A promissory note is a negotiable instrument that contains an undertaking to pay a certain sum of money and that the Turkish Commercial Code No. 6102 has made subject to strict formal rules. Finding very wide use in commercial relationships, this document is referred to in everyday language simply as a “note”.
For a document to bear the character of commercial paper, it must contain, without omission, the mandatory elements required by the Act. Since grave legal consequences attach to the absence of one of those elements, it is of great benefit for the conditions in question to be known throughout commercial life.
In this briefing note we examine separately the elements that the Act requires in every case, the alternative elements whose absence may be completed by other entries, and the optional clauses left to the will of the parties. It should be noted that a document that does not satisfy these formal conditions cannot acquire the quality of commercial paper.
Mandatory Elements That Must Appear on the Note
The elements that must appear on a promissory note are listed in Article 776 of the Turkish Commercial Code No. 6102:
Turkish Commercial Code No. 6102, Art. 776
"A promissory note or note payable to order shall contain: a) the word "promissory note" or "note payable to order" in the text of the instrument and, where the instrument is written in a language other than Turkish, the word used in that language as the equivalent of promissory note or note payable to order, b) an unconditional promise to pay a definite sum, c) the maturity, d) the place of payment, e) the name of the person to whom or to whose order payment is to be made, f) the date and place of issue, g) the signature of the issuer."
The Words "Promissory Note" or "Note Payable to Order"
These words must appear directly in the text of the instrument and not in some random corner of the document. What is meant by the text of the instrument is the sentence carrying the declaration of intention.
Whatever language the document has been drawn up in, the word corresponding to promissory note or note payable to order must be used in that language.
Unconditional Promise to Pay a Definite Sum
The promise to pay must likewise appear within the text of the instrument; the sum must further be expressed as a definite figure, in a manner leaving no room for doubt.
Where the amount is shown both in words and in figures and there is a discrepancy between the two, the amount written in words is taken as the basis. Where more than one sum is shown on the document, the lowest of them is accepted as valid.
It is not, however, compulsory for the sum to be shown in Turkish lira.
The undertaking to pay must not be made subject to any entry or condition. Otherwise the document cannot be said to retain the quality of a negotiable instrument.
The Payee
The payee, who shows to whom or to whose order payment is to be made, must be stated on the instrument by first name and surname or by trade name.
The Date of Issue of the Note
The date on which the document was issued must in every case be shown on the instrument, complete as to day, month and year.
The Signature of the Issuer
The person who creates the promissory note is the issuer, and the presence of that person’s signature is a formal condition. The signature must be the work of the hand, that is, it must be affixed by hand.
Consequences of the Absence of the Mandatory Elements
Where one of the required elements is missing, the fate of the document is regulated in Article 777 of the Turkish Commercial Code No. 6102:
Turkish Commercial Code No. 6102, Art. 777
"(1) Save for the situations set out in the second to fourth paragraphs, an instrument that does not contain one of the elements shown in Article 776 shall not be deemed a promissory note. (2) A promissory note in which the maturity is not shown shall be deemed a promissory note that must be paid at sight. (3) In the absence of an express statement, the place where the instrument was issued shall be deemed the place of payment and at the same time the place of residence of the issuer. (4) A promissory note in which the place of issue is not shown shall be deemed to have been issued at the place written next to the name of the issuer."
Where there is a gap in the mandatory elements, the document cannot acquire the quality of commercial paper. The direct consequence of this is that the safeguards and enforcement conveniences afforded to commercial paper cannot be relied upon. For that reason it is of critical importance, when a transaction based on a note is being carried out, to verify in advance whether the document carries the required elements.
Decision of the 11th Civil Chamber of the Court of Cassation, Case No. 2020/3096, Decision No. 2021/4744, dated 3 June 2021:
"….Upon examination by the regional court of appeal of the instrument that is the subject of the action, the date of issue, which is one of the mandatory elements of a promissory note, was not present, and for that reason the instrument was not of the quality of a promissory note; since the signature on the promissory note was not denied by the claimant, the promissory note had to be accepted as an ordinary written instrument …"
As is apparent from the decision, where the mandatory elements are absent the document is not deemed to be commercial paper.
Mandatory Elements of an Alternative Nature
The legislature has provided other entries that will take the place of certain elements where those elements do not appear on the instrument. For that reason the elements in question are termed alternative mandatory elements. The maturity, the place of issue and the place of payment fall into this group; their absence does not, as a rule, affect the validity of the promissory note.
Maturity
The maturity may be agreed in four different ways:
- A particular day being shown as the maturity
- The expiry of a particular period following the day of issue
- The passing of a particular period from the sighting of the instrument
- Payment at the moment of sight
Nevertheless, the writing of the maturity is not regarded as one of the essential formal conditions of a promissory note, because where no maturity is shown the document is accepted as a promissory note payable at sight. In other words, the Act presumes that payment is to be made at the moment of presentation even if no maturity whatever appears on the instrument.
Place of Issue
The place where the instrument was issued is expected to be shown. If that information does not appear on the document, the place written next to the name of the issuer fills the gap in question.
Where neither the place of issue is shown nor any place appears next to the name of the issuer, the document is deemed invalid on account of the absence of a formal condition.
Place of Payment
The place of payment is likewise among the formal conditions required on the instrument; however, where it is not shown, the place where the instrument was issued is accepted as the place of payment. There can accordingly be no question of an absolute obligation to write this entry.
Optional Elements
Additional stipulations may also be added to notes, such as an entry to the effect that the consideration has been received in cash or in goods, an acceleration clause, a security clause and an arbitration clause. These are left entirely to the preference of the parties, and their validity is assessed separately according to the content of the entry.
The optional elements of a note include the following:
- The name of the drawer
- Jurisdiction clause
- Interest clause
- Consideration clause
- Maturity condition and acceleration clause
- Costs and attorney’s fees clause
Independent Legal’s Assessment
A significant proportion of the disputes arising from commercial paper stems not from the existence of the debt but from the form of the document. Omissions that appear insignificant at first sight, such as leaving out the date of issue or adding a condition to the promise to pay, strip the document of its character as commercial paper and deprive the creditor of the enforcement procedure specific to commercial paper. For that reason a note should be examined separately at the moment it is issued and before it is taken over.
In practice, the following points in particular should be reviewed:
- Verifying that the words promissory note or note payable to order appear directly within the text and not at the margin of the instrument
- Checking the correspondence between the words and the figures and avoiding the writing of more than one sum
- Adding to the promise to pay no expression capable of carrying the character of a condition
- Confirming that the date of issue contains the day, month and year in full
- Ensuring, where the place of issue is not to be written, that a place name appears next to the name of the issuer
- Assessing optional additions such as interest, jurisdiction and costs clauses separately in terms of their conditions of validity
Independent Legal provides advisory services in the field of commercial law, from the issue of negotiable instruments to enforcement proceedings on commercial paper and the conduct of actions arising from notes.