Negative Declaratory Action in Enforcement and Bankruptcy Law

In enforcement and bankruptcy law a negative declaratory judgment lawsuitis an important type of lawsuit filed by the debtor to establish that they are not actually indebted and to eliminate the unfairness of the enforcement proceedings. This lawsuit, particularly in non-judgmental enforcement proceedings, allows the debtor to obtain effective judicial protection against the proceedings initiated against them. Regulated in Article 72 of the Enforcement and Bankruptcy Law No. 2004, the negative declaratory judgment lawsuit is a legal protection avenue that the debtor can pursue both before and during enforcement proceedings.

The primary purpose of a negative declaratory judgment lawsuit is to establish, through a court decision, that the debt relationship never actually arose or has been terminated. In this respect, the lawsuit is not only aimed at halting enforcement proceedings but also serves as a declaratory judgment . Therefore, a negative declaratory judgment lawsuit is considered one of the strongest defense mechanisms for the debtor in enforcement law.

A negative declaratory judgment lawsuit can be filed before or after enforcement proceedings have commenced. However, in lawsuits filed after the commencement of proceedings, the debtor a preliminary injunction from the court to halt the enforcement proceedings . The court may decide to temporarily suspend the enforcement proceedings if the conditions are met. This aims to prevent the debtor from being subjected to unfair enforcement proceedings.

In a negative declaratory judgment lawsuit filed before enforcement proceedings begin, the debtor requests a declaration that they are not indebted before facing the threat of forced execution. In this case, the lawsuit primarily serves as a preventative legal remedy against potential future enforcement proceedings. However, in practice, the vast majority of negative declaratory judgment lawsuits are filed after enforcement proceedings have commenced.

One of the most important outcomes of a negative declaratory judgment lawsuit is that, if the lawsuit is accepted, it is definitively determined that the debtor is not indebted. In this case, any enforcement proceedings are terminated, and all enforcement actions initiated against the debtor become null and void. Furthermore, if the debtor made a payment under threat of enforcement, they can reclaim that payment through a restitution lawsuit

In negative declaratory judgment lawsuits, the burden of proof generally rests with the creditor, as the creditor is the party asserting the debt relationship. However, the debtor is also obligated to present evidence to prove that the debt does not exist or has been extinguished. The court evaluates the evidence presented by the parties and decides whether or not the debt exists.

The Supreme Court's jurisprudence emphasizes that negative declaratory actions should not be used to maliciously prolong enforcement proceedings. Therefore, courts act more cautiously when evaluating requests for interim measures and only issue such orders if there is serious doubt about the existence of the debt.

In conclusion, a negative declaratory judgment action is one of the most effective judicial protection mechanisms a debtor can use against wrongful enforcement proceedings in enforcement law. It is of great importance in practice both for eliminating the threat of enforcement and for providing a definitive ruling on the existence of the debt relationship.

Sample Supreme Court Decision on Negative Declaratory Judgment Cases:

Supreme Court Decision – 11th Civil Chamber, Case No. 2019/3048, Decision No. 2020/1093, Date: 10.2.2020

Decision

Following the appeal filed by the plaintiff's attorney against the decision dated 14/01/2019 and numbered 2019/4 E- 2019/27 K., issued by the Bursa 2nd Civil Commercial Court in the case between the parties, the plaintiff's attorney requested that the decision dated 06/05/2019 and numbered 2019/620 E- 2019/281 K., issued by the Bursa Regional Court of Appeals, 5th Civil Chamber, rejecting the appeal on its merits, be reviewed by the Supreme Court. Since it has been determined that the appeal petition was submitted within the prescribed time limit, after hearing the report prepared by Examining Judge K1 for the case file, and after reading and examining all the petitions, submissions, hearing minutes, and all documents in the file, the matter was considered and deliberated upon as follows:

The plaintiff's attorney alleged that the check, issued by F1 PVC Plastic Construction Building Materials Industry and Trade Ltd. Co., with check number N1 and serial number UE N2, belonging to F2bank Cumhuriyet Branch, was lost by the plaintiff; that a lawsuit for the cancellation of the lost check was filed; and that the court issued a precautionary measure prohibiting payment. The attorney further alleged that the defendant, acting in bad faith, possessed the check that was taken from the plaintiff without their consent, that there was no commercial relationship between the parties, and requested a ruling for the recovery of the check and a determination that the plaintiff is the legitimate holder and creditor, and that the drawer, who received the check due to a commercial relationship between the plaintiff and the defendant, is not indebted to the defendant as the payee.

The defendant's attorney argued that the check was endorsed by the plaintiff to the defendant in exchange for a debt, and that the plaintiff must prove their claim with conclusive and convincing evidence, requesting that the case be dismissed.

The first instance court ruled that the case was dismissed on procedural grounds pursuant to Article 115/2 of the Code of Civil Procedure, on the grounds that the lawsuit was filed after the entry into force of Article 20 of Law No. 7155 and Article 5/A added to Article 5 of the Turkish Commercial Code No. 6102; that according to this article, recourse to mediation is a prerequisite for the lawsuit in the present case concerning the recovery of a check; and that the lawsuit was filed without fulfilling this requirement.

The plaintiff's attorney has filed an appeal against this decision.

The 5th Civil Chamber of the Bursa Regional Court of Appeals ruled that a check recovery lawsuit is also a debt collection lawsuit, and since the claim is made pursuant to Article 797 of the Turkish Commercial Code (TTK), it is an absolute commercial lawsuit. Therefore, according to Article 5/A of the TTK, it is not possible to file a lawsuit without first applying to a mediator. While the issue of whether or not to apply to a mediator in negative declaratory judgment lawsuits is debatable in practice, in a negative declaratory judgment lawsuit, since the defendant has a claim for receivables, it should be subject to mediation. If the debt is collected while the negative declaratory judgment lawsuit is ongoing, the lawsuit automatically transforms into a recovery lawsuit. Therefore, a negative declaratory judgment lawsuit also includes a claim for receivables. Otherwise, it would result in a decision to go to a mediator in the middle of the proceedings in a negative declaratory judgment lawsuit that has automatically transformed into a recovery lawsuit, which would not be in line with procedural economy. For these reasons, the appeal of the plaintiff's attorney was rejected on its merits.

The decision was appealed by the plaintiff's attorney.

The lawsuit concerns a claim for the recovery of a check and a request for a determination that the plaintiff is not indebted to the defendant due to the check in question, filed under Article 792 of the Turkish Commercial Code No. 6102. The court dismissed the case procedurally, pursuant to Article 115/2 of the Code of Civil Procedure, on the grounds that recourse to mediation is a prerequisite for the type of lawsuit. It is not disputed that the lawsuit was filed after the entry into force of Article 5/A, added to Article 5 of the Turkish Commercial Code by Article 20 of Law No. 7155. According to this article, for commercial lawsuits specified in Article 4 of the Turkish Commercial Code and other laws, concerning claims for payment of a sum of money and compensation, recourse to mediation before filing a lawsuit is a prerequisite. The dispute in this case centers on whether recourse to mediation is a prerequisite for a lawsuit filed under Article 792 of the Turkish Commercial Code, specifically in cases involving the recovery of a check and negative declaratory judgment. Article 792 of the Turkish Commercial Code states: "If a check has been lost from the holder in any way, whether it is a check payable to bearer or a check transferable by endorsement, and the holder proves their right according to Article 790, the new holder who has acquired the check is only obligated to return it if they acquired it in bad faith or had gross negligence in acquiring it." According to this article, the plaintiff's claim in the lawsuit is not for payment of a sum of money, debt, or compensation, but for the return of the check from the holder who is alleged to have unlawfully possessed it as a negotiable instrument. Therefore, applying to a mediator is not a prerequisite for filing a lawsuit for the recovery of a check under Article 792 of the Turkish Commercial Code. Consequently, the assessments of the first instance court and the regional court of appeal that applying to a mediator is a prerequisite for filing a lawsuit for the recovery of a check are incorrect.

Regarding the other claim in the case, namely whether the request for a determination that the plaintiff is not indebted to the defendant due to the check—that is, the negative declaratory judgment lawsuit—is subject to mediation as a prerequisite for filing a lawsuit, in a negative declaratory judgment lawsuit, the plaintiff requests a determination that they are not indebted to the defendant, while the defendant argues that the plaintiff is indebted. Consequently, in a negative declaratory judgment lawsuit, the court will determine both whether the plaintiff is indebted and whether the defendant is a creditor. Therefore, it is clear that the subject matter of the negative declaratory judgment lawsuit relates to a certain amount of debt, and although recourse to mediation is a prerequisite for filing a negative declaratory judgment lawsuit under Article 5/A added to Article 5 of the Turkish Commercial Code by Article 20 of Law No. 7155, since it is filed together with a check recovery lawsuit which is not subject to mediation as a prerequisite, the request for a negative declaratory judgment in this case will also not be subject to mediation as a prerequisite for filing a lawsuit.

In this case, while the court should have examined the merits of the case and rendered a decision, the decision to dismiss the case on procedural grounds with a written justification was deemed incorrect, and the decision must be overturned on this ground.

CONCLUSION: For the reasons explained above, the appeal of the plaintiff's attorney is accepted, and the Regional Court of Appeal's decision rejecting the appeal on its merits against the decision of the First Instance Court is OVERTURNED AND ANNULLED. In accordance with Article 373/1 of the Code of Civil Procedure, the case file shall be sent back to the First Instance Court, a copy of the decision shall be sent to the Regional Court of Appeal, and the advance appeal fee paid shall be refunded to the appellant upon request. This decision was reached by majority vote on February 10, 2020.

NEGATIVE VOTE

The lawsuit concerns claims for negative declaratory judgment and recovery of the check.

As is known, pursuant to Article 20 of Law No. 7155 and Article 5/A added to the Turkish Commercial Code (TTK) No. 6102, in commercial disputes specified in Article 4 of the TTK and other laws, recourse to mediation before filing a lawsuit is a prerequisite for claims for payment and compensation where the subject matter is only the payment of a sum of money.

As is clearly understood from the wording and reasoning of this provision, recourse to mediation is regulated as a prerequisite for filing a lawsuit only in debt collection and compensation cases, not in all commercial cases. In other words, the legislator, instead of giving examples of the types of cases in which recourse to mediation is required as a prerequisite, explicitly limits it to only debt collection and compensation cases. In my opinion, the legislator used the phrases "...commercial cases..." and "...only..." to indicate this limitation.

A negative declaratory judgment lawsuit, regulated by Article 72 of the Enforcement and Bankruptcy Law, is a unique type of lawsuit whose subject is not the payment of a sum of money or compensation. Therefore, it is incorrect to consider it a type of debt collection lawsuit. Specifically, the fact that the court determines whether the plaintiff is indebted or not in a negative declaratory judgment lawsuit, resulting in the determination of whether the defendant is a creditor or not, does not mean that this lawsuit is a debt collection lawsuit concerning the payment of a sum of money. Because a negative declaratory judgment lawsuit does not result in a decision for the collection of a sum of money. If the plaintiff proves their case, a negative declaratory judgment decision is issued.

It should also be noted that under the current regulations, accepting mediation as a prerequisite for filing a negative declaratory judgment lawsuit has some drawbacks. As is known, negative declaratory judgment lawsuits are generally filed due to ongoing or likely-to-be-initiated enforcement proceedings. If mediation is accepted as a prerequisite for filing a lawsuit, the debtor will constantly be under pressure from seizures, and the creditor will initiate seizures in the desire to recover their debt as soon as possible. However, a debtor who believes they are not indebted has the interest of filing a lawsuit as soon as possible and requesting precautionary measures to prevent the continuation of the proceedings. On the other hand, since there is no provision stating that the initiated or to be initiated enforcement proceedings will be suspended during the mediation process, accepting mediation as a prerequisite for filing a negative declaratory judgment lawsuit would also violate the principle of equality of arms.

The other lawsuit filed jointly is a check recovery lawsuit regulated by Article 792 of the Turkish Commercial Code. This lawsuit and the negative declaratory judgment lawsuit regulated by Article 72 of the Turkish Enforcement and Bankruptcy Law are different types of lawsuits, and there is no legal provision that mandates the joint hearing of these lawsuits. Therefore, in terms of procedural requirements, there is no legal basis for making one of these two lawsuits dependent on the fate of the other. If applying to a mediator is not considered a procedural requirement for one lawsuit and not for the other, then the lawsuits should be separated and heard accordingly.

Therefore, since I believe that a negative declaratory action is not a debt collection action and thus, under the current regulations, it would not be correct to consider recourse to mediation before filing a negative declaratory action as a prerequisite for litigation, and since there is no provision requiring the joint hearing of the check recovery action regulated by Article 792 of the Turkish Commercial Code and the negative declaratory action regulated by Article 72 of the Enforcement and Bankruptcy Law, I do not agree with the reasoning adopted by the esteemed majority, which states that in a negative declaratory action, the subject matter of the lawsuit is related to a certain amount of debt, and therefore, recourse to mediation is a prerequisite for litigation in a negative declaratory action as well, but that the request for negative declaratory action is not subject to the mediation prerequisite in the present case because it was filed together with the check recovery action.