DEBTOR’S DEFAULT ON THE CONTINUOUS DEBT CONTRACT AND ITS CONSEQUENCES 1 October 2021
DEBTOR’S DEFAULT ON THE CONTINUOUS DEBT CONTRACT AND ITS CONSEQUENCES
- WHAT IS THE CONTINUOUS DEBT CONTRACT
The concept of continuous debt requires repetitive behaviors for the fulfillment of the debt and the benefit of the debt’s beneficiary is also extended to this ongoing period. If one of the fundamental elements of a contract is a continuous debt then the contract in question is called “the continuous debt contract”. Examples of continuous debt contracts are contracts for services, tenant contracts and bailments contract.
- DEFAULT ON THE CONTRACTS CONTAINING RECIPROCAL DEBTS
The continuous debt contracts impose mutual debts on both sides. In this type of contract, both sides are debtor and creditor as well. In this framework, there are special conditions as well as general conditions for the default in contracts containing reciprocal debts. Accordingly, the general conditions required for the occurrence of default in contracts containing reciprocal debts are:
- The performance of act must be possible
- The debt must be due and therefore payable
- The debtor must have been noticed
- The creditor must be ready to accept the performance
- The debtor should have no right to abstain from performance
- Non-performance should be a situation in which contrary to the debt.
The exclusive conditions required for the occurrence of default in contracts involving reciprocal debt are:
- Existence of a contract with the reciprocal debt
- A situation where additional time is given or additional time is not required.
- CONSEQUENCES OF DEFAULT
- WITH RESPECT TO CONTINUOUS DEBT RELATIONS THAT HAVE NOT STARTED
Article 125 of the Turkish Code of Obligations (“TCO”), titled optional rights, regulates the rights of the creditor in case of the debtor's default in contracts containing mutual debt relations. According to this;
- If the defaulting debtor has not fulfilled her debt within the given period or if there is a situation that does not require a deadline, the creditor will always have the right to demand the performance of the debt and compensation for the delay.
- The creditor may also request the compensation of the loss arising from the non-performance of the debt or withdraw from the contract, by immediately notifying that he has waived the right to perform the debt and to demand compensation for the delay.
- In the event of rescission of the contract, the parties will be relieved of their reciprocal performance obligation and will be able to demand back their previous performances. In this case, if the debtor cannot prove that he is not at fault in default, the creditor may also request compensation of the damage suffered due to the invalidity of the contract.
- WITH REGARD TO CONTINUOUS DEBT RELATIONS WHICH STARTED TO PERFORM
Article 126 of the TCO regulates the rights to be held in case of default if the performance of contracts containing continuous debt relationships has started as follows:
- In case of default of the debtor on the continuous performance act that started to perform, the creditor may demand performance and delay compensation, as well as the termination of the contract and the compensation of the damage suffered due to the termination of the contract before its expiry date.
The delay compensation that will be the subject of the request is regulated in Article 118 of the TCO. In the relevant article, it is regulated that unless the debtor in default proves that he does not fault default, the creditor will be obliged to compensate for the loss suffered by the creditor due to the late performance of the debt.
- CONCLUSION
If one of the essential elements of a contract is a continuous act, the contract in question is a continuous debt contract. Continuous contracts are also a special type of contract that creates reciprocal debt. As mentioned above, the existence of various conditions, general and exclusive, is required in order for the default to occur in continuous debt contracts. However, the rights of the creditor as a result of the default are divided into two as before and after the performance of the continuous debt contract.
