Introduction
In maritime trade and transportation, ship mortgages are of great importance for securing the rights of creditors. The Turkish Commercial Code (TCC) regulates ship mortgages in detail from articles 1014 to 1053, as a powerful security instrument that safeguards the rights of creditors. While a ship mortgage grants the creditor the right to collect their claim from the proceeds of the ship if the debtor fails to pay their debt; its structure, similar to the provisions of real estate pledges, considers the specific conditions of ships and maritime trade. A ship mortgage covers not only the value of the ship but also ancillary elements such as integral parts, accessories, and insurance indemnities attached to the ship, offering comprehensive security to the creditor. This study will address the details regarding the establishment, scope, transfer, and termination of ship mortgages within the framework of the TCC; and the rights and responsibilities of the parties during the process of the creditor securing their claim and the debtor fulfilling their obligations will be examined.
1. Nature of Ship Mortgage
A ship mortgage is defined as a type of pledge established on a ship under the TCC to secure a claim, granting the creditor the right to collect their claim from the proceeds of the ship if the debt is not paid. A ship mortgage provides security, authorizing the creditor to demand the sale of the ship and collect their claim if the debt is not paid. This type of mortgage can only be established on registered ships and can be created to secure existing debts as well as future claims or those contingent on conditions or negotiable instruments (TCC 1014/1).
a) Determination of the Creditor’s Right According to the Claim
The creditor’s right arising from a ship mortgage is determined solely by the amount of the claim. In other words, the creditor’s right is limited to the authority to collect their claim from the proceeds of the mortgaged ship. This situation provides security for the creditor to collect their right from the ship’s value, but the mortgage itself cannot exceed the amount of the claim (TTK 1014/2).
b) Mortgage on Ships Subject to Co-ownership
In the case of a ship being under co-ownership, each co-owner can only establish a mortgage on their own share. In this situation, the established mortgage is valid only on that share and does not affect the rights of other co-owners. This allows co-owners to independently secure their ownership rights. However, when the entire ship is to be pledged, a new pledge operation cannot be carried out on the entire ship without the consent of the other co-owners, excluding the shares on which a mortgage has been established. This regulation aims to ensure that each co-owner is responsible only for their own share, thereby establishing the mortgage in an impartial and reliable manner (TTK 1014/3; Ship Registry Regulation Article 35/2).
If all shares of a ship are gathered in the hands of a single owner, a ship mortgage cannot be established for separate shares on the same ship in favor of different creditors. This regulation prevents separate mortgages established in favor of different creditors from overlapping and avoids conflicts between mortgage rights (TTK 1014/4; Ship Registry Regulation Article 35/2).
c) Mortgage on Ships Subject to Undivided Co-ownership
For a mortgage to be established on ships under joint ownership (for example, ships co-owned by multiple persons through inheritance), the entire ship must be subject to the transaction. In this case, the consent of all co-owners is mandatory for the mortgage transaction to be valid. In joint ownership, shareholders cannot individually establish a mortgage on their shares; all co-owners must act together. This regulation secures the rights of the creditor by mandating joint decision-making among co-owners for mortgage establishment and ensures unity and harmony in joint ownership mortgage transactions (Ship Registry Regulation Article 35/3).
d) Establishment of Mortgage on More Than One Ship or Ship Share
A mortgage can be established on multiple ships or ship shares for the same debt. In this case, information regarding encumbrances on other ships is automatically added to the registry records of each ship. This means that mortgage information is automatically updated for all ships. This regulation allows the creditor to include multiple ships under mortgage to secure the same debt and grants the creditor mortgage rights over all ships. If the mortgage is subsequently extended to another ship or ship share, the same procedures are carried out in the registry records of the other ships, ensuring that mortgage information remains complete and up-to-date.
The creditor, by virtue of a mortgage established on more than one vessel or vessel share for the same claim, has the right to collect their claim from the value of each vessel. Such a mortgage is considered as collateral for the entire claim across all vessels. When the mortgage on any of the vessels terminates, this fact is also recorded in the register entries of the other vessels. In this way, if the creditor is unable to collect their claim, they are able to benefit from the sale price of all vessels, and the creditor’s rights are secured (Turkish Commercial Code, art. 1014/1; Ship Registry Regulation, Article 34).
2. Establishment of a Ship Mortgage
A ship mortgage provides the creditor with the right to collect their claim from the value of the vessel if the debt is not paid, in cases where the debtor agrees to establish a mortgage on their vessel to secure a claim. In accordance with the Turkish Commercial Code and the Ship Registry Regulation, the pledge of vessels registered in the registry can only be provided through a ship mortgage and this mortgage can also be established for future or conditional claims. Furthermore, a mortgage can only be established based on a written contract and does not grant the creditor a real right unless it is registered. This process is important for the protection of the creditor’s rights and for the mortgage to gain validity against third parties (Turkish Commercial Code, art. 1015/1; Ship Registry Regulation, Article 33/1).
a) Execution of the Mortgage Contract in Written Form
aa. Requirement for a Written Contract at the Registry Directorate
For a ship mortgage to be established, a written mortgage agreement must be made between the debtor (ship owner) and the creditor. The agreement must be signed and approved in the presence of a notary public or at the registry office where the ship is registered. This signing and approval process formalizes the mortgage agreement and grants the creditor the right to collect the debt secured by the mortgage. Instead of approval procedures carried out by a notary public, it is also possible for the parties or their representatives to personally apply to the registry office where the ship is registered and make a written request for registration. In this case, the agreement is signed and becomes valid after identity verification is performed in the presence of the registry office. The signed agreement is annotated in GESBİS (Ship Registry Information System) and placed in the ship’s file (Turkish Commercial Code, Art. 1015/2; Ship Registry Regulation Article 33/2).
bb. Requirement for Agreement in the Presence of a Notary Public
If the written agreement made for a ship mortgage has been drawn up or approved by a notary public, it is sufficient to submit these documents to the registry office. The mortgage registration process is completed upon submission of the notarized agreement to the registry office. In this case, it is considered sufficient for the ship owner or creditor to apply for registration to the registry office with the notarized mortgage agreement. The registry office examines the notarized agreement and completes the registration process (Ship Registry Regulation Article 33/4).
b) Payment of the Mortgage Fee
It is mandatory to pay the fees determined according to the Fees Law No. 492 when establishing a ship mortgage. Documents proving the payment of the fees must be submitted to the registry directorate. Otherwise, the registration process will not be carried out. Fee payment is a mandatory step for the rights secured by the creditor with the mortgage to become valid. (Ship Registry Regulation Article 33/3).
c) Registration of the Mortgage in the Ship Registry
A ship mortgage becomes valid only when it is registered in the ship registry. This registration process enables the creditor to acquire the mortgage right as a real right and to assert it against third parties. If a written mortgage agreement has been made between the creditor and the debtor before registration, and the debtor has notified the creditor of approval for registration, or if a registration application has been submitted to the registry directorate, these actions constitute a sufficient basis for registration. After this stage, the parties cannot avoid registration, meaning they do not have the right to withdraw the registration application or cancel the process. Registration ensures that the mortgage agreement becomes definitive after the parties have executed it and secures the creditor’s rights (TCC, art.1015/3; Ship Registry Regulation Article 33/1).
When the registration of a ship mortgage in the registry is requested, the mortgage record is entered into the encumbrance (restriction) section of the ship on GESBİS (Ship Registry Information System). The documents forming the basis for registration are kept in the ship’s registry file. The GESBİS record is necessary for the mortgage to become official and for the mortgage right to be documented. This process protects the creditor’s rights arising from the mortgage and allows mortgage transactions to become valid against third parties (Ship Registry Regulation Article 33/5).
d) Establishing a Mortgage on a Ship Purchased in a Foreign Country
For vessels acquired in a foreign country but not yet registered in the Turkish Ship Registry or the Turkish International Ship Registry, an annotation on the flag certificate is considered equivalent to registration. When such vessels are registered in Turkey, the mortgage is automatically transferred to the registry (TCC, art. 1015/5).
e) Establishment of a Ship Mortgage for Receivables Arising from Bonds and Bills
If a ship mortgage is to be established for receivables based on a bearer bond, the number of bonds, the value of each bond, and their distinguishing marks are added to the registry record. Furthermore, if the mortgage is established for the entire amount of the receivable, it can also be registered in favor of a representative acting on behalf of the debtor and creditors. If the mortgage is established on behalf of an enterprise issuing bonds, the ship mortgage is registered in the registry as a pledge right in favor of the bondholders. These detailed pieces of information are important for clarifying the receivables subject to the mortgage and protecting the rights of bondholders (TCC, art. 1016/6).
g) Receivables Based on Bills of Exchange or Negotiable Instruments
In the event a ship mortgage is established for receivables arising from a bill of exchange, a bearer instrument, or other instruments transferable by endorsement, a representative may be appointed to represent the rights of those who subsequently acquire the mortgaged receivable. This representative will have the authority to act on behalf of the creditor in the enforcement and foreclosure proceedings of the mortgage. In this case, the representative’s identity and powers are also added to the registry record; furthermore, details regarding the representative’s powers may be included in the registration application. This arrangement ensures the protection of the rights of instrument creditors and the management of mortgaged transactions through a representative (TCC, art. 1016/7).
4. Rank of Ship Mortgage
The ranking of mortgages on a ship is determined in accordance with the rules specified for real estate pledges in the Turkish Civil Code (TMK). This ranking system aims to prevent disputes that may arise among mortgage creditors during the collection process by clarifying the priority order of ship mortgages (TCC, Art. 1017).
a) Security Rank of a Ship Mortgage
The security provided by a ship mortgage is limited to the pledge rank specified in the mortgage registration. This security limit indicates that each mortgage rank on the ship provides security only up to the registered amount. A mortgage in the first rank has a preferential right of collection compared to other creditors. This regulation provides security to creditors by granting them priority according to their own ranking in the debt collection process (TMK, Art. 870).
b) Rank Transition Among Ship Mortgages and Vacant Ranks
In ship mortgages, the cancellation of a higher-ranking mortgage, does not automatically allow a lower-ranking mortgage creditor to move into that vacant rank. The vacant rank can only be used for the establishment of a new mortgage right. However, if lower-ranking mortgage creditors have an agreement regarding the right to move into this vacant rank, this agreement must be made in official form and annotated in the ship registry. This regulation protects the rights among creditors by establishing a reliable ranking and transition process between mortgage ranks (TMK, Art. 871).
c) Vacant Ranks in Ship Mortgages and the Realization Process
In the process of collecting mortgages on a ship, if there is no higher-ranking mortgage, or if the amount specified in the registration for the preceding mortgage is deficient, the collected amount is distributed among the subsequent creditors without taking these vacant ranks into account. In this case, creditors do not move into the vacant ranks, and the sale price is distributed among the creditors according to their own ranks. This rule is applied to ensure a fair collection process among creditors according to their mortgage ranks (Turkish Civil Code, Article 872).
5. Claims and Ancillary Obligations Secured by a Ship Mortgage
A ship mortgage secures not only the principal debt amount but also various additional obligations and ancillary expenses. According to Articles 1018 and 1019 of the Turkish Commercial Code, the scope of security provided by a ship mortgage parallels the claim elements found in the Turkish Civil Code’s (TMK) provisions regarding immovable property pledges. This situation aims to broaden the scope of the mortgage, providing greater assurance to the creditor (Turkish Commercial Code, Article 1018).
a) Scope of Security in General
A mortgaged ship, as specified in Articles 875 and 876 of the Turkish Civil Code, provides security for the principal debt, enforcement costs, default interest, and other ancillary expenses. Thus, the scope of the mortgage expands to cover not only the principal claim but also all damages the creditor may incur (Turkish Civil Code, Article 875).
aa. Principal and Enforcement Costs
A ship mortgage, in addition to the principal claim amount, also covers enforcement costs and default interest arising from non-payment of the debt. This regulation ensures that all necessary expenses incurred by the creditor for the collection of the debt are secured and allows the creditor to collect all their rights from the value of the mortgaged ship (Turkish Civil Code, Article 875/1-2).
bb. Interest and Three-Year Interest Guarantee
A ship mortgage covers, in addition to the principal claim, a three-year interest claim accruing until the date bankruptcy is declared or the mortgage is requested to be foreclosed, and also interest accruing from the last maturity date. However, it is not possible for the creditor to increase the previously determined interest rate to the detriment of other subsequent creditors. This provision aims to protect the rights of subsequent creditors and keeps the scope of interest within a certain limit (Turkish Civil Code, art. 875/3).
cc. Mandatory Expenses
A ship mortgage also secures the mandatory expenses incurred by the creditor for the preservation of the mortgaged vessel. For example, expenses such as insurance premiums owed by the shipowner being paid by the creditor are considered as a direct secured claim and included in the scope of security. This means that expenses incurred by the creditor for the purpose of protecting the value of the mortgaged vessel are also secured (Turkish Civil Code, art. 876).
b) Interest and Extended Security
According to Article 1019 of the Turkish Commercial Code, the interest rate secured under a ship mortgage can be increased in certain situations and extended to cover the statutory interest rate. If the mortgaged claim is interest-free or if the interest rate is lower than the minimum statutory interest rate at that time, the creditor has the right to demand interest at the statutory rate, without the need for approval from other creditors of the same rank or subsequent creditors. This provision enhances the security provided under the mortgage, ensuring that the creditor’s interest claim is secured more strongly (Turkish Commercial Code, art. 1019/1).
For secured claims (mortgages), the consent of other creditors is not required for changes to the interest payment time and place. These changes are made in favor of the creditor, providing flexibility in the collection process of the claim and protecting the rights of the creditor (TCC, Art. 1019/2).
6. Scope of Ship Mortgage
The Turkish Commercial Code broadly defines the scope of a ship mortgage, securing the creditor’s rights not only over the physical existence of the ship but also over various ancillary assets, integral parts, appurtenances, insurance indemnities, and values replacing the ship. These scope provisions, regulated in Articles 1020 to 1029 of the TCC, define the multifaceted security structure of a ship mortgage.
a) Ship, Ship Share, Integral Parts, Appurtenances and Values Replacing the Ship
A ship mortgage is not limited to the ship itself; it also secures various elements belonging to the ship. According to Article 1020 of the TCC, these elements included in the scope of the mortgage are:
aa. Ship and Ship Shares
A ship mortgage can be established directly on the ship or on a specific share of the ship. In the case of co-ownership, the mortgage is established only on the ship share belonging to a specific owner and secures only the claim arising from that share. A mortgage established on a ship share is important in the co-ownership system to prevent conflicts of mortgage rights among different owners. If all shares belong to a single owner, separate mortgages cannot be established on individual shares; only a single mortgage is created on the entire ship (TCC, Art. 1020).
bb. Integral Parts and Appurtenances
Complementary parts and accessories attached to the ship are also included in the scope of the ship mortgage. These parts and accessories include assets added to the ship to ensure its efficient operation. However, if these parts are separated from the ship or transferred as required by normal operation, they are no longer covered by the mortgage. Furthermore, if the complementary parts or accessories are permanently removed from the mortgaged ship before the creditor seizes it, the mortgage scope does not include these elements. This regulation aims to protect the creditor’s rights and preserve the ship’s value with its parts and accessories (TCC, art. 1020/2-3).
In a cargo ship, equipment used in loading-unloading operations, such as a crane, is one of the complementary parts critical for the ship’s efficient operation. If this crane, which is included in the ship mortgage, is temporarily removed from the ship for reasons such as maintenance or repair, it is not excluded from the scope of the mortgage as this is considered a normal operational requirement. However, if the crane is permanently transferred to another ship or enterprise before the creditor seizes the ship, it is no longer covered by the ship mortgage security.
Special boats used for rescue and emergency purposes, located on a passenger ship and fixed to it in a small craft, are also included in the scope of the mortgage. These boats are accessories that must be used with the ship. However, if these boats are temporarily leased to a local enterprise while the ship is operating a voyage to another country, this situation does not affect the scope of the mortgage. However, if they are permanently transferred to another company before the creditor seizes the ship, they are no longer covered by the mortgage.
On a fishing vessel, special equipment such as a sonar device used for fishing is a critical integral part depending on the vessel’s activity. This device falls within the scope of a ship mortgage and increases the creditor’s security. However, if this device is completely removed from the ship and sold or transferred to another vessel, this situation requires its removal from the scope of the mortgage. The creditor cannot assert their mortgage right over this part due to the device no longer being on the ship.
cc. Value and Compensation Replacing the Ship
Compensation arising from the payment of the ship’s value due to expropriation or damage, or from damage caused to the ship by third parties, is also considered within the scope of the mortgage. The value of the expropriated ship is regarded as security to protect the creditor’s rights. Likewise, in the event of the ship’s loss or damage, the shipowner’s claims for compensation against third parties also fall within the scope of the mortgage (TCC, Art. 1020/4).
b) Insurance Payments
A ship mortgage also covers insurance compensation related to the ship as security. According to Article 1022 of the TCC, compensation arising under insurance is considered a guarantee against the mortgaged creditor.
aa. Security for Insurance Premiums and Other Expenses
Insurance premiums and other expenses related to the ship under mortgage security are elements that the creditor can claim under the guarantee. The creditor has the right to collect the insurance premiums and expenses they paid for the protection of the mortgaged ship by including them within the scope of the mortgage (TCC, Art. 1022/2).
bb. Insurer’s Compensation Payments
The insurer is obliged to pay compensation to the owner if the ship is damaged. If the insurer has paid compensation for the purpose of restoring the ship to its previous condition or making payments to ship creditors, this payment is valid against the mortgaged creditor. For example, if a ship is damaged and the insurer makes a payment for the repair of the damage, this payment protects the rights of the mortgaged creditor. However, if the ship is restored to its previous condition, the insurer’s liability to the mortgaged creditor ceases. This regulation aims to ensure insurance payments serve as security for the mortgaged creditor (TCC, art. 1023/1-2).
cc. Insurer’s Obligations in Case of Notification of Ship Mortgage
If the creditor notifies the insurer of their mortgaged claim, the insurer becomes subject to various disclosure obligations. Article 1024 of the TCC specifies these obligations.
aaa. Obligation to Inform the Creditor in Case of Non-Payment of Insurance Premiums
When insurance premiums are not paid or the insurance ends prematurely, the insurer must inform the mortgaged creditor. This notification secures the creditor’s rights. If the insurance contract has terminated at the end of its term due to non-payment of the insurance premium, the insurer must inform the creditor of this situation. This ensures that the mortgaged creditor has up-to-date information regarding insurance matters (TCC, art. 1024/1).
bbb. Obligation to Inform the Creditor in Case of Cancellation or Termination of the Insurance Contract
When the insurance contract is terminated for any reason, the mortgagee must be notified of this termination. If the contract is terminated early due to rescission, withdrawal, or another reason, the insurer must inform the mortgagee that the insurance contract has ended or the date it will end. This ensures that the creditor’s rights are protected even in case of termination (TCC, art. 1024/2).
dd. Insurer’s Right to be Discharged from Liability
The insurer has the right to be discharged from its obligation to pay compensation in some cases due to an act of the policyholder or the insured. However, even in these situations, the debt owed to the mortgagee persists. In other words, an act of the policyholder or the insured does not affect the insurer’s liability to the mortgagee. This also applies if the insurer withdraws from the insurance contract after the risk has materialized. The insurer cannot be released from its liability to the mortgagee (TCC, art. 1027/1). However, under certain conditions, the insurer may be discharged from its obligation to pay compensation and its liability to the mortgagee. These conditions are as follows:
Non-payment of Insurance Premium on Time: If the premium payment is not made by the policyholder, the insurer has the right to be discharged from its obligation to pay compensation.
Departure of the Vessel in an Unseaworthy or Unroadworthy Condition: If the vessel departs in an unseaworthy or unroadworthy condition, the insurer’s obligation to pay compensation may cease.
Deviation of the Vessel from the Declared or Customary Route: If the vessel deviates from the route specified in the insurance policy or the customary route, the insurer also has the right to be discharged from its liability in these situations.
If the insurer is discharged from its liability when these conditions are met, its liability to the mortgagee also ceases. (TCC, art. 1027/2).
ee. Obligation to Accept Insurance Premiums
The insurer is obliged to accept insurance premium payments when they are made. This ensures that payments are made regularly according to the insurance contract and guarantees the continuation of the insurance coverage. The same conditions apply if the premiums are paid by the creditor (TCC, art. 1029).
ff. Notification of Ship Mortgage to the Insurer
If the mortgagee creditor has notified the insurer of the ship mortgage, the insurer is obliged to promptly notify the creditor in cases where the insurance premium has not been paid or an extension period has been granted to the policyholder. This notification obligation also applies in the event of termination of the insurance contract due to non-payment of the premium. Thus, the creditor is informed of any changes that may occur in the insurance relationship and has the opportunity to take necessary measures (TCC, art. 1024/1).
In the event that the insurance contract is terminated prematurely due to cancellation, withdrawal, or any other reason, the insurer is obliged to notify the mortgagee creditor that the contract has ended or the date it will end. If the mortgagee creditor is aware of the reasons for the premature termination of the insurance contract, this notification becomes effective within a period of two weeks from the date of the notification. If no notification is made, the termination of the contract becomes invalid against the mortgagee creditor (TCC, art. 1024/2).
In the event of the contract being terminated due to the insurance premium not being paid on time or the contract ending due to the insurer’s bankruptcy, the obligation specified in the second paragraph does not apply. In such cases, the insurer has no obligation to notify that the contract has ended (TCC, art. 1024/3).
When the insurer enters into an agreement with the policyholder that reduces the sum insured or narrows the scope of risk, the policyholder must notify the secured creditor of this change. Otherwise, the change made does not affect the rights of the secured creditor (TCC, Art. 1024/4). If the insurance contract is deemed invalid due to a double insurance established by the policyholder with the intent to obtain an unfair advantage in their assets, the insurer cannot claim invalidity. However, after the secured creditor learns of this situation, notification is deemed to have been made, and the contract also terminates against the secured creditor (TCC, Art. 1024/5).
If the ship is insured by more than one insurer, it is sufficient for the notification made by the secured creditor to be given to only one insurer. In this case, the responsibility for informing about the mortgage belongs to the insurer who received the notification. The insurer’s obligation to inform other insurance companies eliminates the secured creditor’s obligation to communicate with all insurance companies individually (TCC, Art. 1025).
9. Provisions of Ship Mortgage
A ship mortgage grants the creditor the right to collect their claim from the proceeds of the mortgaged ship if the debt is not paid. However, this process varies depending on whether the debt is due or not. The Turkish Commercial Code details the rights held by the creditor and the owner before and after the debt becomes due.
a) Before the Debt Becomes Due
aa. Rights of the Secured Creditor
aaa. Against the Shipowner
If the collateral provided by the mortgage is jeopardized due to the deterioration of the ship or its equipment, the creditor may grant the owner a reasonable period to remedy this danger. If the owner fails to take the necessary measures within this period, the creditor acquires the right to foreclose on the mortgage. In this case, if the claim is interest-free and not yet due, the statutory interest for the period until the due date of the money to be paid to the creditor is deducted. Furthermore, if the mortgage collateral is jeopardized due to the owner’s method of operating the ship or the intervention of third parties, the court may take various precautionary measures at the creditor’s request: such as the provisional seizure of the ship, entrusting it to a trustee other than the captain, or ordering the owner to take the necessary measures within one month. If these measures are not taken, the creditor has the right to initiate enforcement proceedings for the foreclosure of the mortgage (Turkish Commercial Code, art. 1030).
bbb. Against Third Parties
If the deterioration of the ship in a way that jeopardizes the mortgage collateral arises from the act of a third party, the mortgagee may only file a lawsuit to prevent this act. This lawsuit is a defense mechanism that can be filed to protect the creditor’s right secured by the mortgage (Turkish Commercial Code, art. 1031).
bb. Rights of the Owner
aaa. Right to Object
The owner of a mortgaged ship may raise defenses against the mortgagee that the debtor has against the creditor. At the same time, if the debtor can have the underlying transaction cancelled or has a right of set-off against the creditor, the owner can also use these rights against the mortgagee to prevent the debt from being collected from the mortgage. Furthermore, if the debtor dies, the owner cannot claim that the heirs have only limited liability for the debt. If the owner is not the debtor, and the debtor waives a defense, the owner can continue to raise that defense against the creditor (TCC, art. 1032).
bbb. Right to Notify for the Debt to Mature
If the maturity of the debt depends on a notice, this notice is valid for the ship mortgage only if it is given by the creditor to the owner or by the owner to the creditor. In this context, the person registered as the owner in the registry is considered the addressee of the creditor, and the notice must be given to them (TCC, art. 1033).
ccc. Appointment of a Representative for the Owner
If the owner has not designated a domicile or a representative within the country to the creditor, the court at the location of the registry where the ship is registered may, upon the creditor’s request, appoint a representative for the owner. This applies to an owner who has not provided an address or representative for the creditor to send notifications. The same applies if the owner’s address is unknown or if the creditor cannot identify who the owner is (TCC, art. 1034).
b) After the Debt Matures
aa. Right of the Ship Owner to Pay the Debt
If the claim becomes due against the owner, or if the debtor has the right to pay their debt, the owner has the right to pay this debt. This payment can be made by direct payment of the debt, by deposit, or by set-off. Thus, the owner can fulfill the debt owed to the mortgaged creditor (TCC, Art. 1035).
bb. Transfer of the Claim to the Owner
If the owner is not the debtor and pays the debt to the creditor themselves, then the claim is transferred to them to the extent collected from the creditor. However, this transfer cannot be asserted to the detriment of the creditor. The debtor’s rights to object against the owner remain valid. If there is a ship mortgage for the claim, the provisions of Article 1046 of the TCC apply regarding the transfer of the claim to the owner (TCC, Art. 1036).
cc. Right of the Ship Owner to Request Delivery of Documents
In return for the creditor fulfilling their right, the owner may demand that the necessary documents for updating the ship register or deleting the mortgage record be delivered to them. This is an important right for the owner who pays the creditor’s debt, regarding the removal of the mortgage record and the completion of registration procedures (TCC, Art. 1037).
8. Transfer of Ship Mortgage
a) In General
A ship mortgage automatically transfers to the new creditor with the assignment of the secured claim. At this point, the mortgage and the claim cannot be transferred separately; their joint transfer is essential. For the assignment of the claim, a written agreement between the old creditor and the new creditor and the registration of this assignment in the ship registry are required. The ship mortgage, transferred along with the claim, provides the creditor with the same security right for the collection of the claim. Furthermore, in a maximum amount mortgage, the claim can be assigned within the framework of general provisions, but in this case, the mortgage does not transfer along with the claim (Turkish Commercial Code, Article 1038).
If the mortgage secures a claim attached to an order or bearer instrument, the assignment of the claim is subject to the provisions regarding the transfer of these instruments. In such a transfer, the mortgage is also automatically assigned along with the claim. This ensures the protection of the security provided by the instruments in the event of an assignment of the mortgaged claim (Turkish Commercial Code, Article 1038/5).
A person who pays a debt secured by a mortgage on behalf of the owner or their legal predecessors acquires the right of recourse against the mortgaged creditor in proportion to the payment of the debt. In such a case, the mortgage passes to the debtor who is not the ship owner, and the debtor acquires the rights of the mortgage to the extent of the amount paid (Turkish Commercial Code, Article 1038/6).
b) Objections and Defenses
When a ship mortgage is transferred, the owner may assert against the new creditor the rights of objection and defense they had against the old creditor, based on their legal relationship. This situation is shaped by the principle of reliance on the ship registry and secures the owner’s rights. This security is applied in accordance with Articles 983, 975, 976, and 985 of the Turkish Commercial Code (TTK). However, if the claim includes interest or a secondary performance that has not fallen due following the three-month period after the owner learned of the transfer, the owner’s rights in this regard are limited. These three-month periods are calculated from the beginning of the calendar year (TTK, Article 1039).
c) Claims Subject to General Provisions for Transfer
The transfer of claims such as accrued interest, secondary performances, notification and enforcement expenses secured by a mortgage is subject to general provisions. During the transfer of these claims, the principle of reliance on the ship registry does not apply, and the effect of the mortgage transfer on these claims is evaluated under the general rules regarding the transfer of claims (TTK, Article 1040).
9. Modification of Ship Mortgage
a) Modification of the Mortgage Content
Changes to the content of a ship mortgage are possible through a notarized agreement between the owner and the creditor. Furthermore, this agreement must be registered in the ship registry; otherwise, the changes made will not be valid. During the registration process, the provisions of the first paragraph of Article 1016 of the TTK are taken into account. If the mortgage is restricted by the right of a third party, the consent of the third party must be obtained for this change to be valid, and the consent must be notified to the registry office or the person in whose favor the change is made, and this consent cannot be waived (TTK, Article 1041).
b) Modification of the Mortgage Rank
The rank of mortgages on a ship can be changed; however, for these changes to be made, the ship owner and the mortgagee whose rank is being changed must sign a notarized agreement or reach an agreement at the registry office. Furthermore, registration is required to avoid harming the rights of creditors. If the order of existing mortgages is to be changed, the consent of creditors with advancing and declining ranks must also be obtained. If a mortgaged claim is divided, the owner’s consent is not required for changing the ranks between partial mortgages (TCC, Art. 1042).
c) Substitution of a Mortgaged Claim with Another Claim
The claim secured by a ship mortgage can be replaced by another claim through an agreement between the owner and the creditor. For this transaction, a notarized agreement must be made or an agreement must be reached at the registry office. However, it is mandatory to register this change in the ship registry. If there are third parties holding rights over the mortgage, their consent must also be obtained for this change; otherwise, the change will not be considered valid. Such a change must be registered in accordance with TCC Art. 1016 (TCC, Art. 1043).
10. Termination of a Ship Mortgage
a) Reasons Leading to the Extinction of the Mortgage Along with the Claim
A ship mortgage automatically expires upon the termination of the claim. This means that the mortgage comes into existence dependent on the claim, and when the claim terminates, the mortgage also terminates.
aa. Extinction of the Claim
Termination of the Claim: The termination of the claim automatically extinguishes the mortgage as well. However, exceptions provided by law are reserved; meaning, in certain situations, even if the claim has terminated, the mortgage can be protected (TCC, art. 1044/1).
Merger of Creditor and Debtor Status in the Same Person: If the claim and the debt merge in the person of the same individual, this is considered as if the claim has been paid. In this case, the mortgage also terminates because the claim has ceased to exist (TCC, art. 1044/2).
Partial Payment by a Debtor Who is Not the Shipowner: If a debtor who is not the shipowner pays only a part of the claim, the priority of the mortgage rights is preserved. In this case, the mortgage remaining with the creditor takes precedence over the mortgage transferred to the debtor. That is, the creditor’s right takes precedence over the debtor’s right (TCC, art. 1044/3).
Right to Acquire the Mortgage: A debtor who is not the shipowner may acquire the mortgage as a result of payment. If, in a situation where the debt has been paid, the rectification of the register entry is required, the debtor may demand from the creditor that the necessary documents for the rectification of the register be given to them. In this way, the register is rectified in accordance with the debtor’s interests (TCC, art. 1044/4).
Right to Annotation: The shipowner may undertake against another party to have the ship mortgage cancelled upon the termination of the claim. In this case, when the claim terminates, the mortgage also terminates. Such an undertaking can be secured in favor of the creditor by an annotation in the register (TCC, art. 1044/5).
bb. Merger of Creditor and Owner Status
Merger of Creditor and Owner Status Leading to Mortgage Extinction: The merger of a ship mortgage and ship ownership in the same person leads to the termination of the mortgage. However, if the debtor is someone other than the ship owner, or if there is a pledge or usufruct right on the claim, the mortgage continues. In this case, the owner does not have the right to liquidate the ship as a creditor (Turkish Commercial Code, Art. 1045/1).
Inability to Claim Interest: A creditor who is also the owner cannot claim interest on their own ship, and the mortgage does not provide interest security in this situation. Thus, the owner is prevented from claiming interest on their own ship (Turkish Commercial Code, Art. 1045/2).
cc. Owner Making Payment to Creditor in Joint Ship Mortgage
Transfer of Mortgage Rights to the Owner: If the ship owner has a right of recourse against other ship owners, they acquire the mortgage rights of the other ships upon making payment to the creditor. In this case, the mortgage rights transferred to the owner are considered together with the existing mortgage, forming a joint mortgage (Turkish Commercial Code, Art. 1046/1).
Mortgage Priority in Case of Partial Payment: When the ship owner makes a partial payment, the remaining mortgage on the creditor takes precedence over the mortgage transferred to the owner. This indicates that the creditor’s rights are protected and the creditor’s right ranks first (Turkish Commercial Code, Art. 1046/2).
Transfer of Claim and Mortgage to the Owner: If the claim is transferred to the owner, or if the statuses of creditor and debtor merge in the person of the owner, this means that the claim has been paid by the owner, and the mortgage terminates (Turkish Commercial Code, Art. 1046/3).
Acquisition of Mortgage Right Through Forced Execution: If the creditor collects their receivable from one of the mortgaged ships through forced execution, the ship mortgage transfers to the owner, and the provision of the first sentence of the first paragraph applies (Turkish Commercial Code, art. 1046/4).
dd. Transfer of Mortgage to the Debtor in Joint Ship Mortgages
If a debtor has a right of recourse against the owner of only one of the mortgaged ships, only the mortgage on that ship transfers to the debtor, and the mortgage on the other ships ceases (Turkish Commercial Code, art. 1047).
ee. Statute of Limitations
If the creditor’s right to claim against the ship owner becomes time-barred, mortgages unduly deleted from the ship register and unregistered statutory mortgages also lapse. This indicates that the mortgage will also terminate with the statute of limitations (Turkish Commercial Code, art. 1048).
b) Reasons Resulting Only in the Lapse of the Mortgage
In some cases, only the ship mortgage terminates while the claim continues. This situation may occur through an agreement between the parties or after a certain period.
aa. Agreement of the Parties
The mortgaged creditor and the ship owner can agree to cancel the mortgage as stipulated in the second paragraph of Article 1015, thereby ensuring the deletion of the mortgage record from the register. However, if there are parties with rights over the mortgage, their consent is also required (Turkish Commercial Code, art. 1049).
bb. Creditor’s Waiver
Waiver: If the creditor waives their mortgage right and, as a result of this waiver, the mortgage registration is deleted from the registry, the mortgage terminates. However, even in the case of a waiver, if there are third parties holding rights over the mortgage, their consent must be obtained (TTK, Art. 1050/1).
Owner’s Request for Waiver: If the ship owner has an objection that permanently makes the enforcement of the mortgage impossible, they may request the creditor to waive the mortgage. In this way, the creditor can waive the mortgage (TTK, Art. 1050/2).
Declaration of Waiver: The waiver process can be carried out with a deed approved by a notary or at the registry office. This ensures that the waiver acquires an official character (TTK, Art. 1050/3).
Debtor’s Release: To the extent that the creditor releases the debtor from the mortgage by waiving it, the debtor is discharged from their debt (TTK, Art. 1050/4).
cc. Expiry of the Mortgage Term
A mortgage established for a specific term terminates upon the expiry of that term. In this case, the mortgage automatically lapses, and the rights arising from the mortgage cease to exist (TTK, Art. 1051).
c) Termination of Mortgage by Court Order
In some cases, a ship mortgage may be terminated by a court order. Such cases include special circumstances like the creditor’s identity being unknown or the deposit of the debt amount. Detailed explanations of these cases are provided below.
aa. Unknown Identity of the Creditor
Lapse of Ten Years: If the creditor is unknown and ten years have passed since the last registration related to the mortgage in the ship registry, the conditions for the mortgage to lapse are deemed to have been met if the owner takes no action without acknowledging the creditor’s right. In this case, since the creditor’s right is not acknowledged, the lapse of the mortgage can be decided by calling the creditor via public announcement. However, for term debts, the ten-year period begins to run from the maturity date of the debt; meaning, the lapse process for these debts does not start before maturity (Turkish Commercial Code, Article 1052/1).
Termination of Mortgage by Court Decision: The court may decide on the lapse of the mortgage if the necessary conditions are met at the end of ten years, and with this decision, the mortgage registration is deleted from the registry. Thus, the mortgage right is completely terminated (Turkish Commercial Code, Article 1052/2).
bb. Deposit of Money
Deposit of the Debt Amount: If the owner has the right to notify the creditor for the purpose of paying the creditor’s debt or notifying termination, they can fulfill their payment obligation by depositing the debt amount in the creditor’s name. In this case, the owner must waive their right of reclamation. Thus, in cases where the creditor cannot be determined or the creditor cannot collect their debt, the court may decide on the lapse of the mortgage, provided that the creditor is summoned via public announcement (Turkish Commercial Code, Article 1053/1).
Deposit of Interest: During the deposit, interests can only be deposited up to the amount registered in the registry. However, interests are not deposited except for the three-year period preceding the decision of termination. This provision is regulated to prevent overpayment of interest and to protect the rights of the creditor (TCC, art. 1053/1).
Non-Receipt of the Deposited Amount Within Ten Years: If the deposited amount is not collected for ten years, the creditor’s right expires. In this case, even if the depositor has waived the right of retrieval, they have the right to retrieve the deposited amount. Thus, the creditor’s rights over the deposited amount are considered to have expired at the end of ten years, and in this case, the owner can retrieve the deposited amount (TCC, art. 1053/3).
Conclusion
The Turkish Commercial Code, by addressing the regulations regarding ship mortgages in detail, aims to secure the rights of creditors and regulate debt relationships in the field of maritime commerce. A ship mortgage goes beyond being merely a type of pledge that allows for creditor’s security only when the debt is not paid; it provides extensive security covering the integral parts of the ship, insurance indemnities, and rights obtained through court when necessary. In this context, it is regulated in detail how the creditor’s rights will be protected if the debt is not paid, and under what conditions the ship owner also has rights such as paying the debt or being released from the mortgage.
Furthermore, the ship mortgage is supported by specific rules for different situations such as establishment under shared ownership or joint ownership, and by mandating its registration in the ship registry, it has become a valid right against third parties. In addition, the protection of the mortgaged ship’s value has been supported by additional measures to safeguard the creditor’s rights against the owner’s negligence or actions; and detailed regulations, such as the payment of insurance premiums and procedures to be followed in case of default, have protected the rights of both the creditor and the debtor.
In conclusion, the regulations of the Turkish Commercial Code concerning ship mortgages ensure a safe and sustainable debtor-creditor relationship in maritime trade, transforming the ship mortgage into both a strong collateral for the creditor and a tool that clearly defines the debtor’s responsibilities. These regulations provide important legal foundations that support mutual trust and equity in the maritime sector, making a significant contribution to the protection of creditors’ rights and the clarification of debtors’ obligations.
IMPORTANT REMINDER – Why expert / lawyer opinion is necessary
Ship mortgage transactions are subject to the comprehensive and special regulations of maritime commercial law. Processes such as the establishment, transfer, or termination of a mortgage on a ship must be carried out in accordance with the detailed legal requirements stipulated in the Turkish Commercial Code. It is important to seek professional support from a lawyer or legal consultant to protect your rights and interests and to ensure the complete execution of the process. It does not matter whether the port where the ship subject to the mortgage is located is Tuzla, Dilovası, Zeytinburnu, Istanbul, or Izmir. Legal support on this matter can be obtained from an expert or lawyer knowledgeable in maritime commercial law.
