Promissory Note

What is a Promissory Note?

A promissory note is a document issued to secure a debt, contract, delivery obligation, lease, commercial transaction, or other performance. In practice, parties may issue such notes to secure against future damages, debts, or breaches of contract.

However, a promissory note may not be a direct and definite acknowledgment of debt in the classic sense. In most cases, the enforcement of the note depends on the fulfillment of a specific condition. For example, it may be agreed that the note will be used if the tenant fails to pay rent, if goods are delivered incomplete, if the contract is breached, or if a commercial debt arises in a specific way.

Therefore, the most important question regarding promissory notes is this: Is the note truly an unconditional bond, or is it a document issued as security for a specific contract and usable only if the condition is met?

Can a promissory note be enforced?

Whether a promissory note can be enforced depends on its content and the way it was drawn up. Not every promissory note is automatically invalid. Similarly, not every note bearing the inscription "promissory note" automatically loses its negotiability.

For a document to be considered a promissory note, it must contain the mandatory elements required by the Turkish Commercial Code. A promissory note must include the phrase "promissory note" or "bill of exchange" in its text, an unconditional promise to pay a specific sum, the payee, the date of issue, and the issuer's signature. These elements are regulated in Article 776 of the Turkish Commercial Code.

If payment on a promissory note is contingent upon the breach of a specific contract or the fulfillment of a specific condition, it becomes debatable whether the note contains an unconditional promise to pay. Conversely, the mere presence of the phrase "for security purposes" on the note may not, in every case, negate its negotiability. The Supreme Court's General Assembly of Civil Law, in its decision numbered 2017/12-743 E., 2020/129 K., also held that the phrase "this is a security note, it cannot be used" on a promissory note alone does not negate its abstract nature.

Therefore, the debtor's primary defense should not be limited to simply stating, "this promissory note is a security note." It must be demonstrated with concrete evidence for which contract the note was issued, under what conditions it can be used, whether those conditions have been met, and the reason why the creditor has initiated enforcement proceedings.

What should be done first if a promissory note is put into execution?

When a promissory note is put into execution, the first thing the debtor must do is determine the date of service of the payment order and the type of enforcement proceeding. This is because the time limits vary according to the type of enforcement proceeding, and the time limits are particularly short in the case of attachment proceedings specific to negotiable instruments.

If the enforcement proceedings have been initiated through attachment specific to negotiable instruments , the debtor must, as a rule, within 5 days . Under Article 168 of the Enforcement and Bankruptcy Law, the objection and complaint periods in negotiable instrument enforcement are considered short, while the payment period is set at 10 days.

Therefore, the debtor should not wait thinking, "it was just a promissory note anyway, nothing will happen." If no objection is filed within the time limit, the enforcement proceedings may become final; bank accounts may be seized, wages may be garnished, and vehicles and real estate may be seized.

What legal avenues can the debtor pursue?

If a promissory note is put into execution, the debtor may pursue more than one legal avenue, depending on the specifics of the case.

1. Objection to Debt in Exchange Rate Enforcement Proceedings

The debtor may argue that the promissory note was given as collateral and that the debt in question did not actually arise. This claim is generally an objection enforcement proceedings. Indeed, in bill of exchange enforcement proceedings, it is accepted that the claim that the promissory note in question is a collateral note must be raised to the enforcement court within 5 days as an objection to the debt.

However, a mere abstract statement is not sufficient for a successful objection to the debt. The debtor must support the collateral relationship and the conditions under which the promissory note can be used with written evidence.

2. Complaint Regarding the Qualification of the Transaction as a Foreign Exchange Instrument

If the text of the promissory note clearly indicates that payment is conditional upon a specific requirement, or if the note lacks the essential elements necessary for a bill of exchange, the debtor may argue that the note does not qualify as a negotiable instrument.

According to Article 170/a of the Enforcement and Bankruptcy Law, if the enforcement court determines, upon a timely complaint or objection, that the instrument forming the basis of the enforcement proceedings does not qualify as a negotiable instrument or that the creditor does not have the right to pursue the proceedings under negotiable instrument law, it may cancel the proceedings.

This method is particularly important if the promissory note contains clauses that make the payment promise conditional, such as "this is security for this contract," "payment will be made upon completion of the work," or "valid if the goods are not delivered.".

3. Objection to the Signature

If the debtor believes that the signature on the promissory note is not theirs, they must state this clearly and explicitly. In enforcement proceedings, any objection to the signature must also be made to the enforcement court within a 5-day period. If the objection is not clearly stated, the signature on the promissory note may be accepted as belonging to the debtor.

Therefore, if the debtor claims both that "this is a promissory note" and "the signature is not mine," they must state these two defenses separately and clearly.

4. Negative Declaratory Action

If a debtor believes they are not actually indebted despite having a promissory note as collateral, a negative declaratory judgment lawsuit . A negative declaratory judgment lawsuit is a type of lawsuit where the debtor seeks a court ruling to determine that they are not indebted.

According to Article 72 of the Enforcement and Bankruptcy Law, a debtor may file a lawsuit before or during enforcement proceedings to determine that they are not indebted. In a negative declaratory judgment lawsuit filed after the enforcement proceedings, as a rule, a decision to completely halt the proceedings through a provisional injunction cannot be made; however, the debtor may request that the money to be deposited into the enforcement treasury not be paid to the creditor in exchange for a specific security.

This approach is particularly important if a narrow examination is to be conducted in enforcement court and the dispute needs to be discussed with broader evidence such as contract, current account, delivery, payment, fault, or damage calculation.

5. Restitution Case

If a debtor has been forced to make a payment due to wrongful enforcement proceedings, they can file a restitution lawsuit to recover the money paid . This lawsuit aims to reclaim money paid due to the threat of enforcement or enforcement proceedings, even though the debtor is not actually indebted. Article 72 of the Enforcement and Bankruptcy Law forms the basis of negative declaratory and restitution lawsuits.

How to Provide Proof in a Promissory Note Defense?

The most critical issue in defending a promissory note is proof. The debtor must demonstrate that the note was given as collateral and that the conditions for collection have not yet been met.

In this context, the following evidence is important:

The contract between the parties,
Bill of exchange delivery receipt,
A written document indicating the purpose for which the promissory note was issued
WhatsApp, SMS, or email conversations,
Invoices, delivery notes, and other delivery documents
Current account records,
Bank statements,
Notary notices,
Documents demonstrating that the contract has been performed,
Written evidence showing that the creditor misused the promissory note.

It is extremely important for the debtor that the contract to which the promissory note is attached clearly refers to the date, amount, maturity date of the note, and the debt it secures. Otherwise, the court may consider the note to be an independent promissory note.

Is the phrase "This is a promissory note" sufficient on its own?

No. The mere fact that a promissory note states "this is a security note" does not, by itself, always guarantee the cancellation of the enforcement proceedings. This is because, in the practice of the Supreme Court, it is accepted that abstract and vague security clauses may not automatically negate the negotiability of the promissory note. Especially if it is unclear what the note is securing, to which contract it is linked, and under what conditions it can be collected, the debtor's defense may be weakened.

Conversely, if the text of the promissory note or related written documents clearly indicates that the note serves as security for a specific contract, and it is understood that the note can only be exercised under certain conditions, the debtor may mount a stronger defense.

Therefore, it is not merely the presence of the word "collateral" on the promissory note that matters. What matters is which debt the note secures and whether the collection conditions have been met.

What happens if a promissory note is not considered a negotiable instrument?

If the court rules that the instrument forming the basis of the enforcement proceedings does not qualify as a negotiable instrument, the enforcement proceedings specific to negotiable instruments may be cancelled. In this case, the creditor may pursue enforcement through general attachment proceedings, if the conditions are met, or file a lawsuit for debt recovery.

The important point to note here is that a decision that a promissory note lacks the characteristics of a negotiable instrument does not always mean that the debt is completely extinguished. Often, this decision only means that the creditor cannot pursue the special collection procedure specific to negotiable instruments . The underlying relationship between the parties is also considered.

For example, if a debt has genuinely arisen under a lease agreement, a commercial sales agreement, or a service contract, the creditor can collect this debt through other legal means. However, if enforcement proceedings have been initiated without fulfilling the conditions for a promissory note, the debtor can use objection and legal action procedures against this wrongful enforcement.

A Practical Roadmap for the Debtor When a Promissory Note is Enforced

When a promissory note is put into execution, the debtor should quickly take the following steps:

The date of service of the payment order must be determined.
It should be examined whether the enforcement action is a bill of exchange enforcement action or a general attachment procedure.
They should check the original copy of the promissory note and the request for follow-up.
The security clauses, maturity date, and amount information on the promissory note should be examined.
The document must include the contract, delivery receipt, and correspondence related to the promissory note.
If there is a bill of exchange enforcement proceeding, an application must be made to the enforcement court within 5 days.
The reasons for objecting to the debt, complaining about the negotiability of the instrument, and, if necessary, objecting to the signature must be stated separately.
If there is a risk of the enforcement proceedings becoming final, the options of a negative declaratory action and a preliminary injunction should be considered.
If an unfair payment has been made, the possibility of filing a restitution lawsuit should be considered.
If the creditor acted in bad faith, compensation and legal costs should be claimed.

What should be considered when preparing a promissory note?

Most disputes regarding promissory notes stem from the vague wording of the note. Therefore, the following points should be considered when issuing or receiving a promissory note:

The promissory note must clearly state which contract it guarantees.
A separate guarantee agreement should be
drawn up. It should specify the conditions under which the note can be collected.
The amount and maturity date of the note should not be left vague.
The conditions under which the note will be returned should be stipulated.
The original note should be returned when the debt is paid or the contract is terminated.
A written delivery receipt must be prepared when the note is returned.

Without these precautions, a promissory note given as collateral could later be enforced as a standalone bond, and the debtor could face serious proof problems.

Conclusion

If a promissory note is put into execution, the debtor must act quickly. Especially if the enforcement proceedings have been initiated through the seizure method specific to negotiable instruments, the 5-day period following the notification of the payment order is of great importance. Failure to apply to the enforcement court within this period may result in the enforcement becoming final, and the debtor may face the threat of seizure.

Success in defending a promissory note depends largely on evidence. The debtor must present concrete documents demonstrating which contract the note secured, that the conditions for collection have not been met, that the creditor has used the note unfairly, and that the debt in question does not actually exist.

In conclusion, a promissory note is not automatically considered invalid simply because it was issued for the purpose of "security." However, if enforcement proceedings are initiated before the conditions for collection are met, the debtor may pursue legal avenues such as objecting to the debt, complaining about its negotiability, objecting to the signature, filing a negative declaratory action, seeking a preliminary injunction, and filing a restitution action. Therefore, a debtor faced with a promissory note should gather the necessary documents and choose the correct legal course of action without missing deadlines.

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