Where an immovable is registered temporarily in another person’s name in reliance on the trust between the parties and for a purpose determined in advance, this is termed a fiduciary transaction. Seen from the outside, what appears is a complete transfer of ownership; yet the parties have agreed that the immovable will be returned once the agreed conditions are met. In practice, the real problem begins at the moment that trust is shaken.
A breach of trust generally presents itself in three forms: the immovable is not returned, it is passed on to third parties, or it is used beyond the limits drawn by the fiduciary agreement. Against such a background, the person who transferred ownership, or their heirs, may ask the court to annul the land registry record and to register the immovable in their own name.
Below we address, as a coherent whole, the legal character of the fiduciary transaction, the situations in which it arises, how a breach is to be proved, the conduct of the proceedings and the consequences produced by the judgment to be given.
Concept and Legal Nature of the Fiduciary Transaction
A fiduciary transaction is the legal relationship established where a person transfers their immovable to another person whom they trust so that it may serve a particular purpose, and the transferee in turn comes under an obligation to return that immovable once the agreed conditions are met. Although ownership has apparently changed hands, the agreement between the parties confines the transferee’s sphere of rights to a specific purpose; there is no unlimited power of disposition that may be exercised freely.
Turkish law contains no special type of contract governing this relationship. Nevertheless, the fiduciary transaction is a legal institution recognised both in the doctrine and in the settled decisions of the Court of Cassation. The centre of gravity of the relationship carries an obligational character rather than that of a transfer of a right in rem: the fiduciary is bound to use the immovable within the framework set by the agreement and to return it once the conditions materialise.
Because of this structure, the legal position of the person appearing as owner in the register and the result the parties actually intend do not always meet at the same point. Where a dispute arises, the criterion the court will take as its basis is not the outward appearance of the land registry record, but whether a fiduciary relationship was established between the parties and what the limits of that relationship are.
Forms of Fiduciary Transactions in Practice
Fiduciary transactions are relationships in which a right is transferred to a trusted person for the realisation of a particular purpose, and which give rise to an obligation to return once that purpose is realised. In practice these relationships arise principally in three forms.
Temporary Transfers in the Nature of Safekeeping
Here the immovable is registered temporarily in another person’s name by reason of the relationship of trust between the parties. The fiduciary appears as owner in the land registry; that person is, however, obliged to exercise the powers arising from ownership in accordance with the directions of the fiduciant and within the limits of the determined purpose.
Transfers Intended to Secure a Debt
This is the type most frequently encountered in practice. In order to secure the debt owed to the creditor, the debtor has the immovable registered in the creditor’s name. In the official records the transaction most often appears as a sale; yet the result the parties intend is not the final change of hands of ownership, but the return of the immovable once the debt is paid. Once performance takes place, the retransfer becomes capable of being demanded.
Transfers for Management and Representation
These are the cases in which ownership is passed to a trusted person so that the immovable may be operated or let, or so that a particular project may be carried out. The purpose is not the permanent transfer of ownership, but the facilitation of transactions concerning the immovable being carried out on the fiduciant’s account.
By What Conduct Is the Fiduciary Relationship Breached?
The legal bond established in a fiduciary transaction is an obligational relationship requiring the fiduciary to use the immovable in accordance with the determined purpose and to return it to the fiduciant once that purpose is realised. Even though the fiduciary bears the capacity of owner in outward appearance, they may exercise the powers afforded by that capacity only within the limits drawn by the fiduciary agreement.
Exceeding those limits results in a breach of the fiduciary transaction. The most frequently encountered forms of breach are refusal to return, transfer of the immovable to third parties, and acts of disposition that do not comply with the agreement. The allegation that the record in the register does not reflect the relationship the parties actually intended to establish arises precisely from these breaches, and it forms the basis of the action for annulment of title deed and registration to be brought.
Acts of Disposition over the Immovable
The fiduciary’s sale of the immovable, creation of a mortgage over it or establishment of another right in rem means that the framework permitted by the fiduciary transaction has been exceeded. Transactions of this kind most often remove entirely the very reason for the existence of the fiduciary transaction. Where a transfer or a mortgage in particular comes into play, the fiduciant’s right of ownership comes under a serious threat and the dispute becomes graver.
Transfer of the Immovable to a Third Party
The transfer of the immovable to a third party notwithstanding the fiduciary relationship between the parties is in itself a case of breach. At this point the picture becomes complicated, because the real question determining the outcome is whether the third-party transferee acted in good faith. Article 1023 of the Turkish Civil Code No. 4721 contains a provision protecting reliance on the register:
Turkish Civil Code No. 4721, Art. 1023
“The acquisition of a third party who acquires ownership or another right in rem relying in good faith on the registration in the land register is protected.”
Accordingly, if the immovable has passed into the hands of a third party acting in good faith, a claim for annulment of title deed and registration may not always yield a result; in that event the claimant’s demand may be directed towards damages.
Failure to Perform the Obligation to Return
The core element of the fiduciary transaction is the return of the immovable to the fiduciant once the agreed conditions are met. The fiduciary’s refusal to return it although the conditions have materialised is a plain breach of the agreement and constitutes the most typical form of a violation. In such a situation the person who transferred the immovable, or their heirs, may bring an action seeking the recovery of the immovable itself.
Use Outside the Agreed Purpose
In a fiduciary transaction, how the immovable is to be used is confined to the purpose determined by the parties; going beyond that framework is treated as a breach of the agreement. For example, where the immovable was transferred only for the purpose of preserving it or of holding it for a certain period, the fiduciary’s letting of it, making it the subject of commercial activity or operating it in order to derive income constitutes a breach. In such cases the character of the use and the true intention of the parties are assessed together.
Breach of Other Obligations Under the Agreement
Since the fiduciary transaction rests fundamentally on an agreement, every act contrary to that agreement is at the same time a breach of the fiduciary transaction. The breach is not confined to the dimension of return or of use alone; the violation of every obligation falling within the scope of the fiduciary agreement is assessed under this heading. For that reason, in a dispute the subject matter, purpose and content of the agreement are examined according to the circumstances of the particular case in order to establish whether a breach exists.
The Course Followed in Proving the Fiduciary Relationship
The crucial point in disputes of this kind is how the discrepancy between the official record in the register and the true intention of the parties is to be resolved. Establishing the contrary of the land registry record is, in Turkish law, tied to strict formal conditions and to the settled practice of the Court of Cassation.
Criteria Introduced by the 1947 Decision on the Unification of Case Law
The backbone of practice on the question of proof is the Court of Cassation’s decision on the unification of case law no. 20/6 dated 05.02.1947. That decision sets out two criteria.
As regards the requirement of written evidence: an allegation of a fiduciary transaction must as a rule be established by written evidence; a conclusion cannot be reached on the basis of witness statements alone.
As regards the time at which the document was drawn up: it is not necessary for the document to have been prepared at the moment of the transfer. Even a document drawn up after the transfer is regarded as sufficient for the purposes of proof, provided it bears the signatures of the parties and is accepted by the other side.
Commencement of Proof Where There Is No Written Evidence
If the parties have not committed the fiduciary relationship to a written text, the institution of the commencement of proof comes into play. The definition of that concept is given in Article 202 of the Code of Civil Procedure No. 6100:
Code of Civil Procedure No. 6100, Art. 202(2)
“A commencement of proof is a document which, although not sufficient for the complete proof of the legal transaction at issue, renders that legal transaction probable and which has been given or sent by the person against whom it is invoked or by their representative.”
Bank receipts, electronic mail correspondence or messaging records are examples of documents capable of being accepted as being of that character. Where such a document is available, the court may, relying on it, order the hearing of witnesses. Where neither written evidence nor a commencement of proof exists, there is no possibility of the allegation being proved by witness statements alone.
Recourse to the Oath as Evidence
If the claimant has neither written evidence nor a commencement of proof, the last remaining means of proof is the oath. In that eventuality the claimant may offer the oath to the other side.
If the fiduciary swears before the court that the transaction was not a fiduciary one, the action is dismissed. If, on the other hand, they refrain from taking the oath, the court may, making an assessment together with the other evidence in the file, order that the action be allowed.
Parties to the Action
In actions for annulment of title deed and registration brought on an allegation of breach of a fiduciary transaction, directing standing correctly is decisive for the sound conduct of the process. As a rule the capacity of claimant belongs to the person who transferred the immovable within the framework of the fiduciary relationship, and the capacity of respondent to the person who took the transfer and appears as owner in the land registry.
Where the immovable has subsequently been passed on to others, the frame of the action widens and it may become necessary for everyone concerned to take part in the proceedings. An incomplete identification of the parties is a serious procedural error capable of leading to dismissal of the action or to the prolongation of the proceedings.
Who Bears the Capacity of Claimant?
This action may be brought by the person who transferred the immovable within the framework of a relationship of trust, since the right to demand its return once the agreed conditions are met belongs to them. Those with the power to bring the action may be listed as follows:
- The person who transferred ownership within the scope of the fiduciary relationship
- A guardian or trustee acting on behalf of a right holder who is under restricted capacity or in need of representation
- Where the transferor has died, the heirs standing as their universal successors
- Other persons having a legal interest worthy of protection in the correction of the land registry record
It is accepted in particular that, where the transferor has died, the heirs may bring this action.
Against Whom Is the Action Directed?
Standing is as a rule directed at the person who took the transfer of the immovable and appears as owner in the register, since the registration whose annulment is sought was made in their name.
If the immovable has subsequently changed hands, it is essential that the action be brought against the last owner recorded in the land registry. The nature of the dispute may require that previous owners within the chain of transfers, and other interested persons, also take part in the proceedings. For that reason, where the immovable has been transferred on, the careful examination of the land registry records is of great importance. The persons who may be named as respondents are as follows:
- The person who took the transfer of the immovable from the fiduciant
- Subsequent owners and third parties within the chain of transfers
- Persons holding rights in rem over the immovable
Cases in which mandatory joinder of parties arises
In some disputes the action must be directed not at a single person but jointly at several persons. Where the immovable has been transferred to more than one person, or where various rights in rem have been established over it, it is mandatory that all those concerned take part in the proceedings. Otherwise the action may be dismissed on the ground of failure to join a necessary respondent.
The Limitation Dimension
In actions brought by reason of a breach of a fiduciary transaction, limitation is resolved according to the character of the legal relationship on which the dispute rests. Since these actions most often originate in the fiduciary agreement between the parties, the provisions concerning obligations find their field of application.
Accordingly, even though the action is heard under the name of an action for annulment of title deed and registration, in assessing time limits it is not the aspect of the transaction that is in rem but its contractual aspect that is taken as the basis.
The General Ten-Year Period
Since disputes arising from a fiduciary transaction rest fundamentally on breach of contract, the 10-year general statute of limitations in the Turkish Code of Obligations No. 6098 comes into play.
The moment at which the period begins to run is the moment at which the fiduciary transaction attains its purpose, or at which the fiduciary relationship comes to an end for any reason and the obligation to return becomes due. If, for instance, it was agreed that the immovable would be returned upon settlement of the debt, the ten-year period is calculated from the day on which the debt was paid.
The Distinction Between Claims in Rem and Personal Claims
The character of the claim raised may lead to different results as regards time limits. Although it may be accepted that no limitation period runs where the claim is founded directly on a right in rem, since fiduciary transactions are predominantly contract-based, the provisions on limitation are generally taken into account in practice.
Where, on the other hand, the essence of the claim is breach of contract, the limitation period laid down for obligational relationships applies.
Where the Immovable Passes to a Third Party
If the immovable has been passed on to third parties, the centre of gravity of the argument moves away from limitation and shifts to the question whether the third party acting in good faith is to be protected within the framework of Article 1023 of the Turkish Civil Code No. 4721.
If the conclusion is reached that the third party acted in good faith, it may not always be possible for a claim for annulment of title deed and registration to be met; the dispute may, according to the circumstances of the particular case, be addressed along the axis of liability in damages.
Effect of the Date of Discovery on the Period
In some disputes the date on which the breach was discovered may gain importance as regards the starting point of the period. Where one of the parties became aware of the breach only subsequently, that circumstance may be reflected in the calculation.
For that reason, in determining the period regard should be had not only to the date on which the transaction was made, but also to the moment at which the breach was discovered.
The Proceedings
Although actions for annulment of title deed and registration based on a fiduciary transaction produce effects in rem over the ownership of the immovable, their resolution requires an examination of the contractual relationship between the parties. For that reason both the register records and the legal relationship binding the parties are addressed together in the proceedings.
Court with Subject-Matter and Territorial Jurisdiction
In these actions subject-matter jurisdiction belongs as a rule to the Civil Court of First Instance.
As regards territorial jurisdiction, the action is brought in the place where the immovable is situated, and the jurisdiction of the court of that place is exclusive. An action brought before the court of another place results in a decision of lack of territorial jurisdiction.
Request for an Interim Injunction
One of the most critical procedural steps to be taken in this type of action is to forestall the transfer of the immovable in dispute to third parties. It is therefore of great importance that an interim injunction be sought from the court when the action is brought or while the proceedings are under way.
If the claimant is able to establish its allegation on a prima facie basis, the court may order that an annotation prohibiting sale and transfer be entered in the land registry record. This protection is an effective instrument preventing the judgment to be obtained at the end of the action from being rendered ineffective.
Proof and Evidence
Proof of a fiduciary transaction is essentially tied to the condition of written evidence. Among the types of evidence that come to the fore in practice are agreements and documents bearing the signatures of the parties, bank records showing payments, correspondence between the parties, and records capable of being regarded as a commencement of written proof. The details concerning the regime of proof have been explained separately above.
Court Fees and Litigation Expenses
These actions founded on a fiduciary relationship are as a rule subject to a proportional court fee. The fee is calculated on the basis of the value of the immovable and must be paid when the action is brought.
Throughout the process further items arise, such as the fees of court-appointed experts, the costs of the on-site examination, the costs of service and payments relating to witnesses. When judgment is given, these expenses are as a rule left to be borne by the party who has lost the proceedings.
Attorney Fees
In files for annulment of title deed and registration founded on the ground of concealment of assets from the estate, the attorney fee is awarded on a proportional basis over the value determined as a result of the assessment carried out during the proceedings. In favour of the party winning the action, an order is made for the recovery of an attorney fee from the other side on the basis of the Minimum Attorney Fee Tariff.
Alongside this, an attorney fee arising from the agreement between the client and the lawyer may also come into play separately and may be claimed according to the outcome of the action.
Appellate Remedies
Judgments given in actions for annulment of title deed and registration are not final in character and are open to review by the higher courts.
- Appeal: An application may be made to the Regional Court of Appeal within 2 weeks after the reasoned judgment of the first-instance court has been served.
- Appeal on points of law: Against the decision of the chamber of the regional court of appeal, an application on points of law may be made to the Court of Cassation within 2 weeks of service. Whether the decision is open to such an appeal depends on the monetary threshold updated each year according to the revaluation rate.
As regards the enforceability of the judgment, the Code of Civil Procedure No. 6100 contains a special rule:
Code of Civil Procedure No. 6100, Art. 367(2)
“Judgments concerning the law of persons, family law and rights in rem relating to immovable property cannot be enforced until they have become final.”
For that reason, even where a judgment of annulment has been obtained, the registration in the land registry cannot be carried out until the appeal and appeal on points of law stages have been completed and the judgment has become final.
Consequences Produced by the Action
The court first examines whether a fiduciary relationship was established between the parties and whether that relationship has been breached. If the existence of the fiduciary transaction and the breach are proved in accordance with the proper procedure, it is accepted that the record in the register does not correspond with the result the parties actually intended.
Once that conclusion is reached, the court may, according to the circumstances of the particular case, order the annulment of the record and the registration of the immovable in the name of the claimant. If it forms the view that the conditions are not made out, the action is dismissed.
Annulment of the Land Registry Record
Where the fiduciary transaction and the breach of it are established, the court, accepting that the legal cause of the registration made in the name of the respondent has fallen away, orders the annulment of the record.
With that judgment, the record appearing in the register, now left without foundation, is deleted. The removal of the record is regarded as an intervention bringing the order of rights in rem into a position that conforms with the law.
Registration of the Immovable in the Name of the Claimant
Where the annulment of the record is ordered, the court at the same time orders the registration of the immovable in the name of the claimant. This judgment is constitutive in character and brings the right of ownership into being in favour of the claimant.
The land registry thereby comes to correspond with the true legal relationship between the parties; the contradiction between the apparent owner and the true holder of the right is removed.
Registration According to Shares
Where there is more than one right holder, the court may order the registration of the immovable in the names of the claimants according to the principles of co-ownership in shares. Under such a judgment each claimant acquires the capacity of owner to the extent of their own share.
In determining the proportions in which the shares are to be fixed, the fiduciary relationship between the parties and the position as to contribution are assessed together.
Conversion of the Claim into a Claim for Damages
The outcome of annulment of title deed and registration cannot be reached in every case in which the fiduciary relationship has been breached. If the immovable has been acquired by third parties acting in good faith who benefit from the principle of reliance on the land registry, the right of ownership of those persons is protected.
Since in that eventuality no claim in rem may be raised, the claimant’s demand turns into a personal claim for damages. The scope of the damages is determined according to the general provisions, and in the calculation the market value of the immovable and the loss suffered are most often taken as the basis.
Independent Legal Assessment
In disputes arising from a fiduciary transaction, the element that determines the fate of the action is most often not the legal characterisation but the documents available. Since the land registry creates an appearance favourable to the respondent, the burden of establishing the existence of the fiduciary relationship rests on the claimant from the outset. Whether that burden can be discharged depends on the existence of a text committed to writing at the time the relationship was established, or at the least of records capable of being regarded as a commencement of proof.
The second critical axis of the process is time. Since the transfer of the immovable to a third party acting in good faith may remove the claim in rem entirely and reduce the dispute to a monetary argument, a request for an injunction must not be neglected when the action is brought. When a road map is drawn up in a particular file, the following headings should be given priority:
- Collecting from the outset the written text evidencing the fiduciary relationship or, failing that, records in the nature of a commencement of proof
- Extracting the history of the land registry records so as to establish the chain of transfers and the existing encumbrances
- Raising, together with the statement of claim, a request for an interim injunction directed at an annotation prohibiting transfer
- Determining the moment at which the obligation to return became due and reviewing the ten-year period
- Including all persons appearing as owners in the register within the scope of standing, so as to eliminate the risk of failure to join a necessary respondent
- Preparing a claim for damages in the alternative, against the possibility that the claim in rem cannot be met
Independent Legal provides advisory services and conducts litigation at every stage of the process in disputes over annulment of title deed and registration arising from fiduciary transactions, from the collection of evidence to the entry of the judgment in the land registry.