Guarantee contracts and surety contracts are a type of security contracts. The main purpose of security contracts is that the debtor assumes the risk of loss of the other party to the contract.1 Security is the liability of a third party in order to secure the debt of the principal debtor. Surety and independent guarantee contracts give the creditor the right to apply to the guarantor in cases where the principal debtor fails to fulfil its obligation, fails to fulfil it properly or fails to fulfil it on time.2 There are two types of guarantee contracts: “pure guarantee contract” and "surety-like guarantee contract". Since surety and suretyship-like guarantee contracts are similar in terms of the security provided, the field of application and economic function, it is quite difficult to distinguish these two contracts from each other. In this legal article, the surety-like guarantee contract will be referred to as "guarantee contract" and the theoretical differences between the guarantee contract and the surety contract and the differences in practice will be listed.

  • The main difference between these two contracts is that while the surety contract is clearly and in detail regulated in the Turkish Code of Obligations, the guarantee contract takes its source from Article 128 of the Turkish Code of Obligations, which is the institution of "undertaking the performance of a third party".
  • While the parties in a surety contract are the surety, the creditor and the principal debtor, the parties in a guarantee contract are the guaranteed party, the guarantor (guarantor) and the third party. In a surety-like guarantee contract, the promise between the guarantor and the guaranteed party is always independent of the underlying debt relationship between the guarantor and the third party. However, in a surety contract, the surety undertakes to be personally liable to the creditor for the consequences of the debtor's breach of the debt; in other words, the surety contract is linked fundamentally to the principal debt relationship.
  • According to Article 582 of the Turkish Code of Obligations, the liability of the surety depends on the validity of the principal debt. However, the guarantee contract is independent from the principal debt. This is a result of the surety contract being secondary and the guarantee contract being principal. The most important criteria to distinguish the surety contract from the Guarantee contract is the principal and secondary nature. In a surety contract, the surety is liable in a secondary nature, whereas in a guarantee contract, the guarantor is liable in a principal nature independent from the principal debt. To explain in more detail; if the assurance provider has clearly or implicitly committed to be liable in the event of the existence of an present and valid principal debt, and if the assurance provider's commitment matches the principal debt, in this case, we can talk about the existence of a subsidiary assurance commitment, hence the existence of a surety contract. On the other hand, if the assurance provider, abstracted from the principal debt relationship, defines its own act in detail, even if the original debt relationship is invalid or terminated, if he/she has promised to pay, in other words, if the assurance taker has given a promise that he/she will not be damaged in any way, In this case, we can assume of a principal assurance commitment, hence the existence of a guarantee contract. 3
  • In ordinary surety, it is necessary to begin proceedings for the principal debt before the surety can be held liable, whereas in a guarantee contract, the guaranteed party may immediately apply to the guarantor if the performance of the third party promised by the guarantor is not fulfilled.4
  • In surety contract, the maximum amount for which the surety shall be liable is determined; pursuant to Article 589 of the Turkish Code of Obligations, the determination of the maximum amount for which the surety shall be liable in the contract is one of the essential elements of the surety contract. The final amount of the debt is the amount for which the guarantor is liable.5
  • If there is a clause in the assurance contract stating that the guarantor cannot recourse to the third party before fully satisfying the guaranteed party, this indicates surety contract, because recovery is not compatible with the guarantee contract.6 Because in the guarantee contract, if the guaranteed risk does not occur a personal debt of the guarantor arises.
  • If the contract contains a clause stating that the exceptio and objections are fully waived, this clause indicates that the contract is a guarantee contract.
  • The existence of a surety contract shall be considered if the obligations of the assurance provider and the obligations of the debtor in the principal debt relationship are the same. In the surety contract, the assurance provider commits only the act in the principal debt relation, not the compensation arising from the damage that will occur in case of non payment by the principle debtor.
  • In the surety contract, the defences and objections that the principal debtor may claim against the creditor may also be claimed by the surety against the creditor. However, in a guarantee contract, the guarantor does not have the defences and objections that the third party has against the guaranteed party.
  • In practice, the guarantee statements of banks, which are more specialised than real person, and their assurances in contracts containing a foreign element considered as "guarantee". The guarantees given by real person are generally accepted as sureties. 7

Guarantee and Surety Contracts Have the Same Form Requirements

In practice, guarantee agreements and guarantees are generally encountered in loan agreements. Especially in loan agreements, in order for real persons who provide assurance under the name of "guarantor" to benefit from the protection provided by the surety contract articles of the Turkish Code of Obligations, the Legislator regulated Article 603 of the mentioned Code. With this article regulations on the form of surety, the capacity of surety and the consent of the spouse shall also apply to other contracts which were made by real persons in order to provide personal guarantees under other names.The purpose of the Article is to prevent creditors from evading and bypassing the protective articles of the surety, as in the case of a contract of undertaking the acts of a third party instead of a surety contract.

Footnotes

1. Cevdet YAVUZ, Special Provisions of the Law of Obligations, Istanbul, 2016, Beta Publishing, at page 775

2. Burak ÖZEN, Surety Contract, Vedat Bookstore, Istanbul 2009, at page 11-12

3. Nami BARLAS, “Determination of the Nature of the Personal Assurance Given Against the Bank in Credit Card Relationship”, 55th Birthday Present to Ömer Teoman, Volume II, Istanbul, 2002, at page 956

4. Mahmut BİLGEN, Disputes Regarding Surety and Trial Law in Doctrine and Practice, Adalet Publishing, Ankara 2013, at page 115

5. Kuntalp ERDEN, Credit Card in the Light of Supreme Court Decisions, Symposium on Commercial Law and Supreme Court Decisions XIII, Ankara 1996, at page 298

6. Arif KOCAMAN, The Legal Nature of the Personal Guarantee Given Against the Bank in Credit Card Relationship: Guarantee or Surety?, at page 76

7. Arif KOCAMAN, A.G.E., s.75

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.