The suretyship agreement, which was previously governed by the now-repealed Turkish Code of Obligations No. 818 and is presently regulated under Article 581 of the Turkish Code of Obligations No. 6098, defines suretyship as “a contract under which the surety undertakes personal liability towards the creditor for the consequences of the debtor’s failure to fulfill their obligation.” This legal instrument serves to provide security for the creditor against the risk of the debtor’s failure to perform their obligation. Under a valid suretyship agreement, the surety assumes personal liability towards the creditor for the consequences of the debtor’s non-performance.
The significance and legal role of the suretyship agreement stem from its function as a means of motivating the parties to fulfill their obligations, whether in personal or commercial transactions. Its importance is underscored by the fact that, in the event of non-performance of these obligations, the involvement of a third party -the surety- provides a form of security intended to ensure the continuity of the commercial relationship without disruption.
Although the suretyship agreement is typically executed separately between the creditor and the surety, independently from the principal obligation contract, it may, in practice, also remain valid through provisions incorporated within the principal obligation agreement itself. This article will examine the validity requirements, parties, types, scopes of liability, and termination conditions of suretyship agreements.
II. SURETYSHIP AGREEMENT
Suretyship and the suretyship agreement were regulated under the repealed Turkish Code of Obligations No. 818 as follows: “Suretyship is a contract by which a person undertakes towards the creditor to secure the performance of an obligation undertaken by the debtor.” Under Article 581 of the Turkish Code of Obligations No. 6098, it is defined as “A suretyship agreement is a contract under which the surety assumes personal liability towards the creditor for the consequences of the debtor’s failure to fulfill their obligation.” Pursuant to the law, the surety assumes personal liability towards the creditor in the event that the debtor fails to fulfill their obligation. In practice, this type of agreement is used as a means to provide assurance to the creditor.[1]
Although the term “Suretyship Agreement” might imply that the parties are required to create a separate and independent contract from the principal obligation, the suretyship agreement may be formed either as a standalone contract or, as long as the validity requirements outlined below are met, within the principal contract itself by incorporating relevant suretyship provisions.
III. VALIDITY REQUIREMENTS
The conditions for a suretyship agreement to be legally valid and enforceable are set forth in Article 582 and the subsequent articles of the Turkish Code of Obligations No. 6098.
1. Existence of a Valid Principal Obligation
Pursuant to Article 582 of the Turkish Code of Obligations No. 6098, which states that “A suretyship agreement may be concluded for an existing and valid obligation…”, the existence of a principal obligation is essential for the validity of a suretyship agreement. Suretyship is an ancillary obligation that secures the principal debt, and from a legal standpoint, the existence of a valid principal obligation is a fundamental requirement for the validity of the suretyship. The surety’s obligation exists only insofar as the principal debt is valid and ongoing. In other words, if the principal obligation is extinguished, the surety’s obligation also terminates. In this respect, suretyship is used as a means of safeguarding and guaranteeing the performance of the principal obligation.
Article 582 of the Turkish Code of Obligations No. 6098 further provides that: “… A person who gives personal security for an obligation for which the debtor is not liable due to mistake or incapacity, and who is aware of the defect that invalidates the contract at the time of undertaking the obligation, shall be liable according to the provisions of the law on suretyship…” This provision highlights two exceptions to the requirement of the existence of a valid principal obligation for a suretyship agreement.
The first exception arises when the principal obligation is invalid due to a defect in the will, such as mistake or incapacity. If the surety is aware that the principal obligation is invalid due to such a defect, but nonetheless intentionally and knowingly enters into the suretyship agreement, the suretyship will be considered valid for the surety, even if the principal obligation is invalid. In other words, despite the invalidity of the principal obligation, the surety will still be held liable, as they knowingly provided security to the creditor.
Pursuant to the continuation of Article 582 of the Turkish Code of Obligations No. 6098, which states “…the same rule applies to a person who becomes a surety for an obligation that has expired due to the statute of limitations…,” while the surety may invoke the statute of limitations defense because the debt is time-barred, they will not be able to raise this defense if they were aware of the statute of limitations at the time of entering into the suretyship agreement. It is crucial to note that the burden of proof lies with the creditor to establish that the surety was aware of the statute of limitations at the time the agreement was executed.
2. Capacity to Act as a Surety
The general rule in suretyship agreements is that the surety must be fully competent to be a party to the contract.[2] A fully competent individual refers to a person who possesses all the necessary conditions of legal capacity, such as having the ability to distinguish between right and wrong, being of legal age, and not being under any legal restrictions or incapacitation.[3]
Under Article 449 of the Turkish Civil Code No. 4721, which states that “It is prohibited for a person under guardianship to act as a surety, establish a foundation, or make significant donations,” individuals who are fully incapacitated cannot be parties to a suretyship agreement. As for individuals with limited legal capacity, such as minors and persons under restriction who have the ability to distinguish right from wrong, they are not allowed to enter into suretyship agreements under any circumstances. In such cases, any suretyship agreement entered into would be considered invalid.[4] However, individuals with limited capacity may enter into a suretyship agreement only with the permission of a legal advisor, as stipulated in Article 429/1 of the Turkish Civil Code No. 4721.
When the surety is married, obtaining the consent of their spouse is another essential condition for the validity of a suretyship agreement.[5]
According to Article 584/1 of the Turkish Code of Obligations No. 6098: “One spouse can only act as a surety with the written consent of the other, unless a court decision of separation has been issued or the legal right to live separately has arisen. This consent must be given before or at the latest at the time of the conclusion of the agreement.” Therefore, the spouse’s written consent must be obtained before or, at the latest, at the time the agreement is concluded. If the written consent is obtained after the suretyship agreement has been concluded, it does not validate the agreement.
The exception to the requirement for spousal consent in a suretyship agreement is outlined in Article 584/2 of the Turkish Code of Obligations No. 6098: “In a suretyship agreement, the consent of the spouse is not required for subsequent modifications that do not increase the amount for which the surety will be liable, do not convert a simple suretyship into a joint suretyship, or do not significantly reduce the guarantees benefiting the surety.” This provision refers to the changes made to the agreement after its conclusion, rather than at the time of its formation. As per this rule, if the changes to the agreement do not increase the surety’s liability, alter the type of suretyship, or significantly diminish the surety’s rights, the consent of the spouse is not required.
3. Requirement for Written Form of the Agreement
According to Article 583 of the Turkish Code of Obligations No. 6098, “A suretyship agreement shall not be valid unless it is made in writing and specifies the maximum amount for which the surety is liable, as well as the date of the suretyship. The surety must, in their own handwriting, state the maximum amount for which they are liable, the date of the suretyship, and, if acting as a joint surety, indicate this status or use wording to that effect in the agreement.” Accordingly, a fundamental requirement for the validity of a suretyship agreement is that it must be executed in written form. This requirement may be satisfied either through a notarial deed or by means of a simple written agreement between the parties.[6] In addition to being in writing, the agreement must also include the maximum liability amount, the date of the suretyship, the type of suretyship, and, where applicable, a handwritten declaration by the surety indicating joint suretyship status. If these formal requirements are not fulfilled, the suretyship agreement shall be deemed invalid and shall not produce any legal effect. Moreover, the parties shall be precluded from raising any defense based on non-compliance with these requirements.
Pursuant to Article 583/2 of the Turkish Code of Obligations No. 6098, which states, “A special power of attorney granted for the purpose of acting as a surety on one’s own behalf, as well as a promise to act as surety for the other party or a third party, shall also be subject to the same formal requirements,” not only the suretyship agreement itself but also the granting of a special power of attorney for acting as a surety and any undertaking to provide surety for another must comply with the same formal requirements. Furthermore, according to Article 583/3 of the same Code, “Any subsequent amendments to the suretyship agreement that increase the surety’s liability shall not be valid unless for formal requirements applicable to the original suretyship are observed,” any post-contractual amendments that increase the surety’s liability will only be legally valid if they also meet the initial formal requirements stipulated for the suretyship agreement.
IV. PARTIES TO THE SURETYSHIP AGREEMENT
As a contract of obligation by its nature, the parties to a suretyship agreement are the surety and the creditor of the principal obligation.[7]
The principal debtor is not a party to the suretyship agreement. Therefore, the formation of a suretyship agreement does not require the consent of the principal debtor. Furthermore, the relationship between the principal debtor and the surety, or issues concerning recourse in the event of payment, do not affect the validity or essential elements of the suretyship agreement.
V. TYPES OF SURETYSHIP AGREEMENTS
The types of suretyship, including ordinary suretyship, joint and several suretyship, suretyship for the surety, collective suretyship, and recourse suretyship, are regulated under Article 585 and the following articles of the Turkish Code of Obligations No. 6098. The primary criterion for classifying suretyship agreements is whether or not the creditor is required to first seek payment from the principal debtor before pursuing the surety.
1. Ordinary Suretyship
Article 585 of the Turkish Code of Obligations No. 6098 states: “(1) In ordinary suretyship, the creditor cannot pursue the surety without first seeking payment from the debtor. However, the creditor may directly pursue the surety in the following circumstances: A final certificate of insolvency is obtained as a result of proceedings against the debtor; Enforcement against the debtor becomes impossible or is significantly complicated in Türkiye; A decision of bankruptcy is made for the debtor, or the debtor is granted a composition with creditors (concordat). (2) If the debt is secured by a pledge before or during the suretyship, the surety may request that the debt be first recovered from the pledged property in ordinary suretyship. However, if the debtor is declared bankrupt or granted a composition with creditors, this provision shall not apply.”
In cases where it is not explicitly stated that the surety is assuming liability jointly, or where joint suretyship is not accepted by law or there is uncertainty about this matter, in other words, when only a declaration of being a surety is made, ordinary suretyship is considered to exist. Ordinary suretyship can be defined as a type of suretyship where, for the collection of the debt, the creditor must first pursue the principal debtor and the pledged property, and thus, the surety does not assume joint liability with the debtor.[8]
2. Joint Suretyship
Article 586 of the Turkish Code of Obligations No. 6098 provides: “If the surety has agreed to assume liability as a joint surety or has used any expression conveying this meaning, the creditor may pursue the surety without first pursuing the debtor or liquidating the real estate mortgage. However, for this to occur, the debtor must be in delay in performance, and a demand for payment must have been made with no result, or the debtor must be clearly insolvent.” This provision establishes the framework for joint suretyship agreements. According to this article, if the surety has explicitly stated in the agreement that their suretyship is joint, or if any other expression conveying this meaning is used, the agreement will be classified as a joint suretyship.
The main difference that separates joint suretyship from simple suretyship is that in the case of non-payment of the debt, the creditor is not required to first pursue the debtor.[9] In the case of a joint suretyship agreement, the creditor, in the event of non-payment of the debt, may choose to pursue the joint surety in place of the principal debtor, or may pursue both the principal debtor and the joint surety together.[10]
3. Suretyship with a Surety for the Surety and Recourse Suretyship
According to Article 588 of the Turkish Code of Obligations No. 6098, “A surety who provides security for the debt of another surety is liable jointly with the surety, just like a regular surety. A recourse surety is a surety who provides security for the surety's right to recourse against the debtor.” In this context, a surety for the surety is a situation where the surety guarantees the original surety's debt to the creditor. The responsibility between the surety for the surety and the original surety is akin to the relationship between the original surety and the principal debtor.[11] The creditor must first seek recourse from the original surety.[12]
A recourse suretyship agreement is established between the original debtor’s surety and the recourse surety. Therefore, in their internal relationship, the original surety assumes the position of the creditor, while the recourse surety takes the role of the original surety. The recourse surety is the person who will pay the debt if the original surety is unable to collect the amount from the original debtor despite having made the payment.[13]
VI. THE SURETY'S LIABILITY AND SCOPE
Article 589 of the Turkish Code of Obligations No. 6098 states: “The surety is liable in any case up to the maximum amount specified in the suretyship agreement.” This provision regulates that the surety's liability under the suretyship agreement is limited to the maximum amount they have specified.
The surety, provided they do not exceed the maximum limit specified in the agreement, is liable for the legal consequences of the principal debt and the debtor's fault or default. Additionally, the surety is responsible for the costs of proceedings and lawsuits initiated by the creditor against the debtor, provided that the creditor notifies the surety in a timely manner (before the actions are taken) of the intention to prevent these actions by paying the debt. The surety is also responsible for the costs arising from the delivery of collateral and the transfer of lien rights to the surety, when necessary, as well as for the accrued and accruing contractual interest for the past year and the current year, and when applicable, the interest on the principal loan provided in exchange for bonds for the same periods.
Agreements between the surety and the creditor regarding liability for damages and penalty clauses that would arise in the event of the invalidation of the principal debt relationship are considered definitively null and void. Likewise, such agreements violate the mandatory provisions of the law in their specific context.
Although the surety is liable for the legal consequences arising from the principal debtor's default, limited to the suretyship limit, the surety is fully liable, without limitation to the suretyship limit, for the legal consequences arising from their own default.[14]
VII. TERMINATION OF THE SURETYSHIP AGREEMENT
As regulated in Article 598 of the Turkish Code of Obligations No. 6098, “For whatever reason, once the principal debt is terminated, the surety is also released from their obligation,” the surety's liability under the suretyship agreement is contingent upon the principal debt. Therefore, the surety's liability ceases upon the termination of the principal debt for any reason.
As stated in the continuation of the article, any type of surety provided by a natural person automatically expires after the completion of ten years from the establishment of the relevant contract. This remains unchanged even if the duration of the surety is stipulated to be longer than ten years in the contract.[15] If the surety has specified a certain duration when entering into the surety agreement, the surety’s liability arising from the contract will terminate upon the expiration of the specified period.
VIII. THE SURETY’S RIGHT TO WITHDRAW FROM THE SURETYSHIP AND ITS CONDITIONS
Article 599 of the Turkish Code of Obligations No. 6098 states: “In the case of a suretyship for a future debt, if the debtor's financial condition has significantly deteriorated before the debt arises, or if it becomes evident that the debtor's financial condition is much worse than the surety had reasonably assumed at the time of the suretyship, the surety may withdraw from the suretyship agreement by notifying the creditor in writing, provided that the debt has not yet arisen. The surety is liable for compensating any damage suffered by the creditor due to the creditor’s reliance on the surety.”
This regulation sets out the surety's right to withdraw from the suretyship agreement and the conditions under which this right can be exercised.[16] According to the relevant article, two conditions must be met for the surety to withdraw from the suretyship. The first condition is that the principal debt must not have arisen before the withdrawal date, and the second condition is that the financial situation of the principal debtor must have deteriorated.
Once the conditions mentioned above are met, the surety has the right to unilaterally terminate the suretyship agreement by submitting a written declaration of intent.
IX. SURETYSHIP AGREEMENT IN CASE OF THE SURETY'S DEATH
In the event of the surety's death, the suretyship agreement and the obligations arising from it do not terminate; the surety's debt passes on to their heirs. In this case, the heirs are responsible for the debt in place of the surety, as long as the principal debt remains in existence.[17]
Heirs cannot escape the suretyship liability that passes to them without renouncing the inheritance. In the event of the surety's death, if the heirs do not apply to renounce the inheritance within 3 months, the debt is deemed accepted, and in this case, if the principal debtor fails to pay the debt, the heirs will be obligated to pay the debt.
X. CONCLUSION
A Suretyship Agreement, as regulated under Article 581 and subsequent articles of the Turkish Code of Obligations No. 6098, is a contract in which the surety assumes personal responsibility towards the creditor in the event that the debtor fails to fulfill their obligation. The primary purpose of suretyship agreements is to protect the creditor’s rights by having the surety take on the debt if the debtor fails to make payment. Legally, a suretyship agreement secures the creditor’s claim and stipulates that the surety must fulfill the debt in case the debtor does not. In this way, the creditor’s rights are safeguarded, and payment assurance is provided. Suretyship agreements are commonly used in commercial transactions, credit usage, lease agreements, and other debt relationships, and they enhance the trust between the parties, ensuring the smooth execution of transactions.
A Suretyship Agreement can be established as a separate contract, or it can also be included within the main legal transaction contract, provided that the following validity conditions are met. For a suretyship agreement to be valid and legally binding, certain conditions must be fulfilled. To refer to a valid suretyship agreement, there must be an existing valid principal debt, the agreement must specify the maximum amount the surety is liable for, the date of the suretyship, the type of suretyship, and if it is joint suretyship, this must be indicated in the surety’s own handwriting. The general rule for suretyship agreements is that the surety must have full legal capacity; however, individuals with limited legal capacity can enter into a suretyship agreement through their legal representatives, and limited capacity individuals can do so with the permission of a legal advisor.
If the surety is married, the spouse's consent must be given in writing, either before or, at the latest, at the time the contract is established. Otherwise, a valid suretyship agreement cannot be considered to exist. The parties to the suretyship agreement are the surety and the creditor of the principal debt relationship, and there is no need to obtain consent from the principal debtor for the establishment of the suretyship agreement.
In such a case, a valid suretyship agreement cannot be considered to exist. The parties to the suretyship agreement are the surety and the creditor of the principal debt relationship, and there is no need to obtain consent from the principal debtor for the establishment of the suretyship agreement.
The suretyship agreement has various types, including ordinary suretyship, joint suretyship, surety for the surety, collective suretyship, and suretyship for recourse. When selecting the type of the agreement, the nature of the principal agreement and the underlying reasons for the security deemed necessary are taken into consideration.
The primary dispute that arises in practice is the scope of the surety's liability under the suretyship agreement. Indeed, the surety is responsible for the debt only up to the maximum amount specified in the agreement, regardless of the name under which the claim is made. In this regard, since the surety's liability under the suretyship agreement is a debt dependent on the principal debt, it terminates upon the termination of the principal debt for any reason. However, the surety's liability does not end with the death of the surety; it is transferred to the heirs.
In all respects, suretyship agreements clarify the rights and obligations between the parties, providing legal security. However, since the results are legally binding for both the parties and, in the event of death, the heirs of the surety, it is clear that when including provisions regarding suretyship, attention must be paid to these issues to ensure that neither party is harmed and that their interests are protected.
[1] Buluş, Kasım; 6098 Sayılı Türk Borçlar Kanunu’na Göre Birlikte Kefaletin Türleri ve Hükümleri, 1st Edition, Ankara, Seçkin Yayınevi, 2017, p. 11.
The suretyship agreement, which was previously governed by the now-repealed Turkish Code of Obligations No. 818 and is presently regulated under Article 581 of the Turkish Code of Obligations No. 6098, defines suretyship as “a contract under which the surety undertakes personal liability towards the creditor for the consequences of the debtor’s failure to fulfill their obligation.” This legal instrument serves to provide security for the creditor against the risk of the debtor’s failure to perform their obligation. Under a valid suretyship agreement, the surety assumes personal liability towards the creditor for the consequences of the debtor’s non-performance.
The significance and legal role of the suretyship agreement stem from its function as a means of motivating the parties to fulfill their obligations, whether in personal or commercial transactions. Its importance is underscored by the fact that, in the event of non-performance of these obligations, the involvement of a third party -the surety- provides a form of security intended to ensure the continuity of the commercial relationship without disruption.
Although the suretyship agreement is typically executed separately between the creditor and the surety, independently from the principal obligation contract, it may, in practice, also remain valid through provisions incorporated within the principal obligation agreement itself. This article will examine the validity requirements, parties, types, scopes of liability, and termination conditions of suretyship agreements.
II. SURETYSHIP AGREEMENT
Suretyship and the suretyship agreement were regulated under the repealed Turkish Code of Obligations No. 818 as follows: “Suretyship is a contract by which a person undertakes towards the creditor to secure the performance of an obligation undertaken by the debtor.” Under Article 581 of the Turkish Code of Obligations No. 6098, it is defined as “A suretyship agreement is a contract under which the surety assumes personal liability towards the creditor for the consequences of the debtor’s failure to fulfill their obligation.” Pursuant to the law, the surety assumes personal liability towards the creditor in the event that the debtor fails to fulfill their obligation. In practice, this type of agreement is used as a means to provide assurance to the creditor.[1]
Although the term “Suretyship Agreement” might imply that the parties are required to create a separate and independent contract from the principal obligation, the suretyship agreement may be formed either as a standalone contract or, as long as the validity requirements outlined below are met, within the principal contract itself by incorporating relevant suretyship provisions.
III. VALIDITY REQUIREMENTS
The conditions for a suretyship agreement to be legally valid and enforceable are set forth in Article 582 and the subsequent articles of the Turkish Code of Obligations No. 6098.
1. Existence of a Valid Principal Obligation
Pursuant to Article 582 of the Turkish Code of Obligations No. 6098, which states that “A suretyship agreement may be concluded for an existing and valid obligation…”, the existence of a principal obligation is essential for the validity of a suretyship agreement. Suretyship is an ancillary obligation that secures the principal debt, and from a legal standpoint, the existence of a valid principal obligation is a fundamental requirement for the validity of the suretyship. The surety’s obligation exists only insofar as the principal debt is valid and ongoing. In other words, if the principal obligation is extinguished, the surety’s obligation also terminates. In this respect, suretyship is used as a means of safeguarding and guaranteeing the performance of the principal obligation.
Article 582 of the Turkish Code of Obligations No. 6098 further provides that: “… A person who gives personal security for an obligation for which the debtor is not liable due to mistake or incapacity, and who is aware of the defect that invalidates the contract at the time of undertaking the obligation, shall be liable according to the provisions of the law on suretyship…” This provision highlights two exceptions to the requirement of the existence of a valid principal obligation for a suretyship agreement.
The first exception arises when the principal obligation is invalid due to a defect in the will, such as mistake or incapacity. If the surety is aware that the principal obligation is invalid due to such a defect, but nonetheless intentionally and knowingly enters into the suretyship agreement, the suretyship will be considered valid for the surety, even if the principal obligation is invalid. In other words, despite the invalidity of the principal obligation, the surety will still be held liable, as they knowingly provided security to the creditor.
Pursuant to the continuation of Article 582 of the Turkish Code of Obligations No. 6098, which states “…the same rule applies to a person who becomes a surety for an obligation that has expired due to the statute of limitations…,” while the surety may invoke the statute of limitations defense because the debt is time-barred, they will not be able to raise this defense if they were aware of the statute of limitations at the time of entering into the suretyship agreement. It is crucial to note that the burden of proof lies with the creditor to establish that the surety was aware of the statute of limitations at the time the agreement was executed.
2. Capacity to Act as a Surety
The general rule in suretyship agreements is that the surety must be fully competent to be a party to the contract.[2] A fully competent individual refers to a person who possesses all the necessary conditions of legal capacity, such as having the ability to distinguish between right and wrong, being of legal age, and not being under any legal restrictions or incapacitation.[3]
Under Article 449 of the Turkish Civil Code No. 4721, which states that “It is prohibited for a person under guardianship to act as a surety, establish a foundation, or make significant donations,” individuals who are fully incapacitated cannot be parties to a suretyship agreement. As for individuals with limited legal capacity, such as minors and persons under restriction who have the ability to distinguish right from wrong, they are not allowed to enter into suretyship agreements under any circumstances. In such cases, any suretyship agreement entered into would be considered invalid.[4] However, individuals with limited capacity may enter into a suretyship agreement only with the permission of a legal advisor, as stipulated in Article 429/1 of the Turkish Civil Code No. 4721.
When the surety is married, obtaining the consent of their spouse is another essential condition for the validity of a suretyship agreement.[5]
According to Article 584/1 of the Turkish Code of Obligations No. 6098: “One spouse can only act as a surety with the written consent of the other, unless a court decision of separation has been issued or the legal right to live separately has arisen. This consent must be given before or at the latest at the time of the conclusion of the agreement.” Therefore, the spouse’s written consent must be obtained before or, at the latest, at the time the agreement is concluded. If the written consent is obtained after the suretyship agreement has been concluded, it does not validate the agreement.
The exception to the requirement for spousal consent in a suretyship agreement is outlined in Article 584/2 of the Turkish Code of Obligations No. 6098: “In a suretyship agreement, the consent of the spouse is not required for subsequent modifications that do not increase the amount for which the surety will be liable, do not convert a simple suretyship into a joint suretyship, or do not significantly reduce the guarantees benefiting the surety.” This provision refers to the changes made to the agreement after its conclusion, rather than at the time of its formation. As per this rule, if the changes to the agreement do not increase the surety’s liability, alter the type of suretyship, or significantly diminish the surety’s rights, the consent of the spouse is not required.
3. Requirement for Written Form of the Agreement
According to Article 583 of the Turkish Code of Obligations No. 6098, “A suretyship agreement shall not be valid unless it is made in writing and specifies the maximum amount for which the surety is liable, as well as the date of the suretyship. The surety must, in their own handwriting, state the maximum amount for which they are liable, the date of the suretyship, and, if acting as a joint surety, indicate this status or use wording to that effect in the agreement.” Accordingly, a fundamental requirement for the validity of a suretyship agreement is that it must be executed in written form. This requirement may be satisfied either through a notarial deed or by means of a simple written agreement between the parties.[6] In addition to being in writing, the agreement must also include the maximum liability amount, the date of the suretyship, the type of suretyship, and, where applicable, a handwritten declaration by the surety indicating joint suretyship status. If these formal requirements are not fulfilled, the suretyship agreement shall be deemed invalid and shall not produce any legal effect. Moreover, the parties shall be precluded from raising any defense based on non-compliance with these requirements.
Pursuant to Article 583/2 of the Turkish Code of Obligations No. 6098, which states, “A special power of attorney granted for the purpose of acting as a surety on one’s own behalf, as well as a promise to act as surety for the other party or a third party, shall also be subject to the same formal requirements,” not only the suretyship agreement itself but also the granting of a special power of attorney for acting as a surety and any undertaking to provide surety for another must comply with the same formal requirements. Furthermore, according to Article 583/3 of the same Code, “Any subsequent amendments to the suretyship agreement that increase the surety’s liability shall not be valid unless for formal requirements applicable to the original suretyship are observed,” any post-contractual amendments that increase the surety’s liability will only be legally valid if they also meet the initial formal requirements stipulated for the suretyship agreement.
IV. PARTIES TO THE SURETYSHIP AGREEMENT
As a contract of obligation by its nature, the parties to a suretyship agreement are the surety and the creditor of the principal obligation.[7]
The principal debtor is not a party to the suretyship agreement. Therefore, the formation of a suretyship agreement does not require the consent of the principal debtor. Furthermore, the relationship between the principal debtor and the surety, or issues concerning recourse in the event of payment, do not affect the validity or essential elements of the suretyship agreement.
V. TYPES OF SURETYSHIP AGREEMENTS
The types of suretyship, including ordinary suretyship, joint and several suretyship, suretyship for the surety, collective suretyship, and recourse suretyship, are regulated under Article 585 and the following articles of the Turkish Code of Obligations No. 6098. The primary criterion for classifying suretyship agreements is whether or not the creditor is required to first seek payment from the principal debtor before pursuing the surety.
1. Ordinary Suretyship
Article 585 of the Turkish Code of Obligations No. 6098 states: “(1) In ordinary suretyship, the creditor cannot pursue the surety without first seeking payment from the debtor. However, the creditor may directly pursue the surety in the following circumstances: A final certificate of insolvency is obtained as a result of proceedings against the debtor; Enforcement against the debtor becomes impossible or is significantly complicated in Türkiye; A decision of bankruptcy is made for the debtor, or the debtor is granted a composition with creditors (concordat). (2) If the debt is secured by a pledge before or during the suretyship, the surety may request that the debt be first recovered from the pledged property in ordinary suretyship. However, if the debtor is declared bankrupt or granted a composition with creditors, this provision shall not apply.”
In cases where it is not explicitly stated that the surety is assuming liability jointly, or where joint suretyship is not accepted by law or there is uncertainty about this matter, in other words, when only a declaration of being a surety is made, ordinary suretyship is considered to exist. Ordinary suretyship can be defined as a type of suretyship where, for the collection of the debt, the creditor must first pursue the principal debtor and the pledged property, and thus, the surety does not assume joint liability with the debtor.[8]
2. Joint Suretyship
Article 586 of the Turkish Code of Obligations No. 6098 provides: “If the surety has agreed to assume liability as a joint surety or has used any expression conveying this meaning, the creditor may pursue the surety without first pursuing the debtor or liquidating the real estate mortgage. However, for this to occur, the debtor must be in delay in performance, and a demand for payment must have been made with no result, or the debtor must be clearly insolvent.” This provision establishes the framework for joint suretyship agreements. According to this article, if the surety has explicitly stated in the agreement that their suretyship is joint, or if any other expression conveying this meaning is used, the agreement will be classified as a joint suretyship.
The main difference that separates joint suretyship from simple suretyship is that in the case of non-payment of the debt, the creditor is not required to first pursue the debtor.[9] In the case of a joint suretyship agreement, the creditor, in the event of non-payment of the debt, may choose to pursue the joint surety in place of the principal debtor, or may pursue both the principal debtor and the joint surety together.[10]
3. Suretyship with a Surety for the Surety and Recourse Suretyship
According to Article 588 of the Turkish Code of Obligations No. 6098, “A surety who provides security for the debt of another surety is liable jointly with the surety, just like a regular surety. A recourse surety is a surety who provides security for the surety's right to recourse against the debtor.” In this context, a surety for the surety is a situation where the surety guarantees the original surety's debt to the creditor. The responsibility between the surety for the surety and the original surety is akin to the relationship between the original surety and the principal debtor.[11] The creditor must first seek recourse from the original surety.[12]
A recourse suretyship agreement is established between the original debtor’s surety and the recourse surety. Therefore, in their internal relationship, the original surety assumes the position of the creditor, while the recourse surety takes the role of the original surety. The recourse surety is the person who will pay the debt if the original surety is unable to collect the amount from the original debtor despite having made the payment.[13]
VI. THE SURETY'S LIABILITY AND SCOPE
Article 589 of the Turkish Code of Obligations No. 6098 states: “The surety is liable in any case up to the maximum amount specified in the suretyship agreement.” This provision regulates that the surety's liability under the suretyship agreement is limited to the maximum amount they have specified.
The surety, provided they do not exceed the maximum limit specified in the agreement, is liable for the legal consequences of the principal debt and the debtor's fault or default. Additionally, the surety is responsible for the costs of proceedings and lawsuits initiated by the creditor against the debtor, provided that the creditor notifies the surety in a timely manner (before the actions are taken) of the intention to prevent these actions by paying the debt. The surety is also responsible for the costs arising from the delivery of collateral and the transfer of lien rights to the surety, when necessary, as well as for the accrued and accruing contractual interest for the past year and the current year, and when applicable, the interest on the principal loan provided in exchange for bonds for the same periods.
Agreements between the surety and the creditor regarding liability for damages and penalty clauses that would arise in the event of the invalidation of the principal debt relationship are considered definitively null and void. Likewise, such agreements violate the mandatory provisions of the law in their specific context.
Although the surety is liable for the legal consequences arising from the principal debtor's default, limited to the suretyship limit, the surety is fully liable, without limitation to the suretyship limit, for the legal consequences arising from their own default.[14]
VII. TERMINATION OF THE SURETYSHIP AGREEMENT
As regulated in Article 598 of the Turkish Code of Obligations No. 6098, “For whatever reason, once the principal debt is terminated, the surety is also released from their obligation,” the surety's liability under the suretyship agreement is contingent upon the principal debt. Therefore, the surety's liability ceases upon the termination of the principal debt for any reason.
As stated in the continuation of the article, any type of surety provided by a natural person automatically expires after the completion of ten years from the establishment of the relevant contract. This remains unchanged even if the duration of the surety is stipulated to be longer than ten years in the contract.[15] If the surety has specified a certain duration when entering into the surety agreement, the surety’s liability arising from the contract will terminate upon the expiration of the specified period.
VIII. THE SURETY’S RIGHT TO WITHDRAW FROM THE SURETYSHIP AND ITS CONDITIONS
Article 599 of the Turkish Code of Obligations No. 6098 states: “In the case of a suretyship for a future debt, if the debtor's financial condition has significantly deteriorated before the debt arises, or if it becomes evident that the debtor's financial condition is much worse than the surety had reasonably assumed at the time of the suretyship, the surety may withdraw from the suretyship agreement by notifying the creditor in writing, provided that the debt has not yet arisen. The surety is liable for compensating any damage suffered by the creditor due to the creditor’s reliance on the surety.”
This regulation sets out the surety's right to withdraw from the suretyship agreement and the conditions under which this right can be exercised.[16] According to the relevant article, two conditions must be met for the surety to withdraw from the suretyship. The first condition is that the principal debt must not have arisen before the withdrawal date, and the second condition is that the financial situation of the principal debtor must have deteriorated.
Once the conditions mentioned above are met, the surety has the right to unilaterally terminate the suretyship agreement by submitting a written declaration of intent.
IX. SURETYSHIP AGREEMENT IN CASE OF THE SURETY'S DEATH
In the event of the surety's death, the suretyship agreement and the obligations arising from it do not terminate; the surety's debt passes on to their heirs. In this case, the heirs are responsible for the debt in place of the surety, as long as the principal debt remains in existence.[17]
Heirs cannot escape the suretyship liability that passes to them without renouncing the inheritance. In the event of the surety's death, if the heirs do not apply to renounce the inheritance within 3 months, the debt is deemed accepted, and in this case, if the principal debtor fails to pay the debt, the heirs will be obligated to pay the debt.
X. CONCLUSION
A Suretyship Agreement, as regulated under Article 581 and subsequent articles of the Turkish Code of Obligations No. 6098, is a contract in which the surety assumes personal responsibility towards the creditor in the event that the debtor fails to fulfill their obligation. The primary purpose of suretyship agreements is to protect the creditor’s rights by having the surety take on the debt if the debtor fails to make payment. Legally, a suretyship agreement secures the creditor’s claim and stipulates that the surety must fulfill the debt in case the debtor does not. In this way, the creditor’s rights are safeguarded, and payment assurance is provided. Suretyship agreements are commonly used in commercial transactions, credit usage, lease agreements, and other debt relationships, and they enhance the trust between the parties, ensuring the smooth execution of transactions.
A Suretyship Agreement can be established as a separate contract, or it can also be included within the main legal transaction contract, provided that the following validity conditions are met. For a suretyship agreement to be valid and legally binding, certain conditions must be fulfilled. To refer to a valid suretyship agreement, there must be an existing valid principal debt, the agreement must specify the maximum amount the surety is liable for, the date of the suretyship, the type of suretyship, and if it is joint suretyship, this must be indicated in the surety’s own handwriting. The general rule for suretyship agreements is that the surety must have full legal capacity; however, individuals with limited legal capacity can enter into a suretyship agreement through their legal representatives, and limited capacity individuals can do so with the permission of a legal advisor.
If the surety is married, the spouse's consent must be given in writing, either before or, at the latest, at the time the contract is established. Otherwise, a valid suretyship agreement cannot be considered to exist. The parties to the suretyship agreement are the surety and the creditor of the principal debt relationship, and there is no need to obtain consent from the principal debtor for the establishment of the suretyship agreement.
In such a case, a valid suretyship agreement cannot be considered to exist. The parties to the suretyship agreement are the surety and the creditor of the principal debt relationship, and there is no need to obtain consent from the principal debtor for the establishment of the suretyship agreement.
The suretyship agreement has various types, including ordinary suretyship, joint suretyship, surety for the surety, collective suretyship, and suretyship for recourse. When selecting the type of the agreement, the nature of the principal agreement and the underlying reasons for the security deemed necessary are taken into consideration.
The primary dispute that arises in practice is the scope of the surety's liability under the suretyship agreement. Indeed, the surety is responsible for the debt only up to the maximum amount specified in the agreement, regardless of the name under which the claim is made. In this regard, since the surety's liability under the suretyship agreement is a debt dependent on the principal debt, it terminates upon the termination of the principal debt for any reason. However, the surety's liability does not end with the death of the surety; it is transferred to the heirs.
In all respects, suretyship agreements clarify the rights and obligations between the parties, providing legal security. However, since the results are legally binding for both the parties and, in the event of death, the heirs of the surety, it is clear that when including provisions regarding suretyship, attention must be paid to these issues to ensure that neither party is harmed and that their interests are protected.
[1] Buluş, Kasım; 6098 Sayılı Türk Borçlar Kanunu’na Göre Birlikte Kefaletin Türleri ve Hükümleri, 1st Edition, Ankara, Seçkin Yayınevi, 2017, p. 11.
Turkish
