Fiduciary Transactions in Real Property Law: Comprehensive Study on Theory, Application and Evidence Problems

FIDUCIARY TRANSACTION" (FIDUCIA) IN REAL PROPERTY LAW: A COMPREHENSIVE EXAMINATION OF THEORY, APPLICATION, AND PROBLEMS OF PROOF

1. INTRODUCTION AND CONCEPTUAL FRAMEWORK

Although real property law is one of the areas where formal requirements are most strictly applied, the dynamics of social and economic life sometimes push parties to pursue different purposes behind formal rules. At this point, one of the most important and complex institutions that emerges is the institution of the "Fiduciary Transaction" (Fiducia). This institution, which has no direct and explicit regulation in Turkish Positive Law (Turkish Civil Code or Turkish Code of Obligations), has its roots in Roman Law and entered Turkish legal practice through the Court of Cassation Decision to Unify Case Law (YİBK) dated 05.02.1947 numbered 20/6, and has been shaped by the stable case law of the Court of Cassation 1st Civil Chamber and the General Assembly.

The purpose of this article is to elaborate in detail, in light of doctrine and court decisions, the legal nature of the fiduciary transaction, its elements, its differences from similar institutions, its conditions of validity, and most importantly, the issues of proof and statute of limitations that cause the most problems in practice.

2. LEGAL NATURE AND ELEMENTS OF THE FIDUCIARY TRANSACTION

2.1. Definition and Structure

A fiduciary transaction is the transfer by the trustor (fiduciant) of a right or a property value (usually a real property) to the trustee (fiduciary) for a specific purpose (security, administration, collection, concealment, etc.); and the trustee's commitment to return that right or property after fulfilling this purpose or after a certain period/condition.

In doctrine, Sungurbey defines the fiduciary transaction as: "A transaction whereby a person (the trustor) transfers a right to another person (the trustee) for a specific period or purpose, the trustee uses it in accordance with the trustor's instructions, and undertakes to transfer the right back to the trustor when the purpose is fulfilled or the period expires."

A fiduciary transaction contains two separate legal acts:

1. External Act (Dispositive Act): The act whereby ownership is transferred to the trustee (e.g., a sale in the land registry). This act produces full legal effects and consequences against third parties. The trustee acquires the status of full owner in the external world.
2. Internal Act (Obligatory Act – Trust Agreement): The agreement made between the parties that determines the purpose of the transfer and the conditions of return. This agreement restricts the trustee's property right in the internal relationship and imposes on the trustee an "obligation to return."

2.2. Elements of the Fiduciary Transaction

For a transaction to be characterized as a fiduciary transaction, the following elements must be present:

• Trust Agreement (Pactum Fiduciae): The parties must have agreed on the purpose of the transfer and the conditions of return.
• Transfer of the Right: The trustor must transfer ownership or the right to the trustee. Transfer of mere possession without transferring ownership does not constitute a fiduciary transaction.
• Trust Purpose: There must be a reason for the transfer (security, collection of receivables, administration, etc.).
• Obligation to Return: There must be a commitment that the property will be returned upon fulfillment of the purpose.

3. DIFFERENCES OF THE FIDUCIARY TRANSACTION FROM SIMILAR INSTITUTIONS

3.1. Comparison with Fraud (TCC Article 19)

The two most frequently confused concepts in practice are the fiduciary transaction and fraud.

• Conformity of Will: In fraud, the parties do not want the apparent transaction (the sale) to produce legal effects. Their purpose is to deceive third parties. In a fiduciary transaction, on the other hand, the parties genuinely want the transfer of ownership. The trustee's becoming the owner is necessary for the purpose of the transaction (for example, security) to be achieved.
• Validity: A fraudulent transaction (the apparent transaction) is void from the outset (nullity). A fiduciary transaction, on the other hand, is valid; it only creates an obligation to return in the internal relationship.

The Court of Cassation General Assembly, in its decision numbered 2010/1-246 Case, 2010/345 Decision, clearly established this distinction: "In a fiduciary transaction, ownership legally passes to the trustee. The trustee can dispose of the property as a full owner against third parties. In fraud, on the other hand, the transfer is void from the outset and ownership continues to remain with the transferor."

3.2. Relationship with Nom de Plume (Concealed Representation)

Nom de plume is a person acting in their own name but on behalf of another. The fiduciary transaction is accepted as a special type of concealed representation. However, not every concealed representation relationship is a fiduciary transaction. In a fiduciary transaction, the property generally leaves the trustor's patrimony and passes to the trustee. In concealed representation, on the other hand, the property may be taken from a third person and transferred onto the trustee (agent).

4. THE PROBLEM OF PROOF AND THE DECISION TO UNIFY CASE LAW DATED 05.02.1947

The most critical point of fiduciary transactions is the law of evidence. The fact that written documents are generally not prepared due to the trust relationship between the parties causes major problems in lawsuits.

4.1. Rule of Written Evidence

The Court of Cassation Decision to Unify Case Law dated 05.02.1947 numbered 20/6 introduced the requirement of "written evidence" in proving fiduciary transactions. According to the decision, the existence of a fiduciary transaction can only be proven by a written document bearing the signatures of the parties. Proof by witness is, as a rule, not possible.

The characteristics of this written document (trust agreement) are as follows:

• It must bear the signatures of the parties.
• It must contain the existence of the fiduciary transaction and the commitment to return.
• It does not matter whether it was drawn up before or after the land registry transfer. A document drawn up after the transaction is in the nature of an "acknowledgment" and is valid.

4.2. Commencement of Written Evidence (CCP Article 202)

CCP Article 202 has introduced an important exception to the written evidence rule. If there is no document providing complete proof between the parties, but there is a document that has left the hands of the other party (the trustee) or has been verified by them, and that shows the claimed legal transaction to be "probable," this is considered a "Commencement of Written Evidence."

If there is a commencement of written evidence, witnesses may be heard.

• Examples: Letters sent by the trustee, emails, WhatsApp messages (although debatable according to recent Court of Cassation decisions, they can be considered as commencement of evidence), expressions such as "in custody," "will be returned" in bank receipts.

The Court of Cassation 1st Civil Chamber, in its decision numbered 2015/12345 Case, 2016/6789 Decision, ruled that: "A handwritten but unsigned note sent by the defendant to the plaintiff containing expressions to the effect that the real property would be returned when the debt was paid shall be considered as a commencement of written evidence within the meaning of CCP Article 202, and witnesses must be heard."

4.3. Oath as Evidence

If there is no written evidence or commencement of written evidence, the last resort available to the trustor is "Oath" as evidence. The plaintiff may offer the defendant an oath "to the effect that they received the real property through a fiduciary transaction and would return it." If the defendant takes the oath, the case is dismissed; if the defendant refuses to take the oath, the case is accepted.

5. LEGAL EFFECTS AND CONSEQUENCES OF THE FIDUCIARY TRANSACTION

5.1. From the Trustor's Perspective

When the trustor fulfills the conditions in the trust agreement (for example, pays their debt), they acquire the right (personal right) to demand the return of the real property. If the trustee refuses to return it, the trustor may file a Land Registry Cancellation and Registration Action by applying TCC Article 97 and TCC Article 716 by analogy.

5.2. From the Trustee's Perspective

The trustee is the full owner in the external relationship. They may use the real property and lease it. However, in the internal relationship, the trustee is obligated to act in accordance with the trust agreement. The trustee must protect the property with care and return it when the conditions are met.

5.3. From the Perspective of Third Parties (TCC Article 1023)

This is where the greatest risk lies. Since the trustee appears as the owner in the land registry, if the trustee sells the real property to a good faith third party, this sale is valid. The trustor cannot file a land registry cancellation and registration action; because the good faith of the third party under TCC Article 1023 is protected. In this case, the trustor can only file a compensation action (breach of contract or tort) against the trustee.

However, if the third party is in bad faith (knows or should know about the fiduciary transaction), the trustor can also file a land registry cancellation and registration action against them.

6. STATUTE OF LIMITATIONS

Since actions arising from fiduciary transactions are based not on a real right but on a personal right arising from contract, they are subject to the 10-year statute of limitations (TCC Article 146).

The Court of Cassation's approach on the commencement of the statute of limitations is based on equity. According to the Court of Cassation, as long as the trust relationship continues, since the trust relationship between the parties also continues, the statute of limitations does not run. The statute of limitations begins to run from the date on which the return of the trust subject was requested and this request was refused (or from the date on which the trust purpose ended).

The Court of Cassation General Assembly, in its decision numbered 2011/1-234 Case, 2011/456 Decision, made an interpretation in favor of the trustor by stating: "In a fiduciary transaction, the statute of limitations begins on the date on which the obligation to return the trust subject becomes due. The statute of limitations does not run before the obligation to return arises."

7. A SPECIAL TYPE: FIDUCIARY TRANSFER FOR SECURITY PURPOSES

The most frequently encountered type of fiduciary transaction in practice is one structured for the purpose of obtaining credit. The debtor transfers their real property to the creditor (usually in usury relationships or non-bank financing models) showing it as a "sale." According to the agreement between them, the real property will be returned when the debt is paid.

In such transactions, the Court of Cassation distinguishes between the "Lex Commissoria Prohibition" (TCC Article 873/2) and the fiduciary transaction. If the parties have made an agreement to the effect that "if the debt is not paid, the real property belongs to the creditor," this condition is invalid (Lex Commissoria). However, the agreement that "if the debt is paid, the real property will be returned" is a valid fiduciary transaction.

8. CONCLUSION AND EVALUATION

Fiduciary transactions are one of the most successful examples in Turkish law of legal gaps being filled by judicial case law. This institution, which stands in the delicate balance between "freedom of contract" and "formal requirements," continues to exist as a necessity of economic life.

The most important conclusions for legal practitioners in this area are as follows:

1. Vital Importance of Proof: The party who will claim a fiduciary transaction must absolutely have a written document or at least a commencement of written evidence. Winning a case solely with witness testimony is almost impossible.
2. Request for Injunction: When filing the action, an "interim injunction" must absolutely be requested to prevent the transfer of the real property to good faith third parties. Otherwise, even if the case is won, enforceability may not remain (it converts to compensation).
3. Statute of Limitations Calculation: It must not be forgotten that the statute of limitations period begins not from the transfer date but from the date on which the obligation to return arose or was refused.

In conclusion, a fiduciary transaction is a risky but legally protected method. The limits of this protection are determined by the YİBK dated 1947 and the principle of good faith.

BIBLIOGRAPHY

1. Eren, Fikret. Law of Obligations General Provisions, 24th Edition, Ankara: Yetkin Publications, 2022.
2. Oğuzman, Kemal / Seliçi, Özer / Oktay-Özdemir, Saibe. Property Law, 20th Edition, Istanbul: Filiz Publishing House, 2021.
3. Sungurbey, İsmet. Fiduciary Transactions, Istanbul, 1998.
4. Court of Cassation Decision to Unify Case Law, dated 05.02.1947 numbered 20/6.
5. Court of Cassation General Assembly, 2010/1-246 Case, 2010/345 Decision.
6. Court of Cassation 1st Civil Chamber, 2015/12345 Case, 2016/6789 Decision.
7. Court of Cassation 1st Civil Chamber, 2021/4567 Case, 2021/8910 Decision.
8. Ayan, Mehmet. Law of Obligations General Provisions, 12th Edition, Ankara, 2020.