Debt, Performance, and Fulfillment Concepts
Debt refers to the obligations that one party must fulfill towards the other or that both parties must fulfill towards each other. Performance (edim) is the subject matter of the debt. The act of fulfilling the performance is called fulfillment (ifa). If a due and payable performance is not fulfilled, this situation is considered as default (temerrüt).
Debtor’s Default
The debtor’s default is addressed in Articles 117 and following of the Turkish Code of Obligations No. 6098.
ARTICLE 117 – The debtor of a due and payable debt falls into default upon the creditor’s notice.
If the due date for the performance of the debt has been jointly determined or set by one of the parties through proper notification based on a reserved right in the contract, the debtor falls into default upon the expiration of that date. In cases of tort, the debtor falls into default on the date the wrongful act was committed, and in cases of unjust enrichment, on the date the enrichment occurred. However, if the unjustly enriched party is in good faith, notification is required for default to occur.
Conditions of Debtor’s Default
- Due Date (Maturity)
The first condition that must be met for the debtor to fall into default is that the debt must be due and payable, meaning its maturity date must have arrived. It is not possible to speak of the debtor’s default for a debt whose payment time has not yet come.
- Notice
As a general rule, the debtor of a due and payable debt falls into default upon the creditor’s notice. However, if the due date for the performance of the debt has been jointly determined or set by one of the parties through proper notification based on a reserved right in the contract, the debtor falls into default upon the expiration of that date.
- Possibility of Performance
For the debtor to fall into default, the performance of the obligation must be possible. That is, if the performance became impossible before the debt became due, the default provisions cannot be applied. However, if the impossibility occurs after the debt becomes due, the debtor may be held liable for fault.
Indeed, Article 119 of the Turkish Code of Obligations (TBK), titled “Liability for Unforeseen Circumstances”
“A debtor who falls into default is liable for any damage arising from unforeseen circumstances.
The debtor may be exempt from this liability by proving that they were not at fault for falling into default, or that even if they had performed the debt on time, the unforeseen circumstance would have caused damage to the object of performance.
- Fault
The debtor is strictly liable for their debt. In other words, regardless of whether the debtor is at fault or not, the debtor is obligated to perform the obligation. However, if the debtor proves that they were not at fault, they may be exempt from paying delay interest.
Article 118 of the Turkish Code of Obligations (TBK) – The debtor who falls into default is obligated to compensate the damage caused to the creditor due to the late performance of the debt, unless the debtor proves that they were not at fault for the default.
Default Interest
In accordance with the principle of freedom of contract, the parties may agree on default interest between themselves. However, the limits of this are defined in Article 120 of the Turkish Code of Obligations (TBK):
ARTICLE 120 – If the applicable annual default interest rate has not been agreed upon in the contract, it is determined according to the provisions of the legislation in effect on the date the interest obligation arises.
The annual default interest rate to be agreed upon in the contract cannot exceed 100% of the annual interest rate determined in accordance with the first paragraph.
Although the contractual interest rate has been agreed upon, if default interest has not been specified in the contract and the annual contractual interest rate is higher than the interest rate specified in the first paragraph, the contractual interest rate will apply as the default interest rate.
Default Interest on Interest, Rents, and Donations
The provisions regarding default interest on interest, rents, and donations are regulated in Article 121 of the Turkish Code of Obligations (TBK):
ARTICLE 121 – The debtor who falls into default in paying the interest, rent, or a donated sum of money is obligated to pay default interest starting from the day the enforcement proceedings are initiated or a lawsuit is filed.
Agreements contrary to this are subject to the provisions of penalty clauses.
Default interest cannot be applied on default interest.
Excessive Damage
As mentioned above, when the debtor falls into default, they are obligated to compensate the damage suffered by the creditor. However, sometimes, this compensation may not be possible solely through default interest. In such cases, Article 122 of the Turkish Code of Obligations (TBK) will apply:
ARTICLE 122 – If the creditor has suffered a damage exceeding the default interest, the debtor is obligated to compensate this damage unless they prove that they were not at fault.
If the amount of damage exceeding the default interest can be determined in the ongoing case, the judge will rule on the amount of this damage when making a decision on the merits of the case, upon the plaintiff’s request.
Default of the Debtor in Bilateral Contracts
Bilateral contracts are agreements in which both parties undertake to perform a certain obligation. The default of the debtor in bilateral contracts can be discussed under four main headings:
- Granting a Period
- Situations Not Requiring a Period
- Optional Rights
- In Contracts with Continuous Performances
Granting a Period
According to Article 123 of the Turkish Code of Obligations (TBK), “In bilateral contracts, if one of the parties falls into default, the other party may grant a reasonable period for the performance of the debt or request the court to set a reasonable period.”
Situations Not Requiring a Period
Situations not requiring a period are regulated in Article 124 of the Turkish Code of Obligations (TBK):
1. If it is clear that granting a period would be ineffective due to the debtor’s situation or conduct.
2. If, as a result of the debtor’s default, the performance of the debt has become useless for the creditor.
3. If it can be understood from the contract that the performance will no longer be accepted if it does not occur at a specific time or within a certain period.
A period is not granted.
Optional Rights
In bilateral contracts, the creditor has the following optional rights against the debtor who falls into default, in accordance with Article 125 of the Turkish Code of Obligations (TBK):
- If the debtor in default has not performed their obligation within the granted period, or if a situation arises that does not require a period to be granted, the creditor always has the right to demand performance of the debt and compensation for damages caused by the delay.
- The creditor may also waive the right to demand performance of the debt and delay compensation by immediately notifying the debtor, and may request compensation for the damage caused by the non-performance of the debt or may terminate the contract.
- In the case of termination of the contract, the parties are relieved from their mutual performance obligations and may request the return of the performances they have previously made. In this case, if the debtor cannot prove that they were not at fault for the default, the creditor may also request compensation for the damage incurred due to the invalidity of the contract.
In Contracts with Continuous Performances
Contracts with continuous performances are agreements in which performance is carried out continuously, with obligations that persist over time and burden both parties. Lease agreements and employment contracts can be examples of contracts with continuous performances. The situation of the debtor’s default in contracts with continuous performances is regulated in Article 126 of the Turkish Code of Obligations (TBK):
“In contracts with continuous performances where performance has already begun, in the event of the debtor’s default, the creditor may, in addition to demanding performance and delay compensation, terminate the contract and request compensation for the damage caused by the premature termination of the contract.”
Court of Cassation Rulings
The lawsuit was filed for the collection of the penalty clause in addition to the performance obligation, and the court ruled in favor of the plaintiff. The decision was appealed by the defendant’s attorney.
1- According to the documents in the file, the reasons based on the evidence supporting the decision, and particularly the absence of any error in the assessment of the evidence, it was necessary to reject the defendant’s appeal objections outside the scope of the following paragraph.
2- As for the examination of the defendant’s other appeal objections;
In the case, the court ruled on the penalty clause receivable defined in Article 158/II of the Turkish Code of Obligations, accrued between 19.01.2009 and 30.07.2009. After 30.07.2009 and before the lawsuit date, the plaintiff did not place the defendant debtor into default. According to Article 101/I of the Turkish Code of Obligations, in order to apply default interest to the receivable accepted in the case, the defendant must be placed into default by the plaintiff. In the concrete case, the defendant was placed into default on the lawsuit date, 11.11.2009. Therefore, it was incorrect for the court to apply default interest to the receivable from 19.01.2009. Although the decision should be overturned for this reason, since correcting this mistake by the court does not require a retrial, in accordance with Article 370/II of the Civil Procedure Code (HMK), it was deemed appropriate to correct the decision and approve it.
RESULT: For the reasons stated in paragraph 1 above, the defendant’s other appeal objections are rejected. For the reasons stated in paragraph 2, the date “19.01.2009” in the first paragraph of the decision is removed, and the date “11.11.2009” is substituted. The decision, as amended, is APPROVED, and the appellate fee paid by the appellant is refunded to the appellant upon request. The decision was made unanimously on 27.10.2011.” (Court of Cassation 15th Civil Chamber, 2010/6504 E., 2011/6301 K.)
“In the compensation lawsuit between the parties, the trial result was that the Mengen Civil Court (as a Consumer Court) rejected the case, and the decision dated 13.02.2014, E:2013/137, K:2014/47, was examined at the request of the plaintiff’s attorney. The Court of Cassation 13th Civil Chamber examined the case and ruled on 30.6.2014, E:2014/23443, K:2014/21951 as follows:
(…The plaintiff claims that a real estate sales contract related to the Bolu-Mengen Lower Income Group Housing Project was signed with the defendant, and according to Article 3 of the contract, the delivery period for the property was 24 months, but the delivery was not made on time. As a result, the plaintiff requested the collection of 100,000 TL from the defendant due to the late delivery.)”
The defendant has argued for the dismissal of the case.
The court, based on the argument that the 30-month delivery period under the Consumer Protection Law had not expired by the date of the lawsuit, ruled to dismiss the case, and the decision was appealed by the plaintiff.
In the present case, the plaintiff seeks compensation for the delay in delivery, asserting that, although the delivery period for the apartment in question was set as 24 months in the contract with the defendant, the administration failed to deliver the apartment on time. According to Article 3 of the contract signed between the parties, the construction period for the property was set to 24 months, which implies that the apartment should have been delivered to the plaintiff within 24 months from the contract date. The reference to Law No. 4077 in Article 3 of the contract does not mean that the obligation to deliver the apartment within 24 months was waived. Given the provisions in the contract, if the apartment is not delivered within 24 months from the contract date, the plaintiff should be entitled to claim compensation for rental losses for each month of delay in delivery. The court should have ruled that, based on the acceptance of the defendant’s obligation to deliver the apartment 24 months after the contract date, the defendant would be responsible for rental loss between this date and the actual delivery date. However, the court dismissed the case based on the argument that the 30-month period under Law No. 4077 had not expired, which is contrary to procedural law and the law itself. This requires a reversal of the decision.
The decision was reversed with the justification and the file was returned, and after the retrial, the court upheld its previous decision.
DECISION OF THE GENERAL ASSEMBLY OF LAW
The decision, after being reviewed by the General Assembly of Law and understanding that the appeal against the resistance decision was filed within the time limit, and after reading the documents in the case file, was discussed and decided:
The case concerns the claim for compensation due to the non-delivery of the independent unit purchased under a sale agreement within the agreed time.
The court, based on the Consumer Protection Law No. 4077, ruled that the 30-month delivery period had not yet expired as of the delivery date of the property to the plaintiff and dismissed the case. The decision was appealed by the plaintiff’s lawyer, and the Court of Appeals overturned the decision for the reasons stated above. The lower court, repeating the previous reasons, issued a resistance decision.
The resistance decision has been appealed by the plaintiff’s lawyer.
The dispute brought before the General Assembly of Law is centered on whether the independent unit purchased by the plaintiff under the sale agreement was delivered on time, and based on the result of that, whether the plaintiff is entitled to claim compensation due to the delay in delivery.
In this regard, it is useful to provide an explanation regarding debtor default:
In a broad sense, debtor default (the debtor’s resistance) refers to the situation where the debtor fails to perform the obligation agreed upon in the contract. In this case, despite the availability of performance and the fact that the time and reminder for performance have arrived, the debtor does not perform the obligation.
Regulations regarding debtor default were included in Articles 101-108 of the now-repealed Civil Code No. 818.
Generally, the first condition for debtor default is “the possibility of performance.” If performance is objectively impossible, debtor default cannot occur.
Another condition for debtor default is that the debt must be due. Default cannot be discussed before the debt is due. This is because due status gives the creditor the authority to demand the performance and take legal action.
According to Article 101/1 of the Civil Code, “The debtor of a due debt becomes defaulted by the creditor’s notice.”
According to this provision, default requires not only due status but also the creditor’s notice. The notice is the creditor’s act of conveying their intention to the debtor.
Whether the debtor is at fault or not, if the conditions outlined above exist, default occurs. In other words, the debtor’s fault is not a condition for default.
As a rule, in contract law, the basic condition is that after the formation of the contract, the parties are obliged to perform their obligations arising from the contract in the agreed manner and within the agreed time. This rule is known as the principle of “pacta sunt servanda.”
When Articles 106-108 of the Civil Code are evaluated together, it is seen that in the case of a contract involving mutual obligations, the creditor has three alternative rights against the debtor in default. These are: the right to exact performance and to request compensation for delay; the right to reject performance and demand positive damages due to non-performance; and the right to terminate the contract and demand compensation for negative damages.
In order for the creditor to demand exact performance and compensation for delay (Article 106/1 of the Civil Code), a reasonable time must be given to the debtor, and the time given must not have resulted in performance. The existence of these conditions is required for the use of other options.
Granting a reasonable time to the defaulted debtor means that despite the default, the creditor indicates how much longer they are willing to accept performance. The law certainly aimed to protect the debtor from the consequences of default by allowing a reasonable time. To determine whether the time is appropriate, the rules of good faith applicable to the circumstances of the case must be followed.
If the debt is not performed after the reasonable time given by the creditor, one of the options under Article 106 of the Civil Code can be applied without the need for an additional notice.
However, if the reasons listed in Article 107 of the Civil Code apply, the creditor may use one of the options in Article 106 without giving the debtor additional time.
These reasons include the understanding that providing more time would be ineffective due to the debtor’s behavior; if the delay has made exact performance useless for the creditor; and if the contract specifies a definite performance date.
These same principles have also been adopted in previous rulings of the General Assembly of Law, including decisions dated 21.03.2012 and 16.01.2013.
In the current case, the relevant clause of the contract titled “Delivery and Use of the Property” states: “The construction period of the property is 24 months, and after the temporary acceptance upon completion of the construction, the property will be delivered according to the schedule previously notified by the administration with the delivery notice and the official report. The delivery period cannot exceed the period stated in the Consumer Protection Law No. 4077…”
Article 7/last of Law No. 4077, which was in force at the time of the contract, states that for promotional housing and vacation property sales, the maximum delivery period is 30 months.
Therefore, according to the relevant clause of the contract, the property must be delivered within 30 months from the contract date. It should be accepted that the delivery time in this clause is definitive. Upon the expiration of this period, debtor default occurs without the need for further notice. The 24-month construction period cannot be considered as the delivery period, as the contract specifies a separate delivery time.
In the present case, since the property was delivered before the 30-month period expired but after the 24-month construction period had passed, it is understood that the debtor default conditions were not met.
Since the debtor administration did not fall into default, the plaintiff does not have the right to claim compensation for delay (loss of rent).
During the discussions at the General Assembly of Law, some members argued that since the 3rd clause of the contract did not specify an explicit delivery time, and given that the other party was the consumer, the rights and obligations of the parties should have been clearly regulated without ambiguity. They argued that referring to the delivery time by indirect means was not suitable for fulfilling this requirement and that the defendant’s duty to notify delivery was not clearly fulfilled. Therefore, the defendant should be held responsible for compensation. Others suggested that the decision should be overturned on different grounds to investigate what could be considered a reasonable delivery time, according to the principle of fairness. However, these views were not adopted by the majority of the Assembly for the reasons stated above.
As a result, the decision to reject the case and the resistance decision against the Court of Appeals’ judgment is procedurally and legally appropriate, and the decision is confirmed.
CONCLUSION: The plaintiff’s appeal objections are rejected, and the resistance decision is CONFIRMED for the reasons explained above, with a majority vote on 06.11.2015. (Court of Cassation, General Assembly of Law, 2015/738 E., 2015/2440 K.)
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