The Constitutional Court’s Pilot Decision: The Inadequacy of the Excess Damage Provision in Providing Effective Legal Protection Against Inflation
Introduction
The claim for excess damages has long been a subject of debate in Turkish law of obligations as a type of claim seeking compensation for the creditor’s loss arising from the default in payment of monetary debts, which cannot be covered by default interest. Particularly during periods of high inflation, the relevance of this institution becomes particularly pronounced, and the concept of excess damages is reconsidered in the context of preserving the real value of receivables, maintaining fair balance, and protecting property rights. Divergent approaches in judicial practice regarding the proof of excess damages have caused significant issues in terms of legal predictability and effective protection. At the center of these debates, the Constitutional Court (CC) in its pilot decision dated 08.07.2025 with application number 2024/41763 (Pilot Decision), concluded that there was no effective legal remedy to compensate for the real value loss of receivables against inflation and ruled that the applicant’s property right and right to an effective remedy were violated. Considering the structural nature of the problem beyond individual applications, the CC invoked the pilot decision procedure, notified the Grand National Assembly of Türkiye (GNAT), and decided to defer the examination of similar applications for six months.
Excess Damages
Default Interest and Excess Damages
Under the Turkish Code of Obligations No. 6098 (TCO), if monetary debts are not performed on their due date and default occurs, the debtor becomes obliged to pay default interest. Interest constitutes an accessory obligation linked to the principal debt, payable as a legal consequence of default. The debtor’s fault or actual loss is not required for the obligation to pay default interest. In other words, even a debtor who is not at fault for the default is obliged to pay default interest for a monetary debt[1] . As the creditor is not required to prove any loss, default interest is generally regarded in doctrine as a form of compensation ipso iure[2] .
If the loss exceeds the default interest, the creditor has the right to claim compensation for the excess (TCO Art. 122). The debtor, however, can escape liability for excess damages by proving the absence of fault. To claim excess damages, the following conditions must be met: (i) the debtor has defaulted; (ii) the subject of the debt is monetary; (iii) there is excess damage; (iv) the debtor is at fault in the default; and (v) there is a causal link between the excess damage and the debtor’s default[3] . Excess damages concern compensation for losses arising from the default caused by the defaulting debtor. Accordingly, such damages cover the period from the debtor’s default until the date of actual payment.
Proof of Excess Damages
The regulation on excess damages allows the debtor to avoid liability by proving absence of fault. In doctrine, some authors argue that the burden of proving that default interest does not cover the actual loss lies with the creditor under general rules[4] . The creditor is expected to prove specific circumstances causing excess damage, such as being unable to pay a debt subject to higher interest, being obliged to pay a contractual penalty to their own creditors due to default, incurring credit costs, or losing a planned good or business opportunity[5]. It is generally accepted that a real value loss due to inflation exceeding the default interest rate constitutes excess damages[6]. However, scholars note that proving inflation-related excess damages poses significant practical difficulties for creditors, and it has been suggested that judges assess such loss equitably under TCO Article 50(2)[7] . The issue of proof of excess damages has been subject to differing interpretations in judicial decisions.
Previous Approaches of the CC and the Court of Cassation on Excess Damages
The CC’s Approach
In its decision dated 21 December 2017 with application number 2014/2267, the CC held that requiring a creditor to prove damages arising from the depreciation of money due to inflation until the debt is satisfied imposes an excessive burden and constitutes a violation of the right to property.
The Court of Cassation’s Approach
For many years, the Court of Cassation refrained from recognizing inflation exceeding the statutory interest rate as prima facie damage, insisting that creditors substantiate the alleged loss with concrete evidence[8] . Following the CC’s finding of a property rights violation, however, the Court of Cassation revised its position. In the aftermath of the CC’s 2017 decision, the 15th Civil Chamber accepted that losses not compensated for by default interest may be presumed, thereby shifting the burden of proof to the debtor to demonstrate the absence of damage[9] .
Nonetheless, the General Assembly of Civil Chambers, in its decision dated 29 March 2022, reverted to its earlier stance, holding that the creditor must prove the claimed loss through concrete evidence rather than by reference to abstract factors such as inflation or general economic conditions[10]. Within this framework, excess damages must be established clearly, concretely, and credibly, using legally admissible means of proof. Until 2025, various chambers of the Court of Cassation continued to deliver conflicting judgments on this matter[11].
In a more recent decision[12] dated 13 January 2025, the 6th Civil Chamber acknowledged the prevalence of hyperinflation and emphasized the need for distinct evaluative criteria. The Chamber adopted a dual approach: in periods of normal inflation, concrete proof of loss is required, whereas in times of hyperinflation, the creditor’s loss in asset value due to delayed performance should be presumed based on economic indicators such as inflation rates, foreign exchange appreciation, or increases in gold prices.
The CC’s Pilot Decision
The Case Giving Rise to the Individual Application
In the underlying dispute, the applicant-initiated enforcement proceedings on 9 November 2010 against a private bank concerning a residential finance loan, claiming TRY 48,854 in principal debt. The debtor’s objection suspended enforcement, prompting the applicant to file a lawsuit for annulment of the objection before a civil court. Ultimately, the court annulled the objection and ordered continuation of the enforcement with annual 9% default interest until full payment. The judgment became final on 1 July 2020, and the debtor subsequently paid TRY 119,114.76 in total.
The applicant later filed a separate lawsuit seeking compensation for excess damages not covered by default interest, citing the prolonged litigation process and severe inflation that had significantly eroded the real value of the receivable. The Istanbul 10th Consumer Court dismissed the claim, and the dismissal was upheld on appeal. The 3rd Civil Chamber of the Court of Cassation maintained that general economic factors such as inflation or currency fluctuations do not relieve the creditor from the burden of proof. Having exhausted domestic remedies, the applicant lodged an individual application before the CC, alleging violations of the right to property and the right to an effective remedy.
Assessment by the CC
In its Pilot Decision, the CC refrained from addressing how or by whom excess damages should be proven. Instead, it focused on whether the existing legal framework provides an effective mechanism to preserve the real value of receivables against inflation. Upon examining the Law on Legal and Default Interest (No. 3095) and the relevant provisions of the TCO concerning interest and excess damages, the Court concluded that the current legal regime lacks an effective means to safeguard the real value of monetary receivables. In particular, statutory interest rates were found to be insufficient to offset the loss of value during high-inflation periods.
The CC held that, under Articles 35 and 40 of the Constitution, the State bears a positive obligation to establish a legal framework that prevents substantial erosion of receivables’ value between private parties due to inflation (Pilot Decision, para. 56).
Accordingly, the CC determined that the failure to compensate for the loss of value caused by default in payment imposes a disproportionate burden on creditors and upsets the fair balance between the parties. Given the inconsistent case law on the proof of excess damages, the Court found that the current legal and judicial mechanisms neither ensure compensation for inflation-induced losses nor provide an effective domestic remedy (Pilot Decision, para. 65).
The Court therefore regarded the inability to preserve the real value of receivables as an interference with property rights. Furthermore, since existing judicial remedies proved ineffective, it also found a violation of the right to an effective remedy.
Recognizing the systemic and structural nature of the issue, the CC applied the pilot decision procedure. It underscored the need to notify the GNAT and to introduce legislative amendments establishing an effective domestic mechanism to compensate for inflationary value loss. The Court also decided to defer similar pending applications for six months.
Dissenting Opinion
In the dissenting opinion, while concurring with the majority that depreciation of receivables against inflation constitutes a violation of property rights, the dissenters argued that the violation arises not from a structural legislative deficiency but from the judiciary’s misinterpretation of TCO Article 122 in a manner inconsistent with the Constitution. They contended that Article 122 does not impose on creditors a burden to prove excess damages and that this practice stems from erroneous case law of the Court of Cassation. The dissent maintained that the existing statutory framework already enables creditors to seek excess damages; therefore, notification to the GNAT and the application of the pilot decision procedure were unnecessary. Instead, the violation could have been remedied simply by remanding the case for retrial.
Conclusion
The Pilot Decision demonstrates that the real value loss suffered by the creditor due to delayed payment of monetary debts must be assessed not only under private law but also in terms of constitutional guarantees. The CC found that existing remedies are insufficient to protect the creditor’s property rights, highlighting the need for structural regulations ensuring effective protection of receivables against economic conditions. The decision serves as a significant call for reform both to enhance consistency in judicial practice and to prompt the legislature to establish a comprehensive legal framework responsive to economic realities.
- Oğuzman, M. Kemal/Öz, M. Turgut: Borçlar Hukuku Genel Hükümler, C.1, İstanbul, 2013, p. 503.
- Oğuzman/Öz, p. 503.
- Kılıçoğlu, Ahmet: “Yargıtay Kararları Açısından Munzam Zarar”, Ticaret Hukuku ve Yargıtay Kararları Sempozyumu, 1999, p. 11-12.
- Kılıçoğlu, s. 12; Oğuzman/Öz: p. 510.
- Kılıçoğlu, s. 12; Oğuzman/Öz: p. 510.
- Tekinay, Selahattin S.: Borçlar Hukuku Genel Hükümler, İstanbul, 1993, p. 943.
- Tekinay, p. 943.
- Court of Cassation 15th Civil Chamber dated 21.03.2005, Case No: 2004/4662, Decision No: 2005/1596, www.lexpera.com; Court of Cassation 19th Civil Chamber dated 20.03.2006, Case No: 2005/11377, Decision No: 2006/2827, www.lexpera.com; Court of Cassation General Assembly of Civil Chambers dated 31.10.2007, Case No: 2007/11-668, Decision No: 2007/798, www.lexpera.com; Court of Cassation 14th Civil Chamber dated 08.07.2008, Case No: 2008/5486, Decision No: 2008/9057, www.lexpera.com; Court of Cassation 15th Civil Chamber dated 12.05.2016, Case No: 2016/1049, Decision No: 2016/2737, www.lexpera.com.
- Court of Cassation 15th Civil Chamber dated 25.04.2018, Case No: 2017/2736, Decision No: 2018/1742, www.lexpera.com; Court of Cassation 15th Civil Chamber dated 28.11.2018, Case No: 2018/3499, Decision No: 2018/4739, www.lexpera.com.
- Court of Cassation General Assembly of Civil Chambers dated 29.03.2022, Case No: 2021/928, Decision No: 2022/401, www.kazanci.com.tr.
- Court of Cassation 6th Civil Chamber dated 14.11.2024, Case No: 2023/1766, Decision No: 2024/4097, www.lexpera.com.
- Court of Cassation 6th Civil Chamber dated 13.01.2025, Case No: 2024/3534, Decision No: 2025/15, www.lexpera.com.
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The emergence of the installment sale (taksitle satış) as a distinct type of contract compared with an ordinary sale is rooted in economic necessity: it enables individuals who cannot afford to pay the full price at once to immediately benefit from the goods they wish to purchase, thereby stimulating the market and...
One of the fundamental principles of the Turkish Civil Code (“TCC”) is the principle of reliance on the land registry. This principle plays a decisive role in the acquisition and protection of real rights. In practice, construction agreements in exchange for land share are frequently encountered. In such contracts...
Lease agreements are among the contracts that grant tenants the right to use immovable property for a certain period in exchange for payment and impose significant obligations on the parties. Under Article 310 of the Turkish Code of Obligations (“TCO”), if the ownership of an immovable property changes, the...
Adaptation of the lease agreement cases is among the most frequently encountered legal disputes, especially in the event of economic fluctuations and changes in market conditions. In these cases, it is requested that the rental price be adapted according to the current conditions. Article 138 of the Turkish Code of...
Article 351 of the Turkish Code of Obligations (“TCO”) regulates the new owner’s right to evacuate the immovable property for its needs following the acquisition of the right of ownership. Whether this provision applies to the new owners who were previously joint owners of the immovable property has been the subject...
The assumption of a debt or an act (performance) of a third party has a critical role in the maintenance of commercial relations and the resolution of commercial disputes. The Court of Cassation General Assembly of Civil Chambers (“General Assembly”) recently issued a decision numbered...
In general terms, eviction due to the need for residency is a lawsuit regulated under Article 350 of the Turkish Code of Obligations No. 6098 ("TCO") and is filed in the event that the lessee is obliged to use the leased property as a residence or workplace for himself/herself, his/her spouse, descendants, ascendants...
Ordinary partnerships are regulated under Turkish Law between Articles 620 and 645 of the Turkish Code of Obligations No. 6098 (“TCO” or the “Code”). The Law defines an ordinary partnership contract as a contract where two or more persons undertake to combine their labour or property to achieve a common...
The Decree No. 32 on the Protection of the Value of Turkish Currency (“Decree No. 32”) and the Communiqué No. 2008-32/34 on the Decree No. 32 on the Protection of the Value of Turkish Currency (“Communiqué”) prohibit the determination of the contract prices of certain contracts and other payment obligations...
The Constitutional Court's decision dated 14.09.2022 and published in the Official Gazette dated 25.10.2022 and numbered 31994 ("the Constitutional Court Decision") examines whether the start of the application period related to the applicant’s request for appeal being from the date of the pronouncement of...
Although the general principle in the law of contracts is freedom of contract or, in other words, freedom of will, the parties’ wills are not completely free in the case of exemption agreements. The validity of these agreements is limited by the mandatory provisions of the Turkish Code of Obligations...
The Constitutional Court, in its decision dated 14.09.2021 on application no. 2018/25663 (“Decision"), found that applicant Cahide Demir’s right to property was violated on the ground that the mortgage on her real estate, established to secure a third party’s debt, had not been released by the...
The use of general terms and conditions is a commercial reality not only in consumer transactions but also in commercial transactions in certain industries such as automotive, banking, insurance, telecommunications and energy...