In Light Of The Decisions Of The Supreme Court Of Appeals The Legal Nature Of Bank Guarantee Letters

Bank guarantee letters were long considered surety bonds, and their legal nature was subject to debate. However, two decisions issued by the Supreme Court in 1967[1] and 1969[2] examined the legal nature of guarantee letters in detail.

In its 1967 decision, the Supreme Court of Appeals stated that the legal nature of guarantee letters is that of a guarantee contract. The relevant section reads as follows: “In contracts containing commitments, one of the parties often requests a valid bank guarantee letter from the other party regarding the fulfillment of its obligation, and such commitment documents issued by banks are referred to as guarantee letters. Bank guarantee letters, in this regard, constitute a commitment regarding the acts of a third party and are always drawn up in writing. They are separate and entirely independent from the parties to the main contract and the main agreement. The bank’s commitment constitutes a guarantee commitment, independent of the validity or existence of the beneficiary’s debt. If a person agrees to compensate for the damage arising from the failure to fulfill the debt, regardless of the objections that the principal debtor may raise, that person is in the position of a guarantor. The person who guarantees the act of a third party, i.e., the person who promises to another that the third party will do something, has entered into an independent commitment…” has been ruled.

Despite the reasoning in the Supreme Court’s 1967 decision, the view that guarantee letters are surety contracts has not changed in banking practice, and the reason for this is that, although it is mentioned in the reasoning, it is not explicitly stated in the conclusion that bank guarantee letters are guarantee contracts.[3]

In its 1969 decision, the Court of Cassation ruled that bank guarantee letters are guarantee contracts. The relevant section reads: “…Guarantee letters, by their nature, constitute a guarantee contract referred to in Article 110 of the Code of Obligations. …A guarantee contract that constitutes a commitment to the act of a third party, and therefore, the guaranteeing bank cannot be held liable by the creditor customs office for the amount actually committed to the third party acting as a temporary importer…” 

In the reasoning of the Supreme Court’s 1969 decision, it is stated that “… By agreeing to pay this amount to the customs authority upon its request without raising any objection and without allowing a judgment to be rendered, the bank has entered into an independent commitment separate from the principal debt, thereby waiving its right to raise the defenses it is entitled to under Article 497 of the Turkish Code of Obligations, and has thereby assumed the obligation to pay the principal debt.”.” Although the principal debtor is obligated to raise these defenses and the guarantor is legally required to do so, the bank has waived the right to raise them, thereby subjecting itself to a greater burden than the principal debtor. A guarantor cannot assume greater liability than the principal debtor. For this reason, the initial waiver of the conditions does not render the condition invalid but should be considered a criterion in determining the nature of the contract. Pursuant to Article 497 of the Turkish Code of Obligations, the condition is deemed invalid, and the contract is classified as a surety agreement. The view that the condition (uncontested and invalid) is not a condition waiving the right to object in the conditions but a condition facilitating payment and ensuring immediate payment, has been adopted by the majority, and this nature of the letter has been deemed sufficient to determine its character…” Thus, the legal nature of the bank guarantee letter has been accepted as a guarantee contract.

In accordance with the decisions of the Court of Cassation dated 1967 and 1969, there are three main consequences of considering bank guarantee letters as guarantee contracts:[4]

  • Guarantee letters are independent of the underlying relationship and constitute a separate commitment; they are not ancillary in nature.
  • The provisions of the Turkish Code of Obligations regarding suretyship shall not apply to the interpretation of letters of guarantee.
  • By issuing a letter of guarantee, banks assume an independent obligation to the beneficiary.

Following these decisions, the legal nature of letters of guarantee was accepted as a guarantee contract, and the Court of Cassation also ruled in this direction.[5] In its relevant decision, the Court of Appeals stated that even if the terms “joint and several guarantor” were used, considering the terms “immediate payment upon first written request without the need for protest, collection, or the debtor’s consent,” the bank guarantee letter was a guarantee contract. In doctrine, however, there are opinions that the phrases “payment upon first demand” and “payment without any objection or defense” should be considered as evidence that the guarantee is a guarantee contract, rather than a direct assessment of its nature as a guarantee contract. Accordingly, it is stated that the legal nature of guarantee letters should be determined based on the content of the text and classified as either a surety or guarantee contract.[7]

Although a distinction is made between guarantee and surety agreements in terms of the legal nature of letters of guarantee, we accept the view that they are guarantee agreements in accordance with both the decisions of the Court of Cassation and the prevailing opinion in doctrine. For the reasons stated in this study, letters of guarantee will be explained as having the nature of guarantee agreements.

Year: 2025

Application: In Light Of The Decisions Of The Supreme Court Of Appeals The Legal Nature Of Bank Guarantee Letters

Lawyers: Mehmet Said Sarıbaş & Bilal Akbaba

E-mail: info@saribasakbaba.av.tr

Website: saribasakbaba.av.tr

 

[1] YİBK dated 13.12.1967 and E.1966/16 K.1967/7 (Official Gazette dated 05.04.1968, N.12867)

[2] YİBK dated June 11, 1969, E.1969/4 K.1969/6 (Official Gazette dated October 3, 1969, No. 13317)

[3] Seza Reisoğlu, Bank Guarantees and Counter-Guarantees, Revised and Expanded 4th Edition, Ankara, 2003, p. 30.

[4] Ekici and Durukanoğlu, p. 47.

[5] Court of Cassation 11th Civil Chamber, May 17, 1983, E. 1983/2462, K. 1983/2617 (accessed at: www.kazanci.com)

[6] Nami Barlas, Bank Guarantees in the Turkish Legal System, Istanbul, 1986, p. 47; Vahit Doğan, p. 35.[7] Vahit Doğan, p. 35