March 2006
BANK GUARANTEES IN TURKISH LAW

Bank guarantees bear great importance in the contemporary international commercial dealings that can be achieved easily enabling the credits to be paid, being converted into cash.
Though the banks under risks due to bank guarantees these risks have been reduced by counter guarantees and by this system, banks stand by their development and accelerate the international trade.
Bank guarantees haven’t been regulated in Turkish Law by a different and private code. Bank guarantee is a kind of document for a task to be accomplished, payment of debts, delivery of goods etc. Being addressed to the acceptor, in case the subject matter of the letter is unfulfilled then the total amount of the letter will be unconditionally paid. It is a kind of (guarantee) non-cash guarantee between a person who enterprises to a job and the establishment undertaking the job. It can be arranged on New Turkish Lira or foreign exchange and with or without a time limit. Bank guarantees cannot be sequestrated as they are not securities.
Even if the third party is in the advantageous position in a bank guarantee, the relation is in between two parties, in fact. They are the bank and the acceptor who is under guarantee. As for the person in whose name bank guarantee has been established isn’t added as a party in this relation. However if the job hasn’t been accomplished or hasn’t been carried at the position of the said person remains in named the foreground. On the contrary as a bank guarantee forms a contract between the bank and the acceptor, the bank that is called as a party of the contract like all the other contracts of Turkish law of obligations can allege
The demurrers belonging to itself like the forgery of the letter, in competency of the people who put the bank under risks, the risks are over, the bank letter being against ethics, customs and public order etc. In the same way even if the risk hasn’t been realized the bank can put forward objections regulated in Turkish Civil Law Article 2 as “The law does not sanction the evident abuse of man’s rights”.
Bank guarantees may have a date of maturity or not. In the bank guarantees having a date of maturity, the responsibility of banks either come to an end on the date of maturity or for ten years if the acceptor proves that the risk has been realized within the duration of the due date. It is a requisite for the bank’s responsibility to come to an end; it must be clearly expressed in the bank guarantee.
In order bank guarantees to have international characteristics, the foreign aspect that is the guarantee, beneficiary or acceptor must be foreigners. However as to the kind of money, money transferring conditions and limitations are important, the persons settled in Turkey or abroad bear more importance from the point of acceptor according to the decree No.32 named as the Protection of The Value of Turkish Currency.
According to the said decree, the people who are settled in Turkey are either private ones or legal entities who have residences in Turkey or the ones who reside in Turkey for more than six months, constantly having the intention of settlement.
It must be taken into consideration that the bank itself that give guarantees is Turkish. Turkish banks can give guarantees both to the people settled in Turkey and abroad but if the beneficiary and the acceptor are settled abroad then the conditions concerning bank guarantees are regulated by Turkish Central Bank according to the directions of the Ministry that the Under secretariat of Foreign Trade is bound to.

It is also possible that foreign banks can guarantee in favour of the people settled abroad and in Turkey. But in practice, bank guarantees are given to Turkish banks depending upon the guarantees being given to a Turkish bank by a foreign bank. Besides a consortium established more than one bank may give bank guarantees diminishing the risks. A consortium might be between foreign and Turkish banks as in between Turkish banks.
Since bank guarantees haven’t been regulated in Turkish Law by a separate and private code, its legal quality has been disputed and discussed in doctrine and practice. Though they are accepted as a kind of contractual guarantee, since banks can organize mixed type of guarantees such as indemnity letters the real quality of bank guarantees are to be determined by the characteristics of the guarantee mentioned in every single and special case.
The law to be applied and judicial quality of the dispute is determined according to the national law of the country where the case is tried if the bank guarantees are international character. Turkish Courts determine which law to be applied to bank guarantees, considering the code called as International Private Law and Procedural Law (MÖHUK). As for the form of bank guarantees, is determined according to article 6 of MÖHUK. That is judicial transactions are determined according to the locus where they were acted or according to the substance of the said transaction. In Turkish Law, there is no procedural obligation from the point of bank guarantees. However, in practice for bank guarantees, the name of the acceptor, the subject matter of the job, the name of the undertaker, the determined amount and the guarantee of the bank, the said guarantee of the bank will be paid unconditionally and the signatures of the authorized persons of the bank, take place. As to the viewpoint of High Appeal Court, a bank guarantee to be given to a person settled in Turkey should absolutely be drawn up in Turkish. Besides, it is possible to mention that all of the bank guarantees in Turkey include first demand -at first sight- guarantee. The result of this guarantee is the reverse burden of proof -onus propandi- .In such a situation it is the bank itself not the claimer (suitor) is obliged to prove that the risk hasn’t been occurred or terminated even if risk has occurred; it is an evident abuse of right itself.
The eligibility of rights and actions of the concerning parties in bank guarantees are subject to their national law according to the Article 8 of MÖHUK but there is an exception in this point. The party who is eligible according to its national law that is she/he is bound with the transactions being committed in Turkey. In bank guarantees, banks are always legal entities that are why, their eligibilities are subject to the law of the place where their administrative centre is situated but in case if it is in Turkey then Turkish Law may be applied.
In bank guarantees and in contracts of guarantees or counter guarantees which law to be applied can be determined freely but if such a clause doesn’t exist in the contract then the law to be applied to a such kind contract will be the one of the place where the activities of the bank take place.
As you can observe, the practice of bank guarantees which have an immense importance in commercial life in Turkey is easy, fast and has a great resemblance with international practice, in general.