Background
The claimant purchased, for TRY 180,000, a cooperative interest associated with an apartment in Antalya. Under a January 14, 2015 agreement, title was to be transferred to the claimant, and an apartment owned by the defendant in Konya was mortgaged as security. The agreement also required either party breaching its terms to pay a penalty equal to 10% of the sale price. Title was not transferred within the agreed period, and the purchase price was not refunded.
The claimant commenced two enforcement proceedings: one seeking the contractual penalty and another seeking foreclosure of the mortgage securing TRY 180,000. After the defendant objected, the claimant brought separate actions to annul the objections; the actions were later joined. The Antalya 2nd Commercial Court of First Instance granted both claims and awarded enforcement-denial compensation. The defendant appealed, arguing principally that the failure to obtain an occupancy permit and transfer title was attributable to the cooperative, landowners, and the claimant rather than to the defendant.
The Court’s Holding
The Regional Court upheld the judgment in the joined mortgage action. It found that the defendant had failed to perform the contractual obligation on time, was at fault for the nonperformance, and had not returned the claimant’s TRY 180,000. The claimant was therefore entitled under Article 873(1) of the Turkish Civil Code to pursue foreclosure of the security mortgage. The court annulled the defendant’s objection, permitted enforcement to continue, and affirmed enforcement-denial compensation of TRY 36,000, equal to 20% of the debt.
The court reached the opposite result on the principal action for the 10% contractual penalty. It classified the clause as an alternative contractual penalty under Article 179 of the Turkish Code of Obligations. Because the claimant’s recovery of the secured TRY 180,000 constituted positive damages in lieu of performance, the claimant could elect either that recovery or the contractual penalty, but not both absent an express agreement permitting cumulative recovery. Having elected positive damages through the mortgage proceeding, the claimant could not additionally collect the penalty. The court therefore vacated the first-instance judgment and entered judgment rejecting the penalty claim.
Key Takeaways
- A generally worded penalty for breach may be treated as an alternative penalty, requiring the creditor to choose between the penalty and a substitute for performance.
- A creditor may not recover both positive damages in lieu of performance and an alternative contractual penalty unless the contract expressly authorizes cumulative recovery.
- A mortgage securing the purchase price remained enforceable where the promised title transfer was not completed, the defendant was at fault, and the purchase price had not been refunded.
Why It Matters
The decision distinguishes enforcement of contractual security from recovery of a contractual penalty. Although the same nonperformance supported foreclosure of the mortgage, it did not permit an additional penalty because the contract provided no clear right to cumulative remedies.
The ruling on the penalty claim was final because its value fell below the threshold for further appeal. The mortgage ruling remained appealable to the Court of Cassation within two weeks after service.