When Inflation Eats Your Receivables: The Constitutional Test Of Article 1 Of Law No. 3095

Legal Framework and the Inflation Problem

Statutory interest rates applied to monetary claims are intended to safeguard the real value of receivables. Accordingly, setting those rates at an appropriate level matters not only for preserving the balance of private law relations, but also for ensuring effective protection of the right to property. This is particularly salient in inflationary periods. Rapid currency depreciation limits the creditor's practical ability to derive economic benefit from the claim. While the receivable may remain fixed in nominal terms, its market purchasing power can decline sharply when inflation is high. Moreover, adjudication inevitably takes time, and litigation alone may therefore be insufficient to secure the creditor's entitlement in real terms, with the potential consequence of a violation of property rights. This situation makes it necessary for the State to develop effective legal mechanisms within the framework of its positive obligations relating to the protection of property rights.

Interest is the consideration paid to a creditor for being deprived, for a period of time, of the use of a sum of money that the creditor is entitled to claim.¹ Under Turkish law, interest is primarily classified as principal interest and default interest. Principal interest accrues from the date specified in the contract or by law until the maturity date and is payable before the debtor falls into default.² Default interest, by contrast, accrues because the debtor continues to use the money after the period of use has expired, and it runs until performance is affected.³ For both categories, Turkish law further distinguishes between statutory and contractual interest. Statutory interest refers to interest that must be paid where the parties have agreed that interest will be payable but have not specified a rate, or where the law provides that interest is payable, in which case the rate is determined by statute.⁴ Contractual interest, on the other hand, arises from the legal relationship between the parties and is set by their agreement.⁵ The provisions of Law No. 3095 on Statutory Interest and Default Interest ("Law No. 3095"), in force since 19 December 1984, should be assessed against this conceptual framework.

Article 1 of Law No. 3095 provides that, where interest is payable but the parties have not agreed on the rate, the statutory interest rate shall be twelve per cent. Paragraph two authorizes the President to increase this rate by up to double the rate. Pursuant to this statutory authority, the most recent presidential amendment stipulates that, as of 1 June 2024, statutory interest shall be applied at an annual rate of twenty-four per cent. Under Article 2 of Law No. 3095, a debtor who falls into default on a monetary claim is required, unless otherwise agreed in the contract, to pay default interest at the rate determined under Article 1. In periods of high inflation, debates have intensified in recent years, both in case law⁶ and in legal doctrine⁷, as to whether this rate is capable of compensating for the loss in value of receivables. These debates have also found expression in the Constitutional Court's individual application jurisprudence, in which the Court has delivered findings of violations of the right to property⁸. In particular, in its decision of 22 July 2025 annulling the statutory interest rate set out in Article 1 of Law No. 3095 with respect to non-contractual obligations⁹ (the "annulment decision"), the Constitutional Court engaged with the issues of protection of property rights, legal certainty, and the right to an effective remedy.

The Constitutional Court's Reasoning and the Annulment

In the dispute giving rise to the Constitutional Court's decision of 22 July 2025, the application was lodged by a court of first instance, and the challenged provision was Article 1 of Law No. 3095. This provision constitutes a common rule applicable to both contractual and non-contractual obligations. The case pending before the court of first instance concerned compensation for damage resulting from the destruction of immovable property caused by an earthquake. For this reason, the Constitutional Court confined its substantive review to non-contractual obligations. The court of first instance argued that the provision determining the statutory interest rate applicable in the pending case was unconstitutional. It further submitted that the statutory interest rate prescribed by the contested provision was inadequate in an inflationary environment and that it infringed the right to property, as well as the principles of legal certainty and foreseeability.

In its annulment decision, the Constitutional Court defined the right to property as encompassing all assets that have an economic value and are capable of being assessed in monetary terms. It further stated that the adoption of protective and corrective measures in respect of property rights forms part of the State's positive obligations. According to the Court, particularly in periods of high inflation, the development of mechanisms capable of compensating for the erosion in the value of money becomes increasingly important. The decision also demonstrates that, under the current framework, debtors benefit from the statutory interest rate remaining low in comparison to inflation. It was held that limiting the increase of the statutory interest rate, set at twelve per cent under the challenged provision, to only double the rate does not constitute an effective legal remedy for preventing the loss in value of receivables in an inflationary environment, especially in the absence of alternative mechanisms. Consequently, Article 1 of Law No. 3095 was annulled by a majority vote. In their dissenting opinions, two members who did not join the majority emphasized that, where statutory interest remains significantly below inflation during periods of very high inflation, creditors may seek compensation for the difference between interest and inflation as excess damages pursuant to Article 122 of the Turkish Code of Obligations No. 6098 ("TCO").

The initial steps leading to the Constitutional Court's annulment decision of 22 July 2025 can be observed in its pilot decision¹⁰ dated 8 July 2025 (the "pilot decision"). In that decision, the Constitutional Court found that there was no effective legal mechanism capable of preventing the loss in value of receivables in the face of inflation. It was expressly noted that, particularly in the high-inflation environment prevailing in recent years, debtors who fail to perform their payment obligations are placed in an advantageous position. The Court further indicated that a claim for excess damages constitutes one possible means of compensating for such loss. At the same time, it observed that, in certain cases, courts impose on creditors the burden of proving the loss in value through concrete evidence, leading to divergent practices and creating serious uncertainty for creditors. According to the Constitutional Court, for a claim for excess damages to be upheld, the following conditions must be satisfied:¹¹

1. the existence of the debtor's default with respect to a monetary claim;
2. the existence of creditor loss not compensated by default interest as a result of the default;
3. fault on the part of the debtor in falling into default; and
4. the existence of a causal link between the debtor's default and the creditor's excess damage.

In practice, differing judicial interpretations of the second condition have been a primary source of inconsistency.

Certain judicial decisions¹² concerning excess damages emphasise that high inflation alone is not sufficient to establish the creditor's excess loss, and that creditors are required to substantiate their claims with concrete evidence of damage. At the same time, there are decisions¹³ recognizing a distinction between periods of high inflation and periods of normal economic conditions, and holding that, during periods of high inflation, creditors should not be required to prove the loss in value of their receivables through concrete evidence. As noted by the Constitutional Court in its pilot decision, the development of such case law by courts is likely and may be sufficient at an individual level. Nevertheless, the emergence of such jurisprudence in practice does not provide a convincing indication that Turkish law offers an effective legal remedy for compensating the loss in value of receivables in an inflationary environment. In the pilot decision, the Constitutional Court therefore concluded that individual solutions lack sustainability and notified the Grand National Assembly of Türkiye, emphasizing the need for legislative action to establish an effective legal mechanism capable of remedying the real loss in value suffered by receivables due to inflation.

The inadequacy of statutory interest applied to receivables in periods of high inflation has recently become the subject of increased debate, both in judicial decisions and in public discourse. The Constitutional Court's findings of violations and the Court of Cassation's shift in interpretative approach have intensified this debate. Subsequently, the pilot decision delivered by the Constitutional Court on 8 July 2025 characterized the insufficiency of statutory interest in the face of high inflation as a structural problem. With the annulment of Article 1 of Law No. 3095 in respect of non-contractual obligations, the discussion has entered a new phase.

Implications: Excess Damages, Proof, and Legislative Design

While the Constitutional Court's annulment decision of 22 July 2025 has opened a new chapter, it has also given rise to fresh uncertainties within the existing system. In particular, the future of pending actions concerning receivables and claims for excess damages remains uncertain. It has now been constitutionally established that the statutory interest rate was set below an adequate level. In light of this determination, requiring creditors in pending excess damages claims to prove, through concrete evidence, the loss not compensated by statutory interest would be inconsistent with the Constitutional Court's annulment decision. The Court's decisions have also reinforced the characterization of high inflation as a matter of common knowledge. Accordingly, until legislative action is taken, the burden of proof imposed on creditors under Article 122 of the Turkish Code of Obligations should be interpreted more flexibly, within the framework of the presumption based on the "ordinary course of life", and in a manner consistent with the Constitutional Court's jurisprudence. Given the Court's identification of a "structural problem," the process of proof should focus primarily on the determination of the "amount of damage", with the calculation of loss based on data published by the Turkish Statistical Institute or consumer price index rates constituting the central issue in judicial proceedings.

With the annulment decision, the legal status of the reference contained in Article 2 of Law No. 3095 has also become uncertain. Where default interest has not been agreed upon in the contract, the reference to statutory interest under the current legal framework will remain valid until 1 September 2026, the date on which the annulment decision enters into force. Any legislative amendment concerning statutory interest adopted during or after this period will also determine the applicable default interest rate. In light of the Constitutional Court's decisions discussed above, it is clear that the legislature must establish a predictable and generally applicable legal mechanism capable of compensating for the loss in value of receivables in an inflationary environment. The annulment of Article 1 of Law No. 3095 demonstrates that a fixed rate interest model is insufficient for the constitutional protection of property rights. Instead of a fixed rate, a variable and predictable model indexed to consumer price indices or Central Bank data should be preferred. A system that rewards unlawful conduct by the debtor and places the creditor under an excessive burden of proof, thereby rendering violations of the right to property persistent, cannot be regarded as sustainable from either a legal or a socio-economic perspective.

Footnotes

1. Fikret Eren, Borçlar Hukuku Şerhi, Yetkin Yayınları, 2022, p. 2005.

2. Supreme Court Grand Assembly for the Unification of Judicial Precedents, Case No. 2017/8, Decision No. 2019/3, dated May 24, 2019.

3. Ahmet M. Kılıçoğlu, Borçlar Hukuku Genel Hükümler, Turhan Kitabevi, 15. Baskı, 2015, p. 599.

4. Zeki Gözütok, Faiz Hukuku, Bilge Yayınevi, 3. Baskı, 2015, p. 10.

5. Supreme Court Grand Assembly for the Unification of Judicial Precedents, Case No. 2017/8, Decision No. 2019/3, dated May 24, 2019.

6. Supreme Court of Appeals, 11th Civil Chamber, Case No. 2018/1512 and Decision No. 2019/3201, dated April 29, 2019.

7. Şükrü Yıldız, Makalelerim, On İki Levha Yayıncılık, 2018, s. 523.

8. Constitutional Court, Decision No. 2020/6515, dated April 18, 2024.

9. Constitutional Court, Case No. 2024/24, Decision No. 2025/164, dated July 22, 2025.

10. Constitutional Court, Case No. 2024/41763 and Decision No. 2025/164. dated July 8, 2025

11. Dağca Durucan, Mülkiyet Hakkı Bakımından Para Alacağının Enflasyon Karşısındaki Değer Kaybı, On İki Levha Yayıncılık, 2024, p. 145.

12. Supreme Court of Appeals, General Assembly of the Civil Chambers, Case No. 2021/11-938 and Decision No. 2022/401, dated March 29, 2022; and Supreme Court of Appeals, 11th Civil Chamber, Case No. 2019/101 and Decision No. 2022/7803, dated November 7, 2022.

13. Supreme Court of Appeals, 6th Civil Chamber, Case No. 2024/3534 and Decision No. 2025/15, dated January 13, 2025; and Supreme Court of Appeals, 15th Civil Chamber, Case No. 2018/3765 and Decision No. 2018/4907, dated December 6, 2018.

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