Turkey: What is More Favorable: A Surety Agreement or a Guarantee Agreement?

The modifications made by the Turkish Code of Obligations No. 6098 ("Code") to surety agreements (known as "kefalet sözleşmeleri" in Turkish) was a hot topic of discussion, not only among practitioners, but also among the general public, due to certain changes made by the Code to the procedural requirements of a surety, such as the requirement of obtaining spousal consent. In this article, we first provide a brief overview as to what a security, surety and a guarantee are. Secondly, we analyze the differences between a surety agreement and a guarantee agreement, as our experience suggests that these two are among the most common and significant types of securities sought and received by the banks.

What is a security agreement?

Security agreements are broadly defined as agreements through which a third party undertakes the risk faced by another party[1].  A more specific example would be a situation in which a third party undertakes the risk arising from the non-performance of an obligation by another party[2].  In order to define the scope and limits of "security agreements," what constitutes a "security" should also be defined. A security may be a specific asset, which would be encashed or liquidated if the risk were to arise or it could be the personal undertaking of a third party, through which the recipient of the security becomes entitled to seek recourse from the assets of the undertaking party[3].

Both a surety agreement and a guarantee agreement are granted against the risk of non-performance of an obligation by a third party and both of them entitle the recipient to seek recourse from the assets of the undertaking party, instead of resorting to the encashment or liquidation of a specific asset.

What is a surety agreement? What is a guarantee agreement?

Article 581 of the Code defines a surety agreement as an agreement through which a surety undertakes to be personally liable to a creditor for the consequences of a debtor's non-performance of its obligations. Although a separate section under the Code deals specifically with surety agreements, a guarantee agreement is not explicitly defined under the Code. As such, the term itself does not signify a single, definite type of agreement. Therefore, the main factor to consider when distinguishing between the two types of agreements would be whether the risk is undertaken regardless of the validity and continuance of a debt. If the risk is undertaken regardless of whether a debt is valid and still in effect, this would point toward the existence of a guarantee agreement[4].  In light of this, if the underlying debt were not deemed valid, then the surety would not be held liable either. On the other hand, a guarantor in the same situation would nevertheless be held liable. As a consequence of the foregoing distinction, while the defenses which may be put forward by the debtor may also be put forward by the surety, the guarantor would not be able to benefit from those defenses[5],  as its obligation is considered to be a separate obligation, and not tied to the underlying obligation of the original debtor. In fact, it is not only a right but a duty of the surety to put forth and argue the defenses which may also be put forth by the debtor, under Article 591 of the Code.

One other consequence of an obligation arising from a surety agreement being attached to the underlying debtor's obligation is that the surety becomes a successor to the creditor up to the amount it performs the obligation on behalf of the debtor (Article 596 of the Code). The guarantor, on the other hand, would only be able to seek recourse from the debtor, if the agreement between itself and the debtor stipulates so.

Lastly, the Code stipulates detailed procedural requirements for a surety agreement. Article 583 of the Code seeks that the surety agreements shall be made in writing and the maximum amount, for which the surety will be liable, shall be stipulated. The relevant provision of the law also rules that certain matters shall be put in writing by hand-writing (as opposed to sureties signing standardized texts, to make sure that the sureties become aware of the liabilities they are putting themselves under). The aforementioned issue of spousal consent is also one of them. Article 584 of the Code is the relevant provision with respect to the spousal consent, which must be obtained prior to entering into a surety agreement. The relevant article was amended shortly after the Code went into force, and now sets forth an exception for the shareholders or managers of a commercial enterprise, regarding the surety agreements they will enter into with respect to the relevant commercial enterprise. Spousal consent shall not be sought for such surety agreements.

Consequences

In light of the foregoing, creditors may prefer to enter into a guarantee agreement, as the guarantor's obligation thereunder is separate from the underlying obligation of the debtor (unlike a surety agreement), thus rendering it difficult for the party providing security to avoid performance under the security agreement. That said, whether or not a guarantee agreement can be obtained (as well as the terms and conditions of any such agreement) would be subject to the negotiation power of the parties.


[1] 6098 sayılı Türk Borçlar Kanunu Çerçevesinde Kefalet Sözleşmesi (Surety Agreements within the Scope of the Turkish Code of Obligations No. 6098), Burak Özen, p.1.

[2] ibid, p. 2.

[3] ibid, p. 5.

[4] ibid, p. 6, p.23.

[5] ibid, p. 27.


This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2017. A link to the full Legal Insight Quarterly may be found here.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions