The Principle of Abstraction and its Exceptions in Documents

1. Introduction

Negotiable instruments (bills of exchange, promissory notes, and checks), which form the foundation of trust in commercial life , provide strong protection to the creditor and transform the debtor's commitment to pay into a written and definitive document. One of the most characteristic features of these instruments is the principle of abstraction . Abstraction means that a negotiable instrument is considered valid independently of the underlying debt relationship that gave rise to it.

Thanks to this principle, negotiable instruments can circulate securely in economic life a means of credit and payment ; the holder of the instrument is granted a claim right independent of the underlying debt relationship. However, the principle of abstraction is not absolute; there are exceptions.

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2. Definition of the Principle of Abstraction

2.1. Conceptual Meaning

The principle of abstraction states that the validity of a negotiable instrument is independent of the underlying debt relationship. In other words, even if the reason for the instrument's issuance is invalid or disputed, if a formally valid instrument is issued, the holder can demand payment from the debtor.

2.2. Legal Basis

• Turkish Commercial Code (TCC) Article 776 (promissory note) → A promissory note is valid if certain elements are present; the underlying relationship is not required.
• Turkish Commercial Code Article 780 (check) → Checks are also subject to the same principle.
• Supreme Court 11th Civil Chamber, Case No. 2017/2211 → “A negotiable instrument is independent of the underlying relationship; the holder can make a direct claim against the debtor.”

2.3. Function

• It ensures business security.
• It increases its circulation.
• It reduces the burden of proof on the creditor.

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3. Elements of the Principle of Abstraction

1. Strict Adherence to Formal Requirements → The validity of the promissory note depends on the presence of the mandatory elements stipulated in the Turkish Commercial Code.
2. Independence from Underlying Relationship → A sale, lease, or loan relationship does not affect the validity of the promissory note.
3. Defenses That Cannot Be Raised → The debtor cannot raise a defense based on the underlying relationship against the bona fide holder.

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4. Scope of Application of the Principle of Abstraction

4.1. Policy

A bill of exchange circulates through acceptance and endorsement; the principle of abstraction provides strong protection for endorsers and holders.

4.2. Bond

A promissory note is a typical application of the principle of abstraction because it contains an unconditional promise from the debtor to pay.

4.3. Check

A check is a means of payment, and the principle of abstraction also applies to checks; the drawee bank's obligation to pay is independent of the underlying relationship.

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5. Exceptions to the Principle of Abstraction

The principle of abstraction is not absolute. In the following cases, the debtor may raise a defense based on the underlying relationship:

5.1. Defenses That Can Be Raised

1. Violations of Substantive Law
   • The underlying debt relationship that gave rise to the promissory note completely invalid .
   • For example: A debt relationship that is contrary to law or morality.
2. Personal Defenses
   • Personal defenses arising from the relationship for which the instrument was drawn up may be raised against the original payee of the instrument.
   • Example: Delivery of defective goods in a sales contract.
3. Impairments of Will
   • Error, deception, coercion.
   • Supreme Court Grand Chamber, Decision No. 2016/1251: "A bill of exchange signed under duress can be enforced against the holder."
4. Incompetence
   • A promissory note drawn up by a minor or a person with limited legal capacity is invalid.
5. Malicious Pregnant Woman
   • The principle of abstraction cannot be applied if the holder who acquired the instrument acted in bad faith (for example, if they acquired it despite knowing about the prohibition on assignment).

5.2. Absolute Defenses

• Signature forgery
• The promissory note lacked the necessary formal requirements
• Statute of limitations
• The debt has been extinguished

These defenses can be raised against everyone.

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6. Supreme Court Decisions

• Supreme Court 11th Civil Chamber, Case No. 2017/4358, Decision No. 2019/2211 → “The abstract nature of a negotiable instrument means that defenses based on the underlying relationship cannot be raised against the holder.”
• Supreme Court 19th Civil Chamber, Decision No. 2016/9421 → “The principle of abstraction does not apply in cases of vitiated consent.”
• Supreme Court Grand Chamber, 2015/1251 K. → “A promissory note issued by a person lacking legal capacity is absolutely null and void.”
• Supreme Court 12th Civil Chamber, Case No. 2019/8743 → “A holder acting in bad faith cannot benefit from the protection arising from negotiable instruments.”

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7. Problems in Implementation

1. Difficulty in proving the difference between a holder acting in bad faith and a holder acting in good faith.
2. The inadequacy of expert reports in allegations of vitiated consent and fraud.
3. Criticisms argue that the principle of abstraction weakens the debtor's rights.
4. In practice, the use of promissory notes as collateral has led to an increase in disputes.

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8. Views on Doctrine

Hard View

The principle of abstraction is essential for commercial trust; its exceptions should be interpreted narrowly.

Flexible View

Exceptions for debtor protection should be expanded, and abstraction should be applied more restrictively, especially in securities.

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9. Proposed Solutions

1. promissory notes and payment notes should be clarified in the legislation.
2. Electronic bill of exchange applications should make it easy to prove the holder's good faith.
3. Mechanisms for swift trials should be established in cases of vitiated consent .
4. The precedents set by the Supreme Court should more clearly define the boundaries of these exceptions.

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10. Conclusion

The principle of abstraction is a fundamental principle that ensures the secure circulation of negotiable instruments in commercial life. However, this principle is not absolute; exceptions exist, particularly in cases of defective consent, incapacity, and holders acting in bad faith.

The Supreme Court's decisions also apply the principle of abstraction in a way that balances both commercial trust and debtor protection.

In conclusion, while the principle of abstraction is vital for commercial trust, understanding its exceptions is crucial to prevent parties from suffering any loss of rights.

Gozdenur Turna