The cheque is a negotiable instrument whose drawee may only be a bank and which is subject to the strict formal rules laid down by the Turkish Commercial Code. By this written instruction addressed to the bank, the drawer asks that a given sum be paid against presentation of the instrument, and delivers the instrument to his creditor. The person holding the cheque may claim the sum directly from the drawee bank and may also, in the absence of a contrary entry, transfer the instrument to others by endorsement.
It is, however, always possible for the instrument to leave the holder’s possession against his will. Where it is stolen or lost, the instrument may fall into the hands of unauthorised persons; it may also disappear altogether through burning, tearing or similar causes. Where presentation of the instrument, or establishment of the right written on it, becomes impossible for reasons of this kind, this is termed loss of the instrument. For such a case, the legislator has provided a number of protective routes so that the rights of the lawful holder are not left in the void; the most important of these is the action for the annulment of a cheque.
The action for annulment serves to prevent the holder from suffering the loss of his right by reason of an instrument that has been lost. In the action, the person asserting that he is the lawful holder establishes that the instrument has been lost and seeks its annulment; if the court finds the assertion of loss well founded, it orders the annulment of the cheque. The holder who obtains the annulment decision may assert his claim without presenting the instrument, or may request that a new cheque be issued on condition that he bears the costs. Below we examine the stages of this process in practical terms.
The Concept of the Cheque and the Mandatory Elements Required
Before one can speak of an instrument capable of forming the subject of an action for annulment, the document in hand must possess the qualities laid down in the Turkish Commercial Code and in the Cheque Act. The elements the instrument must bear in order to be regarded as a valid cheque are the following:
- The signature of the person issuing the document, together with the serial number allocated to the instrument by the bank
- The word “cheque” within the text; if the instrument is drawn up in a language other than Turkish, the equivalent of that word in that language
- The trade name of the bank that is to make the payment, that is, of the drawee
- An order for the payment of a given sum, not made subject to any entry or condition
- The place and date on which the instrument was drawn up and the place where payment is to be made
- The QR code that must appear on the document
These elements must appear directly in the text of the instrument; where they do not, it must be possible to determine them with the aid of the supplementary provisions of the Turkish Commercial Code. If those elements can be arrived at neither from the text nor from the supplementary provisions, there is no instrument bearing the quality of a cheque, and such a document cannot form the subject of an action for annulment.
For detailed explanations on this heading, our note titled Mandatory Elements Required in a Cheque may be consulted.
In Which Cases Is a Cheque Regarded as Lost?
The bringing of the action depends on the fact of loss having occurred. Where presentation of the instrument to the bank has been prevented for reasons such as the instrument being stolen, lost, burnt or torn, the cheque is regarded as having been lost.
By contrast, in order to speak of loss it is not required that the instrument be physically destroyed in its entirety or that it leave the holder’s possession altogether. For example, it is sufficient that the writing on the instrument has become illegible as a result of getting wet; for in such a case it ceases to be possible to establish the right embodied in the instrument, and the cheque is regarded as having been lost.
Imposing a Prohibition on Payment on the Drawee Bank
The instrument leaving the holder’s possession without his consent creates the conditions for third parties to obtain and use it. It is entirely possible for the person who finds or steals the cheque to present it to the drawee bank and ask that the sum be paid to him. In order to forestall such an outcome, an order restraining the drawee bank from making payment may be sought. The court may assess the assertion of loss and order that the bank be restrained from payment. This decision, which is in the nature of an interim injunction, is known in practice as a prohibition on payment.
There is an important limit here: where the instrument has been destroyed altogether, a prohibition on payment cannot be sought. The purpose of this measure is to eliminate the risk of the sum being paid to an unauthorised person; where the instrument has disappeared, however, presentation to the bank cannot be in question either, so the possibility of payment does not arise in the first place.
The request is addressed to the commercial court of first instance of the place of payment or of the holder’s place of residence. It is not possible for the court to order a prohibition on payment of its own motion; the decision is given only upon an express request. That request may be raised at the same time as the action for annulment, and it may also be made separately before the action. Once the prohibition decision has been given, the drawee bank cannot make payment even if the instrument is presented to it.
If the identity of the person holding the instrument can be established, the court grants the lawful holder a reasonable period in which to bring an action for restitution. If no action is brought within that period, the prohibition on payment is lifted. If it is not known who obtained the instrument, the route of the action for annulment may be taken.
Who Is Entitled to Bring the Action for Annulment?
In the event of loss, the entitlement to bring the request for annulment before the commercial court of first instance belongs to the lawful holder. The person bringing the action must also submit to the court convincing evidence establishing that the instrument has been lost.
The point that gives rise to debate in practice is whether the drawer who issued the instrument may bring this action. The Court of Cassation takes the view that the drawer has no such entitlement; indeed, actions for annulment brought by the drawer are dismissed.
Decision of the 11th Civil Chamber of the Court of Cassation dated 28.02.2019, File No. 2017/5203, Decision No. 2019/1679
“The court, having regard to the entire content of the file, dismissed the action on the ground that, by reason of the nature of the matter and the legal consequences it would produce, the entitlement to bring an action for the annulment of a cheque on account of loss belongs to the holder, and that the drawer has no right to bring an action for the annulment of a cheque on the basis of those statutory obligations. …it was unanimously decided to dismiss all the grounds of appeal of the claimant’s counsel and to uphold the judgment, which was found to be in accordance with procedure and with the law.”
The fact that the capacity of claimant is accorded to the lawful holder does not necessarily require that this person be the true owner of the right in the instrument or the creditor. A person who has taken the instrument by an endorsement for collection may also bring the action. The decisive criterion is whether the holding rests on an uninterrupted and regular chain of endorsements.
Decision of the 11th Civil Chamber of the Court of Cassation dated 09.06.2017, File No. 2015/15123, Decision No. 2017/2747
“The court, having regard to the entire content of the file, dismissed the action on the ground that the lawful holder of the instruments was … Tekstil Şirketi, that an action for the annulment of an instrument may be brought only by the lawful holder of the instrument, and that the claimant bank had taken the instrument merely by an endorsement for collection and not by an ordinary endorsement. The action concerns the annulment of cheques alleged to have been lost. The claimant bank, having taken the cheque by an endorsement for collection, is a holder as agent and is entitled to bring an action for annulment on account of the loss of the cheque. For this reason, it should have been accepted that the claimant had standing to sue and a decision should have been given by entering upon the merits of the matter; the dismissal of the action in the terms written, on the basis that the claimant lacked standing to sue, was not correct.”
The theft or loss of blank cheque leaves that bear no entry and have not yet been completed is, however, a different matter. In that case it is accepted that the holder of the cheque book cannot bring an action for annulment; for an uncompleted leaf has not acquired the quality of a negotiable instrument and cannot form the subject of an action for annulment.
Decision of the 11th Civil Chamber of the Court of Cassation dated 25.04.2018, File No. 2016/9861, Decision No. 2018/3112
“The court, having regard to the entire content of the file, dismissed the action on the ground that, in the reply given to the letter written to Şekerbank, it was stated that the cheques forming the subject of the action had not yet been presented to the branch and their sums had not been paid; that blank cheque leaves do not bear the quality of a negotiable instrument and for that reason cannot form the subject of an action for annulment on account of loss; that the right to bring an action for the annulment of a cheque on account of loss is a right accorded to the payee and the holder, and that the drawer has no right to bring an action for annulment on the basis of those statutory provisions; that in the concrete situation the cheque capable of forming the subject of the action must be a cheque that left the possession of its holder against his will after acquiring the quality of a cheque; that on this footing the condition for bringing the action had not arisen; that the claimant had no legal interest in bringing the action; that legal interest is a procedural requirement; and that the presence or absence of a procedural requirement must be examined by the court of its own motion. …it was unanimously decided to dismiss all the grounds of appeal of the claimant and to uphold the judgment, which was found to be in accordance with procedure and with the law.”
Publication of a Notice for the Production of the Cheque
Once the action has been brought, the court’s first task is to weigh whether the instrument has genuinely been lost. If a conviction is reached as to the loss, a public notice is issued with a view to the return of the instrument. In the text of the notice, the person holding the instrument is called upon to return it and is warned that, should the return not take place, a decision of annulment will be given.
The period to be granted for production of the instrument is not less than three months and not more than one year, and within that range the discretion belongs to the court. The period begins to run from the day on which the first notice is published. The notice is published three times in the Turkish Trade Registry Gazette; the court may, however, also order different forms of notice.
If, upon the notice, the instrument is delivered to the court, the lawful holder is granted a period in which to bring an action for restitution. If that period is allowed to pass in vain, the instrument is returned to the person who submitted it to the court, and any prohibition on payment previously imposed is lifted. If the instrument is not produced to the court within the period granted, the annulment of the cheque is ordered.
The Consequences of the Annulment Decision
With the court’s order of annulment, the loss of the instrument becomes legally established. From that moment, it is no longer possible for the sum to be claimed by presenting the instrument.
The holder who brought the action may, by contrast, assert the right embodied in the cheque without the instrument. In addition, the possibility arises of requesting that a new cheque be issued, on condition that he meets the costs himself.
The point to be underlined here is this: both for the right to be asserted without the instrument and for the issue of a new instrument to be requested, a decision must have been obtained from the court. The fact that the instrument has been annulled does not mean that these entitlements may be exercised automatically.
In the end, acting without loss of time once it becomes apparent that the instrument has been lost in any manner is decisive in preventing any loss of rights that may arise.
Independent Legal Assessment
Cheque annulment proceedings, although apparently consisting of a single request, in practice require several stages to be conducted in the correct order. Failure to seek the prohibition on payment in good time may lead to the instrument being presented to the bank by third parties and to the sum being paid to an unauthorised person. Similarly, an incorrect determination of the capacity of claimant may result in the file being dismissed without the merits being reached.
Supporting the assertion of loss with concrete evidence also directly affects the outcome of the process. The courts do not content themselves with an abstract statement but look for a coherent account of how the instrument left the holder’s possession. In setting a road map in a concrete dispute, we recommend that the following headings be addressed as a priority:
- Examining from the outset whether the document in hand genuinely bears the quality of a cheque, in terms of the mandatory elements
- Determining, according to whether the instrument has in fact been destroyed, whether a request for a prohibition on payment will come into question
- Documenting without interruption the chain of endorsements on which the holding rests, and establishing the endorsement-for-collection relationship
- Gathering, before the action is brought, the police record, loss report and similar evidence supporting the fact of loss
- Preparing in advance a strategy for the action for restitution, against the possibility that the instrument is submitted to the court during the notice period
- Planning which of the options of asserting the right without the instrument or having a new instrument issued will be preferred once the annulment decision becomes final
Independent Legal provides advisory and litigation services throughout the entire process in disputes arising from negotiable instruments, from requests for a prohibition on payment to the conduct of the action for annulment and the implementation of the consequences of the decision.