Cancellation and Loss of Commercial Papers

Commercial papers, by nature, consist of rights, promissory notes, and a combination of rights and promissory notes. Therefore, they are subject to a unique cancellation procedure. If a commercial paper containing an inseparable right is lost or handed over without the consent of its rightful owner, there may be a risk that others may illegally use the right. To prevent this, a cancellation procedure has been established. This cancellation procedure is distinct from the one described in Article 105 of the Turkish Code of Obligations (TCO), which pertains to promissory notes, and is a specialized and qualified process.

The purpose of canceling a commercial paper is to restore the opportunity for the rightful owner to use or transfer their right when the commercial paper is lost. Through cancellation, the owner is given the opportunity to regain control of the lost right.

The concept of loss is broad and includes situations such as misplacement, theft, or hijacking, as well as cases where part or all of the document is destroyed by fire or torn beyond readability. However, the temporary loss of possession of a commercial paper does not constitute a “loss,” as the possession will ultimately return to the rightful owner. The term “loss” refers to the situation where the commercial paper cannot be returned to its rightful owner.

Provisions on the Cancellation of Commercial Papers

According to Article 651 of the Turkish Commercial Code (TCC):

Article 651/1: “If a commercial paper is lost, the court may order its cancellation.”

Article 651/2: “The person holding the right to the commercial paper, upon the occurrence or discovery of the loss, may request the court to cancel the commercial paper.”

As stated in the law, cancellation of a commercial paper can only be done by a court order. The person holding the right to the commercial paper must initiate the cancellation action. According to Article 646/2 of the TCC, the person who holds the right to a commercial paper is the creditor, depending on the type of paper. To initiate a cancellation action, the commercial paper must be a valid commercial paper under the law.

The law does not provide specific regulations on whether promissory notes, bills of exchange, or checks, which are referred to as “open bills,” “open promissory notes,” and “open checks” due to missing mandatory elements, are subject to the cancellation provisions. However, according to the decisions of the Court of Appeals, such incomplete commercial papers can be considered commercial papers and can be subject to cancellation, as the missing elements can be filled in later. For example, according to the Court of Appeals’ decision (11th Chamber, 21.06.2017, E. 2016/1016, K. 2017/3929):

“According to TCC Article 680, a partially filled or merely signed bill of exchange can be put into circulation. The missing information can be filled in before the bill is presented. Therefore, a bill with an empty payee field can be processed as a negotiable instrument when the missing information is completed, and in case of its loss, a cancellation action can be initiated.”

For initiating a cancellation lawsuit, the first requirement is that the document must be a commercial paper. The second requirement is that the commercial paper must be lost. The third requirement is that the right stated in the commercial paper must still exist.

According to TCC Article 651/2, the person holding the right to the lost or missing commercial paper can request the cancellation of the document. Therefore, only the rightful owner can request the cancellation of the commercial paper. The rightful owner is the payee or the holder to whom the paper has been transferred.

While the drawer may not be authorized to initiate a cancellation action, they may file a negative declaratory action or restitution claim.

Cancellation Lawsuit and Legal Process

A lawsuit filed for the cancellation of a commercial paper due to its loss is essentially a declaratory action. However, once a cancellation lawsuit is filed, two outcomes may arise for the person requesting cancellation:

TCC Article 652/1: “Upon cancellation, the rightful owner may assert their right without the document or request that a new document be issued.”

TCC Article 652/2: “Special provisions apply to the cancellation procedures and provisions concerning various types of commercial papers.”

TCC Article 653: “Special provisions concerning various types of commercial papers remain applicable.”

Cancellation of Bearer Commercial Papers

According to TCC Article 661/2, the competent court for cancellation decisions is “the civil court of first instance at the place of the debtor’s residence or the place of the registered office of the company for registered shares.”

The cancellation lawsuit is considered an uncontested lawsuit, and therefore, the law avoids using the term “plaintiff” and instead uses the term “petitioning party.” Since the cancellation lawsuit is uncontested, the decisions made in such cases are not subject to appeal, but they can be contested by objection.

The person requesting cancellation must prove that they were the rightful holder of the commercial paper but lost possession of it. This proof is usually circumstantial and may include documents such as a protest certificate, bank notification, or endorsement statement.

Payment Prohibition

According to TCC Article 662/1, “Upon the petitioning party’s request, the court may prohibit the debtor from paying the amount of the commercial paper, warning them that they will have to pay twice if they act otherwise.” This request is different from the cancellation request. A payment prohibition request aims to stop the payment of the commercial paper. If the prohibition is granted, the relevant parties will be notified, and if payment is made, they may be required to pay again. The payment prohibition is considered a precautionary measure. The petitioning party may appeal to the regional court of appeal if the payment prohibition request is rejected.

Public Notice Process

Following the payment prohibition, the law mandates a public notice process for the cancellation of a commercial paper. The notice is published in the Turkish Trade Registry Gazette. The purpose of the notice is to invite the person holding the paper to present it to the court if they are indeed the rightful owner of the commercial paper. The notice period for bearer commercial papers is six months. After the notice period, two situations may arise:

If the person holding the paper presents it within six months, the court may grant a period for the petitioning party to convert the cancellation lawsuit into a restitution lawsuit. If this happens, the case becomes a contested lawsuit. If the petitioning party does not convert the lawsuit, the court will lift the payment prohibition and dismiss the case.

If the person holding the paper does not present it within the prescribed period, the court will proceed with the cancellation decision. Since this is an uncontested case, the decision will be binding but will not create the effect of a commercial paper; it is simply a declaratory judgment. Therefore, the rightful owner cannot initiate enforcement proceedings based on this decision.

Conclusion

The cancellation of a commercial paper lost without the consent of its rightful owner follows a unique procedure that varies depending on the type of commercial paper. The purpose of this procedure is to prevent the unauthorized use of the right by third parties. A proper legal process for cancellation must be followed, considering various provisions of the Turkish Commercial Code and relevant case law.