Simulation and Trust Transactions in the Law of Obligations

Introduction – Conceptual Framework. In the practice of contract law, two seemingly identical legal phenomena, sham transactions and fiduciary transactions, are often confused. However, in one case there is a deliberate discrepancy between "appearance and intention" (sham transaction) from the outset; in the other, a genuine debt relationship has been established, but the parties have agreed to protect the primary economic purpose through a separate relationship of trust (fiduciary contract). Below, I define these two concepts individually , clarify their differences with examples from practice , along with their evidentiary regimes and their impact on third parties .

1) Collusion: Definition, Types, and Consequences

Definition. Collusion is when parties knowingly and mutually disclose a statement they do not actually intend to make , with the aim of deceiving third parties ; the apparent transaction is either motivated by an intention to have no legal consequences (absolute collusion) or by some other hidden transaction (relative collusion).

• Absolute sham transaction: The parties pretend to have entered into a contract merely to create the appearance of one; in reality, they do not intend any transaction. The apparent transaction is absolutely void; there is no valid transaction behind the scenes.

• Relative collusion: An apparent transaction takes place (e.g., a sale), but the parties' true intention is a different transaction (e.g., a donation). In this case, the apparent transaction is void , while the hidden transaction is valid if it meets the legal requirements for form and validity .

Consequences. A collusive transaction null and void from the outset. A hidden transaction is legally binding only if it meets certain conditions; otherwise, it is also considered invalid. The claim of collusion is generally proven by written evidence ; third parties (such as creditors and heirs) can raise the claim with any kind of evidence. In particular, collusive sales of immovable property to evade creditors or heirs is a typical form of collusion.

2) Trust Transaction: Definition, Elements, and Operation

Definition. While not explicitly regulated under a specific heading in the Turkish Code of Obligations (TBK), a fiduciary transaction (fiduciary agreement/transfer) is an institution accepted through practice and established case law. Its essence is as follows: The parties establish a genuine debt relationship , and within this framework, a right (mostly ownership) is transferred to a fiduciary person for the purpose of security . Simultaneously, or through a separate fiduciary agreement made beforehand or subsequently, the fiduciary person undertakes the obligation to return/repatriate the property upon the fulfillment of certain conditions

Elements.

• Genuine intention to transfer rights: Unlike collusion, the apparent transfer is serious; the right is genuinely valid.

• Purpose of transfer: The transfer is made for security or management purposes (e.g., to be returned upon repayment of a debt).

• Obligation to return: The trustee has committed in advance to return the right when the condition is met.

Consequences. A fiduciary transaction is valid ; in case of breach, the trustee may demand restitution/registration , receivables , or compensation . In practice, a written " letter of trust/agreement " is always required as proof; because most concrete cases are subject to the limitations of proof by written document under Article 200 of the Code of Civil Procedure . In immovable properties, the principle of reliance in the land registry (Article 1023 of the Turkish Civil Code) plays a critical role in asserting the fiduciary agreement against bona fide third parties : If the trustee transfers the immovable property to a bona fide third party, as a rule, the trustee cannot demand restitution in kind against this third party; however, a different outcome may occur if bad faith is proven.

3) Proof Regime and Impact on Third Parties

• Collusion: Proof by written document is the primary basis for evidence between the parties ; exceptions such as written evidence, oaths, and admissions may apply. Third parties can prove the claim of collusion with any kind of evidence ; therefore, creditors or heirs can establish collusion through witness testimony, comparable sales, presumptions of non-payment, etc.

• Transaction based on trust: A written trust agreement is often required. Without written evidence, proof by witness testimony is not possible except in exceptional circumstances. The enforceability against third parties is limited due to the shield of good faith .

4) Statute of Limitations and Claims

• Collusion: Claims of invalidity, as a defense, are generally not subject to statutory limitations. However, in practice, particularly for cancellation and registration of title deeds , the limits of the claim in rem become relevant when dealing with bona fide third parties; furthermore, general statutory limitations periods are discussed in ancillary claims such as compensation/unjust enrichment.

• Trust transaction: Claims for restitution/debt based on a trust agreement are generally subject to a 10-year statute of limitations; the starting date is often considered to be the moment the restitution obligation becomes due.

5) Common Examples in Practice

1. Sale to a sibling with the intention of concealing assets (collusion): The debtor transfers their immovable property to a close relative for a price that can be considered negligible; the price is not actually paid; and enforcement/judgment proceedings begin immediately before the sale. Here, there is an apparent sale, but in reality, it is a donation or an intention not to conduct any transaction at all . The creditor can request the cancellation/registration of the title deed or pursue the annulment of the transaction on the grounds of collusion

2. Transfer for loan collateral (fiefdom transaction): A merchant transfers their vehicle to a trusted person as collateral for a short-term loan, agreeing to return it once the loan is repaid. The transfer genuine; the obligation to return the vehicle arises upon repayment of the debt. If the fiefdom agreement is not in writing, proof becomes problematic.

3. Transfer of shares in trust to a company partner (fiefdom transaction): The temporary transfer of shares to a partner due to signing authority, managerial needs, or competition sensitivities; the shares are to be transferred back once the condition is met. In cases involving a transfer to a third party, the protection of good faith is decisive.

4. Fraudulent of property by the deceased (collusion): This occurs when the testator, with the intention of defrauding heirs, presents a real estate transaction as a "sale" but actually a donation . Since the heirs are considered third parties, with any evidence and request the cancellation and re-registration of the title deed.

6) Key Differences – Brief Summary

• Nature of intent: transaction, the actual intent and the declared intent are intentionally inconsistent; in a transaction based on trust, the intention to transfer is genuine, and there is also an independent agreement of trust that gives rise to an obligation to return the item.

• Validity: A transaction that appears to be collusive is void; a transaction based on trust valid.

• Purpose: Collusion is often motivated by the desire to deceive third parties (creditors/heirs); the transaction of trust serves the purpose of security/management

• Proof: Collusion is proven between the parties by written evidence, and by third parties by any kind of evidence ; in a transaction based on trust, a written agreement of trust is an almost mandatory practical requirement.

• Third-party assertion: Collusion is broadly assertable against third parties; a transaction based on trust has limited effect against a bona fide third party

• Statute of Limitations: In cases of collusion, the statute of limitations is narrow due to the nature of the defense of invalidity; claims for restitution/receivables in transactions based on trust are generally 10 years .

Conclusion. In practice, the key to identifying the difference is this: Collusionis a "staged scene"; the contract in front of the curtain is not real. A transaction based on trust on the other hand, is a combination of a "genuine transfer + commitment to return." the authenticity of the money flow, proof of payment, written document of trust , and the economic logic of the transaction are correctly established in the case file, it becomes possible to place the dispute in the correct conceptual category and choose the appropriate proof strategy. This distinction is of practical importance, determining the fate of the case, as it directly determines the type of claim (registration, receivable, compensation), the formation of parties, the status of third parties, and the statute of limitations regime.