Lack of Consideration in Negotiable Instruments & Declaratory Judgment

Lack of Consideration in Negotiable Instruments (Checks and Promissory Notes) and the Action for Negative Declaratory Judgment

In commercial life, checks and promissory notes are negotiable instruments that reinforce trust between the parties. In practice, however, a person who owes no actual debt may still find themselves subject to enforcement proceedings based on an instrument they issued for accommodation purposes, as security, or in connection with an underlying commercial relationship that never materialized. This article examines the defense of lack of consideration in negotiable instruments and the related action for negative declaratory judgment (menfi tespit davası), in light of current Court of Cassation (Yargıtay) case law.

Table of Contents

1. The Principle of Abstraction and Its Limits
2. What Is Lack of Consideration?
3. Types of Lack of Consideration
4. Against Whom Can Lack of Consideration Be Raised?
5. The Issue of Instruments Given as Security
6. The Action for Negative Declaratory Judgment
7. Burden of Proof
8. Application in Light of Court of Cassation Decisions
9. What Happens If the Action Is Successful?
10. Conclusion
11. Frequently Asked Questions

1. The Principle of Abstraction and Its Limits

Negotiable instruments are abstract securities by nature; the right embodied in the instrument is independent of the underlying transaction that gave rise to it. An undertaking on a negotiable instrument is usually based on an underlying obligation such as a sale, lease, or carriage contract; where no such underlying transaction exists, the instrument is presumed to have been issued as an accommodation instrument.

Undertaking an obligation on a negotiable instrument does not amount to novation of the underlying debt under Article 133/2 of the Turkish Code of Obligations, unless the parties clearly intend to renew it; the instrument is considered to have been given for the purpose of performance, not in lieu of performance. As a result, two separate legal relationships arise between the parties: the underlying (causal) relationship and the instrument relationship, each governed by its own body of law. As a rule, defects in the underlying relationship do not affect the instrument relationship; defenses arising from the underlying relationship can only be raised within the instrument relationship where the parties to both relationships are identical and the creditor has knowingly acted to the debtor's detriment.

Within this framework, the principle of abstraction is not absolute; it is assessed within the boundaries of good faith (Article 2 of the Turkish Civil Code) and the prohibition of abuse of rights. Where the underlying claim never arose or subsequently ceased to exist, the debtor may assert that the instrument lacks consideration and thereby be relieved of liability under the instrument.

2. What Is Lack of Consideration?

Lack of consideration refers to the situation in which the underlying claim that gave rise to a negotiable instrument does not exist for any reason. If the underlying claim is invalid or has ceased to exist, the instrument is considered to lack consideration. What matters here is not the underlying relationship itself, but the existence of the claim arising from that relationship.

Common situations giving rise to a lack-of-consideration defense include:

• Instruments issued purely as an accommodation (favor) between parties
• Instruments related to a sale of goods or real estate that never took place
• Instruments based on sham or invalid contracts
• Security instruments whose underlying conditions never materialized

The purpose of an action for negative declaratory judgment based on lack of consideration is to determine, as a matter of substantive law, whether the debt actually exists. If successful, the action either prevents enforcement proceedings from being initiated against the debtor or results in the annulment of proceedings already underway.

Legal basis: The legal basis for an action based on lack of consideration is the provisions on unjust enrichment set out in Articles 77 et seq. of the Turkish Code of Obligations (Law No. 6098). Under the principle of abstraction governing negotiable instruments, the absence or invalidity of the underlying claim does not, by itself, render the instrument void; however, this defect in the underlying relationship entitles the debtor to raise an unjust enrichment defense against the creditor once the absence of the debt has been established.

3. Types of Lack of Consideration

Total Lack of Consideration Arises where the instrument is not based on any legal cause whatsoever (e.g., an accommodation instrument, a sham transaction, or an invalid contract).

Partial Lack of Consideration Arises where the underlying claim, once it comes into existence, is lower than the amount stated on the instrument. Although the instrument must state a definite sum, this does not require the underlying claim to be equally definite. If, once it arises, the underlying claim is smaller than the amount written on the instrument, the instrument lacks consideration to the extent of that difference.

Temporary Lack of Consideration Most commonly seen in instruments issued as security. Where an instrument is issued for a claim that has not yet arisen but is expected to arise, or is contingent, and the underlying claim still has not materialized by the time the instrument falls due, the instrument temporarily lacks consideration. This lack of consideration is not permanent, however: if the claim subsequently arises, the instrument regains value to the extent of that claim; if it never arises, the lack of consideration becomes definitive.

4. Against Whom Can Lack of Consideration Be Raised?

Under Article 687 of the Turkish Commercial Code (Law No. 6102), lack of consideration is a personal defense.

• Against the payee: As a rule, the drawer/maker may raise the lack-of-consideration defense only against the payee named on the instrument.
• Against a holder in due course: Where the instrument has been endorsed to a third party, the debtor may raise the lack-of-consideration defense against that holder only if it can be proven that the holder knowingly acquired the instrument to the debtor's detriment (Article 687/2 of the Turkish Commercial Code).

This differs from absolute defenses (such as formal defects in the instrument, statute of limitations, or a break in the chain of endorsements), which may be raised against any party in possession of the instrument, whereas lack of consideration binds only the parties to the underlying relationship.

5. The Issue of Instruments Given as Security

One of the most frequently raised lack-of-consideration defenses in practice concerns instruments claimed to have been given as security. The acceptance of this defense, however, is subject to certain conditions:

• The mere fact that an instrument was given as security does not, by itself, render it devoid of consideration; the instrument becomes devoid of consideration once the secured obligation has been performed and the need for security no longer exists.
• Even if the instrument bears a notation referring to "security," if it does not specify what obligation is being secured, this notation does not affect the abstract nature of the instrument.
• If, on the other hand, the text of the instrument expressly refers to the underlying relationship or makes payment conditional on some event, the instrument loses its abstract character; enforcement through the special summary procedure for negotiable instruments cannot be pursued on the basis of such an instrument. In that case, the defense becomes an absolute one and may be raised even against third parties.
• Where the instrument has been endorsed and the holder knew it was a security instrument and knowingly acted to the debtor's detriment, the security defense may also be raised against that holder.

Court of Cassation case law consistently holds that a claim that an instrument was given as security must be substantiated by written evidence; a bare assertion, or the mere claim that the instrument "was given as security," is not by itself sufficient. Likewise, absent an explicit security notation on the face of the instrument, a security claim does not bar enforcement through the summary procedure.

6. The Action for Negative Declaratory Judgment

Legal Basis

Article 72 of the Turkish Enforcement and Bankruptcy Code (İİK) allows a debtor to bring an action to establish that no debt is owed, either before or after enforcement proceedings have commenced. Pursuant to the reference made by Article 170/b of the İİK to Article 72, this remedy is also available in the special summary enforcement procedure applicable to negotiable instruments.

Actions Filed Before Enforcement Proceedings

A debtor may bring this action even before any enforcement proceedings have been initiated. Such actions are preventive in nature. Because the creditor may initiate enforcement proceedings while the action is pending, Article 72/2 of the İİK allows the debtor to request an interim measure temporarily suspending any such proceedings, upon posting security that, as a rule, may not be less than 15% of the disputed claim.

Actions Filed After Enforcement Proceedings Have Begun

An action may also be filed after enforcement proceedings based on the negotiable-instrument summary procedure have already commenced. In this scenario, the action serves both a declaratory and a suspensive function. Under Article 72/3 of the İİK, enforcement proceedings continue as a rule; however, upon the debtor's request and provision of adequate security, the court may issue an interim measure preventing payment of the funds held at the enforcement office to the creditor. In practice, debtors sometimes deposit the full amount of the claim with the enforcement office and request an interim measure blocking its release to the creditor; in such cases, the total security provided may reach approximately 115% of the claim.

If payment has already been made as a result of the enforcement proceedings, the appropriate remedy is no longer an action for negative declaratory judgment but an action for restitution (İİK Art. 72/5).

7. Burden of Proof

In an action for negative declaratory judgment based on lack of consideration, the burden of proof lies with the debtor. The debtor must substantiate, through concrete and written evidence, the specific reason the instrument lacks consideration; abstract assertions, or an unsupported claim that the instrument "was given as security," are not by themselves sufficient. The Court of Cassation has consistently reaffirmed this principle in its case law.

8. Application in Light of Court of Cassation Decisions

In a case decided by the General Assembly of Civil Chambers of the Court of Cassation (Yargıtay Hukuk Genel Kurulu, Decision No. 2021/542), a check issued by the plaintiff had been given to the payee as security under a student-transportation services agreement. When the check bounced for insufficient funds, the payee initiated summary enforcement proceedings based on the check. The plaintiff then brought an action for negative declaratory judgment, arguing that the check had been given as security under the agreement and that no debt was actually owed. Because the check itself bore no notation indicating it was a security instrument, the action was characterized as one based on lack of consideration.

The General Assembly held that, given the agreement's provision that the check would be used only if the transportation services or related undertakings were not fulfilled, the check had to be regarded as temporarily lacking consideration; it directed the lower court to examine — if necessary with the assistance of expert opinion — whether the secured condition had materialized as of the date the check was issued and, if so, whether the payee actually held a genuine claim against the plaintiff.

Other Court of Cassation decisions on this subject reflect similar principles:

• A claim that an instrument was given as security requires written evidence; unsupported assertions are not sufficient.
• The abstract nature of the instrument is the default position; the existence of the underlying relationship must be separately and clearly proven.
• An action filed after enforcement proceedings have begun does not automatically suspend those proceedings; a separate application for an interim measure, together with security, is required.
• Absent an explicit security notation on the face of the instrument, a claim that it was issued as security does not, by itself, bar summary enforcement.

Legal commentary reflects similar conclusions: temporary lack of consideration is possible for security instruments and disappears once the secured debt arises; the essence of lack of consideration lies in the absence of the underlying claim; and such a defense can only be established through clear, concrete, and written evidence.

9. What Happens If the Action Is Successful?

If the court rules in the debtor's favor:

• Where no enforcement proceedings have yet begun, the creditor can no longer initiate summary enforcement based on that instrument.
• Where proceedings are already underway, they are annulled by the court's judgment (İİK Art. 72/5).
• If the enforcement proceedings are found to have been initiated in bad faith, the debtor may be awarded bad-faith compensation of up to 20% of the claim against the creditor.
• Litigation costs and attorney's fees are, as a rule, also imposed on the creditor.

10. Conclusion

The principle of abstraction underlying negotiable instruments plays an important role in safeguarding trust in commercial transactions, but it is not absolute. Where the underlying relationship never arose, or subsequently ceased to exist, the debtor may bring an action for negative declaratory judgment based on lack of consideration to establish that no debt exists. In such actions, however, the burden of proof rests with the debtor, and settled Court of Cassation case law requires the claim to be supported by serious, concrete, and written evidence. This is particularly true for security-instrument claims, where the notations on the instrument itself and the documentary evidence of the underlying relationship are often decisive. For this reason, proceedings involving lack-of-consideration defenses should be conducted with the guidance of experienced legal counsel, given their heavy reliance on evidence-gathering and litigation strategy.

11. Frequently Asked Questions

Can an instrument given as security be enforced through summary proceedings? If the instrument bears no explicit security notation, enforcement based on the negotiable instrument is possible.

Does filing an action for negative declaratory judgment automatically suspend enforcement proceedings? No. Suspension requires a separate application for an interim measure from the court, generally accompanied by security.

How is lack of consideration proven? Through concrete evidence such as written documents, contracts, bank records, and commercial correspondence; abstract statements are not sufficient.

Can an action be filed after enforcement proceedings have already begun? Yes. Under Article 72/3 of the İİK, an action may be filed after proceedings have commenced; however, filing the action does not automatically halt enforcement.

If the instrument has been transferred to a third-party holder, can the lack-of-consideration defense still be raised?As a rule, no; however, the defense may be raised against that holder if it is proven that the holder knowingly acquired the instrument to the debtor's detriment.

Can an action for negative declaratory judgment be filed after payment has already been made? No; if payment has already been made as a result of the enforcement proceedings, the correct remedy is an action for restitution, not an action for negative declaratory judgment.