of such provisions and the legal consequences of termination are, in each concrete case, assessed separately according to whether the right of termination was exercised in a manner compatible with the principle of good faith; the manner of exercising the contractual authority becomes the main element determining the fate of the dispute.
