Consequences Of The Debtor’s Default
CONSEQUENCES OF FORFEITURE – Distinction between Positive and Negative Damage
Articles 117 to 126 of the TCO generally regulate the conditions, provisions and consequences of debtor default. The consequences of the default of the debtor in contracts imposing mutual obligations are regulated under Articles 123 and following articles of the TCO. Accordingly, the creditor has certain optional rights in the event of a debtor’s default under such contracts.
Along with the conditions for the creditor to exercise these optional rights, the concepts of positive and negative damages are explained, and the place of these damage items in practice is shown by giving examples.
Consequences of Debtor’s Default in Mutual Obligation Contracts
The consequences arising from the default of the debtor in mutual obligation contracts are regulated under Articles 125 and 126 of the TCO.
Accordingly, if the debtor defaults, the creditor has optional rights. These optional rights can be listed as follows:
Firstly, the creditor may demand a delay increase together with the performance of the debt in kind. This optional right is not specific to contracts that impose obligations on both parties; it is a general consequence of the default of the debtor.
Another optional right of the creditor is to request compensation for the positive damages incurred by renouncing the performance of the obligation.
Finally, the creditor may request compensation for the negative damages incurred by rescinding the contract.
In order to exercise the other two optional rights, except for the full performance of the obligation and delay compensation, an appropriate period of time must be given to the debtor in order to give the debtor a last chance to perform, or a request to this effect must be made to the judge, except for the exceptions listed in Article 124 of the TCO. In addition, the fault of the debtor is required for the award of delay compensation or compensation for positive or negative damages. İn cases where the compensation of positive damages is requested by renouncing performance or the compensation of negative damages is requested by terminating the contract, the debtor must be notified immediately as soon as the given periods expire.
Article 126 of the TCO regulates the consequences of default in continuous performance contracts. Accordingly, in the event of default of the obligor in continuous performance contracts, the creditor may request performance in kind and delay compensation, as well as termination of the contract and compensation for the loss incurred due to the premature termination of the contract.
Performance in Kind and Delay Compensation
The right to demand full performance of the debt and compensation for delay is one of the general consequences of the default of the debtor. Therefore, the creditor may always demand from the defaulting debtor the performance of the obligation in full and compensation for the damage arising from the delay.
The delay compensation subject to the claim is regulated under Article 118 of the TCO. The said article states that the defaulting debtor is obliged to compensate the damage incurred by the creditor due to the late performance of the debt, unless he proves that he is not at fault for defaulting. It is said that the defaulting debtor’s fault is accepted as a presumption.
Requesting Compensation for Positive Damage by Refraining from Performance
Pursuant to Article 125 of the TCO, the creditor may request compensation for the damages arising from the non-performance of the obligation by immediately notifying that he waives his right to demand full performance of the obligation and delay compensation.
In case this optional right is exercised, the contract survives. Therefore, it is accepted that the creditor’s obligation to fulfil its own performance continues.
The condition that the debtor is at fault in default is also necessary for the compensation of the positive damage incurred. In addition, the presumption of fault is also in question in this respect.
If the creditor is going to use this optional right, the debtor must immediately notify the debtor of this situation. If the creditor does not notify the debtor immediately at the end of the given period, the creditor loses the right of choice and has to demand performance in kind and delay compensation.
Requesting Compensation for Negative Damage by Rescinding the Contract
If the obligation is not fulfilled within the given deadline, the creditor may rescind the contract and request compensation for the negative damage, provided that the debtor is notified immediately at the end of the deadline.
Since rescission of the contract is retroactive, if one of the parties has previously fulfilled its own obligation, it must be refunded. Although it is controversial whether the restitution is based on unjust enrichment or breach of contract, the Court of Cassation has adopted the opinion in favour of the former.
In order to exercise the right to rescind the contract, the debtor need not be at fault for defaulting. On the other hand, as with the other types of compensation mentioned above, the fault of the debtor is sought in the compensation of negative damages, but the existence of the fault is accepted as a presumption.
Distinction between Positive Damage and Negative Damage
The creditor, who does not want to accept the full performance of the defaulting debtor’s debt, will either demand compensation for the positive damages by renouncing the performance or demand compensation for the negative damages incurred by terminating the contract, provided that the conditions mentioned are complied with.
Negative damage is related to the expenses incurred by the creditor by relying on the validity of the contract. The difference between the value that the creditor’s assets would have received if they had never entered into the contractual relationship in question and the value received after this invalidated contractual relationship constitutes the negative damage. The legal benefit protected in the compensation of negative damage is the creditor’s confidence in the validity of the contract.
All kinds of expenses related to the establishment of the contractual relationship (such as fees and stamp tax payments, travelling expenses, notary expenses) within the scope of the invalidated contractual relationship, as well as the losses arising from the loss of more favourable contractual opportunities due to the reliance on the validity of the contract in question are also considered as positive damages.
On the other hand, positive damage is the damage suffered by the creditor due to the debtor’s failure to fulfil its contractual obligation properly or not at all. The difference between the state of the creditor’s assets due to the non-performance or improper performance of the obligation and the state of the creditor’s assets due to the performance of the obligation in the manner and time agreed upon in the contract constitutes this damage. Therefore, the legal benefit protected in the compensation of positive damage is the creditor’s interest in the performance of the debt.
It is established in the decisions of the Court of Cassation that the profit deprived is one of the items of positive damage. What is generally meant by this is the loss of profit incurred by the creditor due to obtaining the same goods or services from another source. In addition, the expenses incurred by the creditor due to the non-performance of the obligation, such as the costs incurred by the creditor for notifying the notary public, giving a deadline and similar reasons, and the costs incurred by the creditor in order to establish another contract to replace the non-performed contract are also included in these items.
Conclusion
According to the TCO No. 6098, the creditor has optional rights in the event of default of the debtor in contracts that impose obligations on both parties. These optional rights are to demand full performance of the obligation, which is a general consequence of default, and compensation for delay. Compensation for positive damages aims to protect the creditor’s interest in the performance of the debt in accordance with the contract, while compensation for negative damages protects the creditor’s confidence in the validity of the contract.
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