THE KEY DIFFERENCES BETWEEN DEBTOR DEFAULT AND CREDITOR DEFAULT

In debt law, the fundamental purpose of a debt relationship is for the debtor to properly fulfill their obligation and for the creditor to accept this performance, thus ensuring the normal termination of the debt relationship. However, in practice, the performance of a debt does not always occur in this way. Sometimes the debtor fails to fulfill a due and payable obligation on time, while other times, even when the debtor is ready to properly fulfill their obligation, the creditor refuses to accept the performance or avoids taking the necessary steps to enable the performance.

These two different situations are regulated in the Turkish Code of Obligations debtor's default and creditor's default . Although both involve the failure to conclude the debt relationship in a timely and proper manner, the party in default, the conditions under which default occurs, and its legal consequences differ significantly.

1. What is Debtor Default?

In its most general terms, debtor default is the failure of a debtor to perform a debt that is currently due and payable in a timely manner.

According to Article 117 of the Turkish Code of Obligations No. 6098:

"The debtor of a due debt is deemed to be in default upon receiving notice from the creditor."

Therefore, in order to speak of debtor default, there must first be an existing and payable debt, and this debt must have become due. As a rule, the creditor must also have given the debtor notice to fulfill the debt.

However, if the date on which the debt is to be paid has been definitively determined by the parties, a separate notice is not required. For example, if it is explicitly agreed in a contract that the debt will be paid on "September 1, 2026," the debtor will, as a rule, be in default without the need for a separate notice if they fail to make the payment on that date. Article 117 of the Turkish Code of Obligations also provides special provisions regarding the commencement of default for debts arising from torts and unjust enrichment.

The most important characteristic of debtor default is that performance of the debt is still possible. If performance has become objectively impossible, the matter is generally evaluated within the framework of impossibility provisions, not default.

2. What is Creditor Default?

Creditor default occurs when, despite the debtor being prepared to properly fulfill their obligation, the creditor, without a justifiable reason, refuses to accept performance or fails to carry out the necessary preparatory actions to enable performance .

Article 106 of the Turkish Code of Obligations states:

"If a creditor, to whom an act of doing or giving is duly offered, refuses to accept it without a justifiable reason, or refuses to take the preparatory actions necessary for the debtor to fulfill their obligation, they are deemed to be in default."

The ruling is included.

In this case, the reason for the non-fulfillment of the obligation is not the debtor's behavior, but the creditor's failure to participate in the performance or their refusal to accept it.

For example, if the seller is ready to deliver the purchased goods on the agreed date, but the buyer fails to take delivery without providing any justifiable reason, then creditor default may occur.

Similarly, if the debtor requires the creditor to provide certain information, documents, or suitable delivery conditions in order to perform the obligation, and the creditor fails to provide them without a justifiable reason, then the creditor may be in default.

3. Key Difference: The Party in Default

The most obvious difference between the two institutions is which party to the debt relationship is preventing performance.

In a debtor's default, the debtor fails to fulfill their due debt on time.

In the case of creditor default , although the debtor is ready to perform, the creditor either refuses to accept performance or fails to take the necessary steps to ensure performance.

Therefore, debtor default essentially to the debtor's non-performance, while creditor default relates to the creditor's refusal to accept performance or to participate in performance .

4. While a warning is generally required in debtor default, a performance offer is important in creditor default

In general, a warning notice plays an important role in determining whether a debtor has defaulted

According to Article 117 of the Turkish Code of Obligations, a debtor of a due debt is generally considered to be in default upon receiving a notice from the creditor. However, in cases stipulated by law, such as when a fixed due date exists, a notice is not required.

In cases of creditor default, what matters is not the notice itself, but the debtor's offer to properly perform their obligation.

If the creditor, without just cause, rejects a timely and contractually compliant performance offer from the debtor, creditor default may occur. Article 106 of the Turkish Code of Obligations explicitly refers to performance "duly offered".

5. The legal consequences of debtor default are primarily aimed at protecting the creditor

The consequences of a debtor's default are regulated in detail in Article 118 and subsequent articles of the Turkish Code of Obligations.

If a debtor in default cannot prove their innocence, they are obligated to compensate the creditor for the damages incurred due to the delayed performance of the debt. Furthermore, under certain conditions stipulated by law, they may also be held liable for damages arising from unforeseen circumstances.

In monetary debts, one of the most significant consequences of debtor default is default interest.

The Supreme Court's General Assembly of Civil Law also accepts that, in terms of default interest, it is not necessary for the debtor to be at fault for defaulting; the creditor can demand default interest without separately proving the existence and amount of the damage.

In addition, Article 125 of the Turkish Code of Obligations grants creditors significant optional rights in contracts imposing reciprocal obligations, provided certain conditions are met.

Payee;

can demand full performance of the debt and compensation for damages incurred due to delay

By waiving the right to perform the obligation in kind, the debtor can claim compensation for the damages resulting from the non-performance of the debt

or

They can withdraw from the contract.

Article 125 of the Turkish Code of Obligations explicitly regulates these optional rights.

Therefore, at the heart of the legal consequences of debtor default is the protection of the creditor who cannot receive their performance in a timely manner .

6. The Consequences of Creditor Default are Aimed at Enabling the Debtor to be Released from the Debt

In cases of creditor default, the law's primary aim is to protect the debtor who, despite being prepared to fulfill their obligation, is unable to do so due to the creditor's conduct.

Therefore, according to Article 107 of the Turkish Code of Obligations, in the event of the creditor's default, the debtor can be released from their debt by depositing. Any damages and expenses arising from the deposit shall be borne by the creditor.

For example, if a sold item is not taken delivery of by the buyer, the debtor can, if the necessary conditions are met, resort to depositing the item and thus avoid having to keep it permanently in their possession.

If delivery is not possible, or if the goods to be delivered are perishable, the law grants the debtor further options.

According to Article 108 of the Turkish Code of Obligations, if the nature of the goods is unsuitable for deposit, if the goods are perishable, or if their preservation requires significant expense, the debtor may, under certain conditions, have them seized and deposit the sale price

If the subject of the debt is not the delivery of something, the debtor may use the provision regarding the debtor's default according to Article 110 of the Turkish Code of Obligations

Therefore, the fundamental purpose of the legal mechanism in creditor default is to prevent a debtor who wishes to fulfill their obligation from being held indefinitely indebted due to the creditor's conduct.

7. Differences in Terms of Defects

It is necessary to distinguish between default and whether some of its consequences are attributable to fault.

As a rule, it is not a requirement for the debtor to be at fault in order to be considered in default. However, in some cases, such as compensation for delay and damages exceeding default interest, the debtor's fault may be of additional importance.

Indeed, in the practice of the Supreme Court of Appeals, fault is not a condition for the debtor's default and obligation to pay default interest; however, default interest is accepted under Article 122 of the Turkish Code of Obligations.

In the case of creditor default, the determining factor under Article 106 of the Turkish Code of Obligations is the creditor's failure to properly perform the offered performance without a justifiable reason .

8. Debt does not terminate in case of debtor's default

In debtor default, only the timely performance of the obligation is involved. Therefore, default, as a rule, does not automatically terminate the debt.

For example, even if a person defaults on a debt of 100,000 TL, the principal debt of 100,000 TL does not disappear. The debt continues, and interest or other legal consequences arising from the default may be added to it.

It cannot be said that the creditor terminates the contract directly in every case due to default. Especially in contracts imposing reciprocal obligations, the conditions regarding additional time periods and optional rights in Articles 123-125 of the Turkish Code of Obligations must be evaluated separately.

9. In case of creditor default, it is possible for the debtor to be released from the debt

Even in the case of creditor default, the debt does not automatically cease to exist.

However, the debtor is granted certain special provisions to prevent them from remaining indebted indefinitely due to the creditor's behavior.

These include:

• entrustment
• If necessary, the property shall be sold and the proceeds deposited
• delivery

Therefore, the characteristic consequence of creditor default is that it opens up legal avenues for the debtor to be relieved of their obligation to perform.

Conclusion

Debtor default and creditor default, while related in contract law to the failure to perform an obligation on time, represent two entirely different legal concepts.

The fundamental problem in debtor default is the debtor's failure to fulfill their due and performable obligation on time. In this case, the legal system protects the creditor; granting the creditor rights such as specific performance, compensation for delay, default interest, compensation in lieu of performance, or termination of the contract, depending on the conditions.

In cases of creditor default, the debtor is ready to perform; however, the creditor, without a valid reason, refuses to accept performance or fails to take the necessary steps to ensure it. In this situation, the legal system protects the debtor and provides them with legal remedies, particularly through deposit, sale, and in some cases, termination of the contract.

Therefore, the fundamental distinction between the two institutions can be expressed as follows: In debtor default, the source of non-performance is the debtor; in creditor default, it is the creditor. Accurately determining which type of default exists in specific disputes is crucial for determining legal consequences such as interest, compensation, contract termination, and debt release.