The Clause Regarding Security in Bonds and the Approach of the Supreme Court
The Clause Regarding Security in Bonds and the Approach of the Supreme Court
1. Introduction
Negotiable instruments are an indispensable element of commercial life. Bills of exchange, promissory notes, and checks function as both means of payment and credit in economic relations. Among these instruments, promissory notes , in particular , hold great importance in commercial life due to their simple issuance technique and widespread use.
A promissory note is a written negotiable instrument in which the issuer unconditionally undertakes to pay a specific sum. However, in practice, promissory notes are often issued not only for payment purposes but also security for the fulfillment of a debt . In such cases, the inclusion of phrases like "security note" or similar expressions on the promissory note leads to various legal debates.
2. Security Clause on the Bond
2.1. Definition of Security Deposit Clause
A security clause is a clause written on a promissory note indicating that the note was issued to secure a debt. For example:
- "This promissory note... is security for the debt."
- "It has been given as collateral."
- "It is issued as collateral in place of a mortgage."
2.2. The Concept of a Security Note
A promissory note is a note issued to provide security against the possibility of non-payment of a specific debt, and it does not have a direct payment function.
2.3. Legal Basis
- Turkish Commercial Code Article 776 → A promissory note must contain an unconditional promise to pay a specific sum of money.
- Although the security deposit clause might seem at first glance to contradict this principle of unconditional acceptance, the Supreme Court's practice has developed a different approach.
3. Legal Nature of the Security Clause in the Bond
3.1. Characteristics of a Negotiable Instrument
Adding a security clause to a promissory note does not negate its status as a negotiable instrument. If the note contains the necessary elements, it retains its validity as a negotiable instrument.
3.2. Preservation of Formal Elements
Since the security deposit does not affect the formal elements of the promissory note, it does not affect its validity. Therefore, the promissory note can be subject to bill of exchange enforcement proceedings.
3.3. Burden of Proof
If a promissory note is issued as security, the debtor is the one asserting this claim , and the burden of proof rests with the debtor. According to Article 200 of the Code of Civil Procedure, this claim must, as a rule, be proven by written evidence.
4. The Approach of the Supreme Court
4.1. General Trend
According to the established jurisprudence of the Supreme Court, promissory notes secured by collateral retain their status as negotiable instruments and can be subject to enforcement proceedings related to the exchange of property.
4.2. Examples of Important Decisions
- The 12th Civil Chamber of the Supreme Court of Appeals, Decision No. 2019/8743: “A promissory note with a security clause is also considered a negotiable instrument; it does not prevent enforcement proceedings related to negotiable instruments.”
- The 19th Civil Chamber of the Supreme Court of Appeals, Decision No. 2018/9321: “The inclusion of a security clause on the front of a promissory note does not negate its negotiability.”
- Supreme Court Grand Chamber, Decision No. 2016/1251: “If a promissory note is given for security purposes, this must be proven by the debtor. Otherwise, the promissory note is considered valid.”
- The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2017/2211: "A security bond is subject to the enforcement procedure specific to negotiable instruments."
4.3. Impact in Practice
The debtor cannot directly prevent enforcement proceedings by invoking collateral. However, they can be relieved of liability by proving the collateral claim in a separate declaratory judgment lawsuit or objection lawsuit
5. Problems in Implementation
5.1. Misuse of Collateral Notes
Especially in employer-employee relations, promissory notes are obtained from employees as collateral; these notes are then enforced when the employment contract ends.
5.2. Difficulty of Proof
The debtor is obligated to prove with written evidence that the promissory note was given as collateral. In practice, debtors are often disadvantaged because written documentation is frequently lacking.
5.3. Deception and Fraud
In some cases, promissory notes are signed under duress or fraud. However, proving this is difficult and usually relies on expert reports.
5.4. Ambiguity in the Distinction Between Security and Payment
It is not always clear which promissory notes are for payment and which are for security. This leads to confusion in legal proceedings.
6. Views on Doctrine
Hard View
Bonds with collateral should not be considered negotiable instruments because they represent a breach of the unconditional promise to pay. This view aims to protect the debtor.
Flexible View
The inclusion of a security deposit does not affect the validity of the promissory note. The note retains its negotiability, but the debtor can separately assert the security deposit claim. This view is more practical in terms of protecting commercial trust.
📌 The Supreme Court's practice to a flexible view .
7. Proposed Solutions
- Amendments to the Legislation
- Regulating promissory notes as a separate category could eliminate uncertainties in practice.
- Electronic Bill System
- With e-bill applications, it is possible to record whether the bill is issued as collateral or for payment purposes.
- Ease of Proof
- Debtors should be given the opportunity to prove their collateral claims through witness testimony as well.
- Supreme Court Jurisprudence Unity
- Differences in implementation should be eliminated by ensuring all departments make the same decision.
- Business Awareness and Education
- Awareness of the risks associated with promissory notes should be increased in the business world.
8. Conclusion
The inclusion of a security clause in a promissory note has long been a subject of debate in legal doctrine. A strict view holds that a security clause is invalid because it contradicts the unconditional nature of the instrument. However, the Supreme Court, through its established jurisprudence, has disagreed with this view; it has accepted that promissory notes containing a security clause retain their status as negotiable instruments and are subject to enforcement proceedings.
However, the biggest problem in practice is the misuse of promissory notes. Therefore, regulatory arrangements, electronic note applications, and ease of proof should be implemented to make the balance between creditors and debtors fairer.
In conclusion, the issue of collateral clauses in promissory notesremains one of the most critical debated topics in commercial law; the Supreme Court's approach, however, is shaped by a pragmatic line that prioritizes commercial trust.
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