Establishment Of Agreements In Domestic Bank Letters Of Guarantee

In banking practice, the beneficiary customer opens a non-cash credit limit with the bank and requests the bank to issue a letter of guarantee on behalf of the person with whom he/she has a basic relationship in accordance with this non-cash credit relationship. In accordance with the beneficiary’s instructions, the guaranteeing bank issues a letter of guarantee, thereby assuming a debt obligation toward the beneficiary. In the narrow and technical sense of the letter of guarantee contract between the bank and the beneficiary, the beneficiary has no obligations toward the bank that issued the letter. At this stage, the guaranteeing bank makes an offer to the beneficiary, and the guarantee agreement is established upon the beneficiary’s acceptance.^[1] Although the bank makes a unilateral commitment in its letters of guarantee, which may give the impression of a unilateral legal transaction, the bank is making an offer, and the agreement is established upon the beneficiary’s acceptance. The contract will not be established without the acceptance of the addressee. The addressee of the letter of guarantee is the creditor both in terms of the underlying relationship and in the context of the guarantee relationship.

In practice, physically issued letters of guarantee are signed and given to the beneficiary, and it is seen that the beneficiary gives the letter of guarantee to the addressee. The letter of guarantee delivered to the beneficiary is still at the offer stage and must be accepted by the addressee for the guarantee contract to be established. Since the bank unilaterally assumes liability with the letter of guarantee, the addressee’s receipt of the letter is deemed to constitute implied acceptance, and the contract is formed.^[2]

When the letter of guarantee is given to the beneficiary to be delivered to the addressee by the guaranteeing bank, it is important to determine the moment when the contract is established and the bank’s liability begins. First, this refers to the situation where the letter of guarantee is delivered to the beneficiary for delivery to the beneficiary, and the letter specifies that the beneficiary must make a statement of acceptance within a certain period, failing which the acceptance will not be deemed to have been made. In this case, if the beneficiary makes a statement of acceptance within the relevant period and notifies the guaranteeing bank, the letter of guarantee relationship will be established, and the contract will produce its legal effects. Otherwise, if the beneficiary does not make a declaration of acceptance within the relevant period, the contract will not be established and will not produce any effects. Secondly, the letter of guarantee may not specify a period for the declaration of acceptance. In this case, the letter of guarantee contract is deemed to have been established when the beneficiary clearly informs the bank of its declaration of acceptance or requests confirmation. [3]

In cases where the beneficiary and the beneficiary are resident within the country, guarantee letters issued within the country are drawn up in paper form with fixed text in accordance with banking practices. These guarantee letters are signed by bank officials with a wet signature.

Regarding the issuance of guarantee letters with electronic signatures, pursuant to Article 5 of the Electronic Signature Law No. 5070 in force in Turkey, it has been made legally possible for banks to issue guarantee letters electronically with e-signatures. Prior to the amendment made on July 15, 2016, banks were not permitted to issue guarantee letters electronically; however, this was subsequently exempted.^[4]

The person or institution to whom a bank issues a letter of guarantee must be different from the bank itself. Since it is not legally possible for a bank to be both the guarantor and the addressee, and since the existence of two separate parties is required for a guarantee agreement, it is not legally possible for a bank to issue a letter of guarantee addressed to itself.^[5]

In terms of the payee being specified, the question of whether the payee of a letter of guarantee must be specified, or in other words, whether a relationship can be established in which the payee is determined by the beneficiary at a later date, has been addressed in legal doctrine. According to this view, in practice, a letter of guarantee is issued without specifying the beneficiary and is delivered to the beneficiary by the bank, with the beneficiary to be determined by the beneficiary. In such a letter, it is argued that the authority to determine the beneficiary is left to the beneficiary, who may do so with the authority of the guaranteeing bank, and that this is valid; the guarantee agreement is established when the designated beneficiary accepts the letter and adds their name/title to it. It is argued that this does not conflict with the Banking Law, that the non-cash credit relationship is established in favor of the beneficiary, and that the payee is not a matter of concern for the bank.^[6]

In letters of guarantee issued by banks to public institutions and organizations, the bank’s head office generally requests a separate letter confirming the signatures on the letter and that the letter was issued by the bank branch. After receiving the signature confirmation, the addressee public institutions and organizations process the letter.^[7]

In banking practice, guarantee letters are delivered to the beneficiary in exchange for their signature, and sometimes, with the use of developing technology, a copy similar to the original is provided to the addressee instead of the original. As a result, when the addressee makes a claim for compensation, the beneficiary may refuse to pay by arguing that the letter is not the original and that the claim is based on a copy.^[8] In domestic guarantee letter relationships, confirming letters signed on paper by obtaining confirmation from the branch where they were issued will protect against potential legal risks. Although there is a Supreme Court decision^[9] stating that a confirmation note should be added to the guarantee letter for the confirmation process, we believe that obtaining a copy of the relevant guarantee letter and a confirmation letter from the guaranteeing bank is also legally sufficient. In the event that a false letter of guarantee is presented directly to the addressee, the guaranteeing bank will not be liable, as there will be no agreement between the parties and therefore no obligation on the part of the bank.^[10]

Year: 2025

Application: Establishment Of Agreements In Domestic Bank Letters Of Guarantee

Lawyers: Mehmet Said Sarıbaş & Bilal Akbaba

E-mail: info@saribasakbaba.av.tr

Website: saribasakbaba.av.tr

^[1] Vahit Doğan, Bank Guarantees, 4th Edition, April 2011, p. 62.

^[2] Seza Reisoğlu, Guarantee Letters and Counter-Guarantees, p. 90.

^[3] Vahit Doğan, Bank Guarantee Letters, 4th Edition, April 2011, pp. 121-122.

[4] Article 5 of the Electronic Signature Law No. 5070; “Legal transactions subject to official form or special ceremony by law, bank guarantee letters, and guarantee contracts other than those issued by insurance companies established in Turkey cannot be executed with a secure electronic signature.” This provision was amended by Article 45 of Law No. 6728 dated 15/7/2016, which replaced the phrase “guarantee contracts” in this paragraph with “guarantee contracts other than bank guarantee letters.”

^[5] Seza Reisoğlu, Guarantee Letters and Counter-Guarantees, p. 92.

^[6] Seza Reisoğlu, Guarantee Letters and Counter-Guarantees, pp. 92-93.

^[7] Ekici and Durukanoğlu, p. 387.

^[8] Ekici and Durukanoğlu, p. 387.

[9] Supreme Court of Appeals, 11th Civil Chamber, May 23, 1991, 89/8162, 91/3389, Law Journal, September 1991, p. 1288 (quoted in Seza Reisoğlu, Letters of Guarantee and Counter-Guarantees, p. 131).

[10] Seza Reisoğlu, Letters of Guarantee and Counter-Guarantees, p. 127.