ABSTRACT
Granting the creditor the power of sale regarding the foreclosure by a pledge agreement made between the parties of a debtor-creditor relationship is a frequently encountered case. While the power of sale foreclosure is not regulated inclusively in Turkish law, the legislator had regulated it for certain special cases. In our article, firstly the meaning and the legal content of the right of pledge are explained, and afterwards the legal validity of granting the pledgee the power of sale for the foreclosure is scrutinized especially in the perspective of Debt Enforcement and Bankruptcy Law, Obligations Law and Civil Law. Lastly special circumstances, such as lex commissoria prohibition, that may have an importance regarding the power of sale foreclosure are examined.
I. INTRODUCTION
The main purpose of the surety given by the debtor in a debtor-creditor relationship is that if the creditor cannot obtain its receivable, the surety is liquidated and the creditor can obtain its receivable from the sale price1. However, the liquidation process of the surety through executive organs may not be prefered due to such reasons that the price of the pledged asset can be auctioned off for 50% of its real value assesed by the execution office pursuant to Article 115 of the Enforcement and Bankruptcy Code numbered 2004 (“EBC”), and that the process takes long time and is costly. Therefore, the parties of the debtor-creditor relationship and, in this context, the pledge relationship can decide that this process shall be carried out by the creditor, in order to avoid the dullness of the sales mechanisms of the execution and thus to prevent the liquidation of the surety by the executive bodies. In debtor-creditor relationships where the surety is determined as a pledge, it is possible to grant the creditor the power of sale for foreclosure which constitutes the subject of our article.
II. THE RIGHT OF PLEDGE
The right of pledge, enables the creditor, for whose favor the it has been established, to obtain his recievable from the revenue obtained through the liquidation of the pledged asset in case the debt is not paid2. With a pledge agreement entered into in order to establish the right of pledge, a third party outside the relavant debtor-creditor or the debtor constitutes a pledge over its asset for the benefit of the creditor in order to secure the receivble3. Within this scope, the value of the asset is assigned to the owner of the right of pledge. With the right of pledge the independence of the authority related to the content of the property is achieved. In other words, the owner of the pledged asset, through the establishment of the right of pledge, grants the creditor the power of sale regarding the pledged asset4.
In cases where the right of pledge has been established, it is compulsory for the pledged asset to be redeemable5. It is not within the boundaries of the possibility for a irredeemable asset to be subject of a pledge. In this context, the lex commissoria prohibition, one of the fundamental principles of pledge law, does not remove the pledged asset’s feature of being redeemable. Because the said prohibition can only become an issue for the assets that can be pledged, in other words for the redeemable assets. The state of being redeemable is an issue solely for the asset of which ownership can be transferred by way of purchasing. If the debt is not paid, as non-transferable asset can not be pledged, the ownership of the pledged asset cannot be acquired ipso facto by the pledgee as well. Therefore, it can be said that the lex commissiora prohibition is not a prohibition pertaining to redeemableness but it only prevents the transfer of the ownership of the pledged asset to the pledgee. As pleding an asset which is not redeemable cannot be possible, it is also not within the boundaries of the possibility of this situation to fall within the scope of lex commissoria prohibition6.
In order to examine whether or not the power of sale forclosure being the subject of our article is legally possible, we must first examine the related provisions of EBC through which the power of sale foreclosure is principally regulated in Turkish Law.
III. FORECLOSURE IN THE SCOPE OF THE ENFORCEMENT AND BANKRUPTCY CODE
Within the scope of the Enforcement and Bankruptcy Code, the ways of execution proceedings regarding the foreclosure are as follows:
• Within the scope of Art. 150/h of the EBC enforcement proceeding with court decision for the liquidation of the chattel pledge,
• Within the scope of Art. 145 and 147 of the EBC enforcement proceedings without court decision for the liquidation of the chattel pledge
• Within the scope of Art. 148, 149/b and 150/d of the EBC enforcement proceedings without court decision for the liquidation of the mortgage,
• Within the scope of Art. 150/h the liquidation of mortgages determined by a court decision or with a certificate that stands as a court decision,
• Within the scope Art. 149 of the EBC the liquidation of the mortgages established with an agreement chart containing the unconditional acknowledgment of debt,
• Within the scope of Art. 150/ı the liquidation of mortgages established to assure the running accounts, or the loans processing as short, medium and long term loans.
Regarding the execution proceedings commenced pursuant to the provisions of the EBC, the relevant provisions of EBC constitute an imperative characteristic7. In an execution proceeding initiated in this context, even though it is possible for the parties to renounce the respites which must be followed by the debtor, creditor and the execution office conducting the process of the execution proceedings within the scope of Article 20 of the EBC, the alteration of these respites with an agreement is not possible8. The respites specified in the EBC are ex officio paid regard to both by the execution offices and the execution court9. However, regarding the foreclosure, there is no consensus in the literature as to whether it is imperative to apply the provisions of the EBC10. The first of the arguments put forward in the literature is that it is obligatory to apply to the provisions of the EBC and to initiate an execution proceeding in order to realize the foreclosure11. Nonetheless, the preponderant argument is that it is not compulsory to apply to the provisions of the EBC12.
According to us, there is no obligation to apply to the provisions of the EBC in Turkish Law in order to realize the foreclosure. Acknowledging the mandatory application of the provisions of the EBC is contrary to the principle of freedom of contract which forms the basis of the law of obligations. In this respect, it is necessary to examine what exactly the freedom of contract is, and to what extent the parties are given the freedom to determine the contents, and the parties of the contract.
The Turkish Code of Obligations (“TCO”) numbered 6098 and the Swiss Code of Obligations as a source of the TCO had adopted a system based on the principle of freedom of contract with relation to the determination of the content of the contract between the parties13.
Although the freedom of contract is a fundemental and indispensable principle of the law of obligations, it is neither defined in the TCO nor in the Swiss Code of Obligations being source of the TCO. The absence of a clear provision regarding the freedom of contract in the TCO is a natural outcome of the principle of the freedom of contract14. Because, in a place where freedom of contract is non-existent, the freedom of determining the content of the contract does not have a meaning, thus rendering the existence of the principle of freedom of contract, which is accepted as the basis of the law of obligations, meaningless.
According to the bilateral dissection embraced in Turkish and German legal doctrines, the contract liberty and the freedom to choose the other side of the contract fall within the scope16 of the freedom of contract. On the basis of this dissection, the freedom to determine the content of the contract is encountered. The freedom to determine the content of the contract means determining the quantity, the term, the subject and the genre of the deeds17 freely,18 within the limits set by the law. Within the scope of this liberty the parties of the contract will be able to apply the contract types regulated in the TCO as well as edit contracts not regulated in the law by means of modifying some of thee contract types. This system is called the freedom of type19. In accordance with Article 26 of TCO “Parties can decide content of the agreement within the limitations stipulated in law”. As per this article parites can freely decide their agreement within the limitaitions “situpulated in law20." The TCO had organized the limits of the freedom of contract and the sanctions for breaching the limits within a single article. “This rule does not only cover the subject of the agreement solely, it also covers conditions of the agreement. Therefore, conditions of the agreement can be neither against public order nor imperative provisions protecting personal rights21." The afrosaid limitation in Article 27 of the TCO is indicated as “The agreements that are in breach with the imperative provisions of the law, ethics, public order, personal rights or the agreements with an impossible subject are strictly null and void.”. Power of sale foreclosure is not against these articles. In this respect, it shall come as a necessity of freedom of contract that the parties of a debtor-creditor relationship can decide on the power of sale foreclosure without resorting to the provisions of the EBC with a pledge agreeement. However, it is unacceptable for the creditor to have the power of sale regarding foreclosure without the consent of the debtor22. Because, the disagreement between the creditor and the debtor on the issue of power of sale foreclosure means that a contract does not exist in this matter and thus rendering the provisions of the EBC compulsory to be applied for te foreclosure.
IV. REGULATIONS IN TURKISH LAW REGARDING THE POWER OF SALE FORECLOSURE
There is no clear provision in Turkish Law regarding the power of sale foreclosure, and the issue of foreclosure is regulated under the Turkish Civil Code numberred 4721 (“TCC”). It is stated in Article 873 of the TCC that the creditor will obtain his receviable under his peldge right from the sale of the pledged asset accordingly to the provision of “If the debt is unpaid, the creditor has the right to obtain his receivable from the sale price of the pledged property.”; however there is no perepmtory clause within the said article with regard to the execution of the sale. Nonetheless in the second paragraph of the relevant article by stating that “The provision of the contract affirming that the ownership of the pledged property shall be transfered to the creditor if the debt is not paid is null and void.” It is regulated that the receivable can only be obtained from the revenue attained with the sale of the pledged asset. It should be noted that in the third and the last paragraph of the relevant article, the method that must be followed regarding the foreclosure if more than one property are pledged is indicated by stating that “If more than one property is pledged for the same receivable, the request of the foreclosure shall be made for all the iproperties. Neverthless the execution office shall only foreclose to the required extent.”. However, it is difficult to interpret this statement to the point of saying that the execution offices are the absolute and sole authority for the foreclosure23. Because the arragement in this article can be applied if the execution proceeding is initiated via the execution offices. The power of sale foreclosure is emanating as a method which is completly independently executed without regard to the provisions of the EBC. In this context, the interpretaion that the provisions of the TCC are in place to prevent the power of sale foreclosure can not be reached. As mentioned above, freedom of contract, one of the most basic principles of the law of obligations, allows the parties of the contract to draw up any kind of contract as they wish granting the parties the authorities they desire on the condition that they are not in breach of the peremptory rules of the law, and accordingly, within the scope of our subject, it enables the parties to grant the creditor to have the power of sale for the foreclosure.
With respect to the subject herein, there is an arrangement regarding the movable pledge in Article 309/g of the EBC which regulates the concordatum by the means of the renoucement of the property ownership. According to the related article “Creditors whose receivable has been warranted with a movable pledge are not obliged to entrust the pledged movables to the concordatum liquidators. Unless any other respite is stipulated in the concordatum, the pledegees, when deemed necessary, may conthe pledged movable into money, or if authorized by the pledge contract, by bargaining or by selling in the stock exchange”. As it can be seen, while it is stated that the pledge can be put up for sale by way of granting power of sale in the pledge contract, in order for the said provision of this article to be able to be applied, the pledge must be established on a and the pledge must be existent in the concordatum with the renouncement of the property ownership.
Pursuant to Article 83 of the Turkish Civil Aviation Code numberred 2910 (“TCAC”), “The creditor can obtain its receivable over the estate elements that fall under the mortgage only through compulsory execution. In the event that the debtor does not pay its debt, any agreement granting the creditor the right to take the aircraft in its possession is null and void.” In the context of this arrangement, it is stipulated that, in respect of the mortgage of aircraft, it is not possible for the creditor to resort to the power of sale foreclosure, regardless of whether the receivable secured with mortgage is due or not.
When the regulations of Turkish legislation are examined, no clear result can be reached with regard to granting the creditor the power of sale for the foreclosure. There is no clear statement that there is an allowance for the power of sale foreclosure or that such a procedure is prohibited under the said regulations. As mentioned above, based on the principle of freedom of contract, we are convinced that it is possible to establish the power of sale for the foreclosure unless there is no contrariety against the peremptory rules.
V. SPECIAL CASES ON THE POWER OF SALE FORECLOSURE
A. Other Rights Existing On The Pledged Asset
In cases where the power of sale foreclosure is enabled between the creditor and the debtor, regardles of whether being established before or after the establishment of the power of sale of the pledgee, if there are rights of pledge or other limited real rights established on behalf of the third parties on the pledged property, or if conservatory attachments or executive attachments are put in place or if the pledger goes bankrupt after the pledge has been established, then it must be acknowledged that the power of sale foreclosure can no longer be realized24. Because in this case, the rights of third persons other than the pledgee and the owner of the pledged asset also become a matter of the pledged asset, and the danger of the violation of their rights dramatically emanates25.
B. The Obligation Of Good Faith
It is accepted in the doctrine that a pledgee having the power of sale for the foreclosure must act in accordance with good faith when using this authority, and must sell the movable to the required extent that the revenue as a result of sale will be sufficent for him to get his receivable and to return the pledged asset to the debtor if there is any money or goods remain existent at the end of the sale26. Within the scope of the said obligation of the creditor, the creditor cannot sell the pledged movable under its market value and has to realize the sale within the shortest time possible if the value of the movable is in danger of decreasing. In the event that the creditor does not act in good faith in the process of the foreclosure, he pledger may have the right to reclaim compensation for the damages he suffered27.
C. Lex Commissoria Prohibition
Granting the creditor the power of sale for the foreclosure in a pledge agreeement must also be examined within the context of the lex commissoria prohibition. The lex commissoria prohibition means that agreements regarding transfer of the title of the good ipso facto, is legally forbidden (TCC Art. 873)28. As well as the main purpose of the lex commissioria prohibition is contradictive, it is generally accepted that it protects the pledger that is the debtor for extreme enrichment29. In this context, it is accepted that grating the creditor the power of sale for the foreclosure does not constitute a violation of the lex commissoria prohibition30. It should be noted within the scope of the lex commissoria prohibition that the creditor cannot obtain any amount exceeding the amount of his receivable from the revenue attained as a result of the31. Because, if the creditor obtains an amount more than his receivable secured with the pledge, such situation will constitute a contrariety against lex commissoria prohibition. In such a case, the creditor will have to return the excess amount he obtained to the pledger due to unjust enrichement. As a result, it can be said the power of sale for the foreclosure given to the creditor with a pledge agreement does not fall within the scope of the lex commissoria prohibition, provided that the creditor does not obtain more than the amount pledged or in case he obtains, that he returns the excees amount.
VI. CONCLUSION
The right of pledge, enables the creditor, for whose favor the it has been established, to obtain his recievable from the revenue obtained through the liquidation of the pledged asset in case the debt is not paid. With a pledge agreement entered into in order to establish the right of pledge, a third party outside the relavant debtor-creditor or the debtor constitutes a pledge over its asset for the benefit of the creditor in order to secure the receivable. As we have stated in our article, there are no comprehensive arrangements in Turkish law regarding the power of sale for the foreclosure given to the creditor of the pledge relationship. However, in some codes such as the TCAC and the EBC, the power of sale foreclosure is regulated as an execptional case for certain circumstances.
In the light of our above examinations, we have reached the conclusion that the power of sale foreclosure is not contrary to imperative provisions of the law. However, the creditor who has the power of sale for the forecolosure must act in good faith while excercising his authority, and in particular, in order to avoid to fall under the lex commissoria prohibition, he must act only to obtain his receivable and must return the amount he obtained which excesses the amount of his receivable.
BIBLIOGRAPHY
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Christian Heinrich, Formale Freiheit und materiale Gerechtigkeit, 1st Edition, Tübingen 2000.
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FOOTNOTE
1 Orhan Emre Konuralp, Alacaklıya Rehni Özel Yoldan Paraya Çevirme Yetkisi Verilmesi, Dokuz Eylül University Law School, Vol. 16, Special Edition 2014, p. 2855.
2 Bülent Köprülü/Selim Kaneti, Sınırlı Ayni Haklar, İstanbul Üniversitesi Hukuk Fakültesi Yayını,2nd Edition, Istanbul 1982, p. 179.
3 Köprülü/Kaneti, p. 179.
4 Kemal Oğuzman/Özer Seliçi/Saibe Oktay Özdemir, Eşya Hukuku, Filiz Kitabevi, 17th Edition, Istanbul 2014, p. 887.
5 Faruk Acar, Rehin Hukukunda Taşınmaz Kavramı ve Özellikle Belirlilik İlkesi, Turhan Kitabevi,Ankara 2008, p. 117.
6 Acar, p. 118-119.
7 Hakan Pekcanıtez/Oğuz Atalay/Meral Özkan Sungurtekin/Muhammet Özekes, İcra ve İflas Hukuku, Yetkin Yayınları, 10th Edition,Ankara 2012, p. 87.
8 Konuralp, p. 2858.
9 Pekcanıtez/Atalay/Özkan Sungurtekin/Özekes, p. 132.
10 Konuralp, p. 2858.
11 Oğuzman/Seliçi/Oktay Özdemir, p. 889.
12 Baki Kuru, İcra ve İflas Hukuku El Kitabı,Adalet Yayınları, 2nd Edition, Istanbul 2013, p. 1025
13 Ahmet Kılıçoğlu, Borçlar Hukuku Genel Hükümler, 17th Edition, Ankara 2013, p. 78; from Akın Ünal, Kelepçeleme Sözleşmeleri, 1. Edition, Ankara 2012, p.30 Hasan Erman, Borçlar Hukukunda Akit Serbestisi ve Genel Olarak Sınırlamaları, İÜHFM, Vol. 38, Issue 1-4, p. 601.
14 Ünal, p. 39.
15 Christian Heinrich, Formale Freiheit und materiale Gerechtigkeit, 1st Edition,Tübingen 2000, p. 55.
16 M. Kemal Oğuzman/ Turgut Öz, Borçlar Hukuku Genel Hükümler, 11th Edition, Istanbul 2013, p. 24; S. S. Tekinay/ S. Akman/ H. Burcuoğlu/A. Altop, Tekinay Borçlar Hukuku Genel Hükümler, 7th Edition, Istanbul 1993, p. 362.
17 Heinrich, p. 55.
18 Ünal, p. 52
19 Derya Ateş, “Sözleşme Özgürlüğü Yönünden Dürüstlük Kuralları”, TBB Journal, 72nd Edition, 2007, p. 80.
20 Kılıçoğlu, p.78.
21 Kılıçoğlu, p.78.
22 Konuralp, p. 2858.
23 Konuralp, p. 2864.
24 Sulhi Tekinay, Menkul Mülkiyeti ve Sınırlı Ayni Haklar, İstanbul 1994, p. 138, transfered from,Ali Eskiocak, Teslime Bağlı Taşınır Rehninde Alacaklının Hukuki Durumu, Vedat Kitapçılık,Istanbul 2009, p. 142-143; Erol Cansel, Türk Menkul Rehni Hukuku, Vol. 1, Teslim Şartlı Menkul Rehni, Ankara 1967, p. 237.
25 Eskiocak, p. 143.
26 Oğuzman/Seliçi/Oktay Özdemir, p. 781; Köprülü/Kaneti, p. 463.
27 Eskiocak, p. 143.
28 Eskiocak, p. 188.
29 İlhan Helvacı, Türk Medeni Kanunu’na Göre Lex Commissoria (Mürhehin Merhunu Temellük Yasağı), Alfa, Istanbul 1997, p. 68; Oğuzman/Seliçi/Oktay Özdemir, p.943, Court of Cassation 14th Chamber, decided it is undoubted that lex commissoria is regulated with the purpose of prohibition claimant from achivement of immovable with utilization of debtor is not able to pay, with its decision dated 24.02.2012 and numbered 2011/15066 E., 2012/2536 K.
30 Konuralp, p. 2872.
31 Konuralp, p. 2872
