1-Evaluation of the Concept of Interest and Its Main
Characteristics
The concept of interest is a concept that has
continued from the past to the present and has gained a place both in daily
life and in commercial life. In this context, it has become an important part
of the legal world. Regarding interest, the main guiding source in our law is
the Code on Legal Interest and Default Interest nr. #3095. Besides Code nr. #3095,
the Turkish Code of Obligations, the Turkish Commercial Code and the Banking
Law are among the other guiding laws.
According to the law and established case-laws,
interest has two sources. Accordingly, interest arises either from the law or
from a legal transaction. While the legal transaction may be a tort, unjust
enrichment, or a contract, in practice, the legal transaction that gives rise
to interest is often a contract. Although there is no definition of the concept
of interest in the law, interest is the civil result of money receivables under
the decisions of the Court of Cassation. As a result of a loan facility agreement
or other legal transaction or act, it is defined as the equivalent of the money
receivables and a kind of fee and rent of the person who becomes a creditor from
another person. [1]
In another definition, interest is defined as a civil
benefit that the creditor has the right to demand by law or a legal transaction
[2] due to the deprivation of his money for a period of time as a result of
leaving the possibility of using his money to the debtor. Based on these
definitions, interest arises in money debts and its existence depends on the principal
receivable. In other words, interest is of accessory nature. Its arising and
termination depend on the principal receivable. However,
Article 131/2 of the Turkish Code of Obligations sets out that: "If
the right to demand the performance of the accrued interest and penalty clause
is reserved by contract or by a notification to be made until the time of
performance, or if it is understood from the circumstances and conditions that
it is reserved, these interests and penalty clause may be demanded."
In this regard, it is possible for the interest
receivable to continue to exist even if the principal receivable is
terminated. Another reflection of the ancillary characteristic of interest is
the statute of limitations. As a matter of fact, even if the principal
receivable is time-barred, the interest will also be time-barred. However,
determination of the statute of limitation according to the principal
receivable is valid for default interest. Pursuant to the Article 147 of the
TCO, the statute of limitation for principal interest is five years. Even if
the statute of limitation of the principal receivable is longer than five
years, the interest may become time-barred before the principal receivable since
the statute of limitation of the principal interest is five years - for
example, if the receivable is subject to a ten-year limitation period – it becomes
time-barred. [3]
Another characteristic of interest is that it works
until the time it is paid, that is, it multiplies. Article 104 of the Turkish
Code of Obligations sets out as follows: "If a receipt is given by the
creditor for one of the periodic performances such as interest or rent without
reservation, the performances of the previous periods are also deemed to have
been fulfilled". As stated in the relevant provision, interest is a
periodic performance. Following the concept and characteristics of interest,
the types of interest will be discussed below.
2- Types and Characteristics of Interest Types in the Turkish
Legal System
2.1. Distinction between Simple Interest and Compound
Interest
Simple interest is the interest that almost everyone
thinks of when they think of interest. Simple interest refers to interest that
is charged on the principal at a certain rate over a certain period of time.
[4] Here, interest is in its simplest form. There is only interest on the principal.
In compound interest, also known as anatocism, in its most basic expression, it
is the re-interest on the amount obtained by adding the interest on the principal
to the principal.
In the doctrine, this situation is often explained
with the concept of charging interest on interest. As a rule, compound interest
is prohibited in our law due to its cumulative accumulation and the
unpredictability of its destination, which will cause a great burden for the
debtor in medium and long-term debts. [5]
Since the interest is linked to the principal receivable
and interest will run until payment of the principal receivable, compound
interest is prohibited as a rule with the amendments made under our law, since
a situation that will force the debtor in terms of compound interest will
arise. However, although the cases where compound interest is allowed are
limited, one of these cases is set out under the Turkish Commercial Code Nr. #6100.
Pursuant to the Article 8/f.2 of the Turkish
Commercial Code, compound interest may be agreed in two cases. The first
situation in which compound interest may be agreed is when the current account
agreement, whose parties are merchants, is concluded for a period not less than
three months.
The matter here is that both parties to the contract must be
merchants. Otherwise, a current account agreement may also be concluded by
non-merchants. The other situation where compound interest may be agreed upon
by the parties is the loan agreements that are commercial business for both
parties. In this regard, it is not sufficient for the contract to be a
commercial business. The parties to the contract must be merchants.
The last exceptional case as set out under the Turkish
Commercial Code, where compound interest may be applied, is that the applicant
debtor, who has been paid due to the exercise of the right of recourse in bills
of exchange, may request interest again on the interest paid while recourse to
the persons who came before him. This exception is set forth under the Article
726 of the Turkish Commercial Code. The Turkish Legal System, which prohibits
compound interest as a rule, has provided an exception under the said articles.
As a matter of fact, these provisions have been introduced by taking the
requirements of commercial life into consideration.
2.2. Distinction between Contractual Interest and Statutory
Interest
Under the Turkish legal system, the source of interest
is the law or legal transaction. The situation where interest is subject to
contractual interest or statutory interest is shaped according to arising of
the interest. Statutory interest is the interest accrued legally on a certain
receivable. [6] In cases where interest is required to be paid, if the amount
cannot be determined by contract, the interest to be paid is characterized as
statutory interest.
The legal interest rate is determined by law. [7] In
contractual interest, the parties determine the interest rate under the
contract executed by the same. This type of interest refers to the interest
applied to the principal receivable. In this context, it is possible to
voluntarily agree on principal interest, default interest and anatocism. [8] As
a rule, contractual interest is freely agreed between the parties. However,
some limitations are also stipulated.
Article 2 of the Turkish Civil Code can be taken as an
example of these limitations. Accordingly, while contractual interest is agreed
upon by the parties, they may not determine an interest rate that is contrary
to the rule of honesty. Another limitation is found in the Article 120 of the
Turkish Code of Obligations. According to the said provision, the annual
default interest rate to be agreed under the contract may not exceed one
hundred per cent more than the annual interest rate determined in accordance
with the first paragraph.
Since the Article 120/1 of the TCO refers to the Article
2/1 of the Law on Interest, in cases where the default interest rate is agreed under
the contract, this rate shall not exceed one hundred per cent more than the
interest rate determined pursuant to the Article 2/1 of the Law on Interest Nr.
#3095. If the parties have determined a rate higher than the maximum limit, the
excess default interest rate will be partially invalidated. For example, if the
parties have agreed on a rate of 30%, since this rate exceeds 18%, which is one
hundred per cent of 9%, the default interest rate agreed by the parties will be
accepted as 18%.
2.3. Distinction between Interest on Principal and
Default Interest
When discussing the distinction between interest on
principal and default interest, it should first be underlined that principal
interest is the interest accrued until the due date, while default interest is
the interest accrued after the due date, depending on the condition of default.
Interest on principal, also known as capital interest,
refers to the interest that will accrue from the principal until the maturity
date. Interest on principal may arise from the law as well as the contract. For
example, the Article 217/1 of the Turkish Code of Obligations sets out the
rights of the buyer in case of full possession. According to the said provision,
if the whole of the sale is taken away from the buyer, s/he may demand from the
seller the return of the sales price s/he has paid together with interest, by
deducting the value of the products s/he has obtained or neglected to obtain
from the sale. This provision clearly states that interest on principal will be
demanded. In order to claim interest for non-payment of interest on principal,
it is also necessary to apply to the court or the enforcement office. [9]
Interest on principal does not depend on the statute of limitations of the
principal receivable. In this context, the statute of limitations for interest
on principal is 5 years.
Default interest is the interest that must be paid if
a monetary obligation is not fulfilled on the date when it is due, either by
contract or by law. [10] Default interest arises in case of breach of the time
of performance. The time of performance may be agreed under the contract or may
be stipulated by law.
In order for default interest to be claimed, the debt
should not become impossible despite the default in performance of the debt.
Article 117 of the Turkish Code of Obligations, which sets out the default, reads
as follows: "The debtor of a due and payable debt is in default upon
the notice of the creditor". In order to be able to talk about the
default of the debtor, the debt must become due, that is, it must be demandable
by the creditor and the default notice must be given to the debtor. This is
because the default interest will start to run with the notice.
Although this is the general rule, in some cases as
stipulated under the law, cases where the debtor will be in default without the
need for notice are set out. (Art. 117/2 of the TCO) In these cases, the debtor
will be in default when the receivable becomes due without the need for any
notice by the creditor. Since default interest is a right attached to the
principal receivable, it is subject to the statute of limitation of the
principal receivable in terms of the statute of limitation.
Default interest shall accrue automatically in
accordance with the law, without the need for a provision under the contract.
Article 1530 of the Turkish Commercial Code sets out the
provision titled "Consequences of late payment in transactions
prohibited by commercial provisions and in the supply of goods and services".
In case of default without notice, it is seen that the fact of default of the
debtor is set out in two different ways according to whether the due date is
determined under the contract, or not.
Pursuant to this provision, if the contract sets a due
date, the debtor shall be in default upon the maturity of the contract pursuant
to the second paragraph, and if the contract does not set a due date, the
debtor shall be in default at the end of the thirty-day period pursuant to the
fourth paragraph, provided that certain conditions are fulfilled, without the
need for a notice by the creditor. [11]
In cases where the due date is not stipulated under the contract, Article 1530/f.4 of the TCC (Turkish Commercial Code) shall be applicable. The said provision sets out the cases where the debtor will default gradually and automatically. However, the debtor may always be in default with a notice after the debt is due and payable. In principle, default interest shall start to accrue from the day following the day on which the debtor is in default.
Default interest on severance pay receivable is set
out under the paragraph 11 of the Article 14 of the Labor Law Nr. #1475 as
follows: "At the end of the lawsuit to be filed due to non-payment of
the severance pay in time, the judge decrees the payment of the highest
interest applied to the deposit according to the delay period and the unpaid
period."
2.4. Distinction between Interest in Ordinary Business
and Interest in Commercial Business
Commercial interest arises in cases where the main
business arises from a commercial business. It is defined under the Article 3
of the Turkish Commercial Code. Accordingly, the matters, as set out under the
Turkish Commercial Code, and all transactions and acts concerning a commercial
enterprise are commercial business. It is important to note that the parties
are not required to be merchants. The main difference between interest in
ordinary business and interest in commercial business is in terms of demand. In
order to claim interest on the principal in ordinary business, the parties must
have included an interest clause in the contract. However, in some commercial
transactions, interest may be claimed even if there is not any interest clause incorporated
under the contract. [12]
2.4.1. Capital Interest and Default Interest Rates in
Commercial Business
In commercial transactions, capital interest may be
freely determined pursuant to the Article 8 of the Turkish Commercial Code in
cases where contractual interest is in question. However, there is a freedom
within general limits. In cases where statutory interest is in question, it is
9% in accordance with the Article 1 of Law Nr. #3095.
In commercial transactions, default interest may be
freely determined pursuant to the Article 8 of the Turkish Commercial Code in
cases where contractual interest is in question. However, there is a freedom
within general limits. In cases where statutory interest is in question, there
are specific conditions that apply to the determination of statutory default
interest in commercial business (Art. 387 of the TCO, Art. 8 of the TCC). In
cases where the amount of default interest has not been agreed under the contract,
the default interest may not be less than the amount of contractual interest if
the amount of contractual interest is above 36.75 determined by the Communiqué,
dated 01.11.2023, of the Central Bank of the Republic of Turkey in commercial
business.
2.5. Interest Rate on Deposit
The definition of deposit is defined in the Banking
Law Nr. #4389. Accordingly, it refers to money accepted in writing or verbally
or in any way, publicly announced, without consideration or in return for a consideration,
to be repaid on demand or at a certain due date.
Article 144 of the said Law authorizes the Central
Bank to determine the maximum interest rates to be applied in money lending
transactions and deposit acceptance, profit and loss participation rates in
participation accounts, the qualifications and maximum amounts or rates of
fees, expenses, commissions, and other benefits to be obtained from all kinds
of transactions, including special current accounts, and to release them
partially or completely. Deposits may be time or demand deposits. Accordingly,
the bank determines the interest rate to be applied under the contract.
2.6. Rediscount Interest
Rediscount is the re-exchange of assets that have been
discounted, in other words, that have changed hands for a price, in exchange
for a price. [13] It is set out under the Article 45 of the Central Bank Law.
The last updated rediscount interest rate is 43.25%.
2.7. Advance Interest
Pursuant to the Article 45/2 of the Central Bank Law,
the Central Bank may also grant advances against the assets that it may accept
for rediscount. The assets taken as collateral for advances are commercial
bills and documents, government bonds and bonds registered in the stock
exchange. The advance interest rate determined on 23.12.2023 is 44,25%.
2.8. Interest on Foreign Currency Debt
Unless otherwise agreed by the parties, a debt which
is a money debt shall be paid in the national currency. This is in accordance
with the principle of performance in national currency. The exception to the
principle of performance in national currency is performance in foreign
currency. Foreign currency debt, as a
rule, arises from the contract. In debts arising from torts and unjust
enrichment, the rule is to make the payment in the national currency.
Although this is the rule, in cases of tort and unjust
enrichment arising from a situation involving an element of foreignness, the
performance of the obligation may be in foreign currency. Especially in the
case of unjust enrichment, if the enriched person is in good intentions, he
must return whatever he has at the time of return, if he is in bad intentions,
he must return the entire enrichment, and if the subject of unjust enrichment
is foreign currency, the return will also be in foreign currency [14].
Pursuant to the Article 4/a of Law Nr. #3095, unless a
higher contractual or default interest rate is agreed under the contract, the
highest interest rate paid by the State Banks to a one-year term deposit
account opened in that foreign currency shall be applied for the interest on
foreign currency debt.
3- CONCLUSION
Interest has become a part of commercial life and even
daily life today. Although there is no clear definition of interest, which is
used so much in life, in the field of law, it is defined in the case-law of the
Court of Cassation as an acceleration that compensates for deprivation of money
that is not in the creditor's pocket on time.
Interest is an accessory right attached to the principal receivable. Although this is the general rule, interest is not a part of the principal receivable, although it is dependent on the principal receivable. The interest receivable is independent from the principal receivable. Since the interest is independent from the principal receivable, it may be claimed and sued separately from the principal receivable, made subject to follow-up, transferred, pledged, and attached.
Even if the lawsuit filed for the principal receivable
is filed without reserving the right to interest, it is possible to file a
separate lawsuit for the claim of interest. Interest may arise from the law or
a legal transaction. Although the legal transaction is mostly a contract in
practice, unjust enrichment and tort may also be the sources of interest.
According to the way of calculation; interest is classified as simple interest
and compound interest. Since compound interest may cause unforeseen risks by
the debtor, the rule in the Turkish Legal System is that compound interest (anatocism)
is prohibited. However, as a necessity of commercial life, the Turkish
Commercial Code sets out three situations in which compound interest may be
requested.
As opposed to the former Turkish Commercial Code Nr. #818,
the Turkish Code of Obligations Nr. #6098 imposes an upper limit on interest
rates. These provisions are included in the Articles 88 and 120. However, since
the interest rate is freely determined in commercial transactions, there is no
limit in terms of commercial transactions.
The beginning of the interest obligation is the time of
arising of the debt, unless it is determined by the parties in the interest on
the principal. With respect to termination of the interest on the other hand; since
the interest is linked to the principal receivable, the interest will end upon termination
of the principal receivable, that is, upon payment thereof. Apart from this,
the interest obligation may also be terminated by the agreement of the parties
or by renewal. The other situation in which interest will be terminated is the
merger of the titles of creditor and debtor. In these cases, termination of
interest is possible.
In this study, interest types are briefly stated and
explained. Interest rates may vary depending on the types of interest, and
changes may be made by law or may be published in various communiqués. It is
important to follow the changes in interest rates in order to avoid loss of
rights.
Ebru Erkmen, Legal Intern
References:
1. The
decision, bearing the Basis number 2013/2249 and the Decision number 2015/1362, and dated 15.05.2015, of the
General Assembly of Civil Chambers of the Court of Cassation.
2. Zeynep
Şeyma Ceylan, "Para Borçlarının İfasında Faiz", Department of Private
Law Master's Thesis, Institute of Social Sciences, Istanbul University.
3. Zeynep
Şeyma Ceylan, "Para Borçlarının İfasında Faiz", Department of Private
Law Master's Thesis, Institute of Social Sciences, Istanbul University.
4. Paslı,
Ali “Adi ve Ticari İşlerde Faiz”, The Journal of the Faculty of Law, Istanbul University.
5. Zeynep
Şeyma Ceylan, "Para Borçlarının İfasında Faiz", Department of Private
Law Master's Thesis, Institute of Social Sciences, Istanbul University.
6. Paslı,
Ali “Adi ve Ticari İşlerde Faiz”, The Journal of the Faculty of Law, Istanbul University.
7. Mustafa
Serhat Şen, Mustafa Kamil Şen, "Türk Borçlar Kanunu’nda Faiz Hükümleri ve
Sınırları Adi İşlerde Faiz", JJAT July 2018, p.35
8. Paslı,
Ali “Adi ve Ticari İşlerde Faiz”, The Journal of the Faculty of Law, Istanbul University.
9. Paslı,
Ali “Adi ve Ticari İşlerde Faiz”, The Journal of the Faculty of Law, Istanbul University.
10. Paslı,
Ali “Adi ve Ticari İşlerde Faiz”, The Journal of the Faculty of Law, Istanbul University.
11. Zeynep
Şeyma Ceylan, "Para Borçlarının İfasında Faiz", Department of Private
Law Master's Thesis, Institute of Social Sciences, Istanbul University.
12. Zeynep
Şeyma Ceylan, "Para Borçlarının İfasında Faiz", Department of Private
Law Master's Thesis, Institute of Social Sciences, Istanbul University.
14. Zeynep
Şeyma Ceylan, "Para Borçlarının İfasında Faiz", Department of Private
Law Master's Thesis, Institute of Social Sciences, Istanbul University.
