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February
2007
GUARANTEE
CONTRACTS
I- DEFINITION AND SPECIAL CHARACTERISTICS
Upon Turkish law, a specific kind of personal assurance is
“Guarantee.” In guarantee contracts, the guarantor
strictly undertakes to pay the loss to be experienced by creditor
with his total mass of assets, which are leviable, if the original
debtor fails to fulfill his obligations arising from the legal
relationship between the creditor and the original debtor.
A- Guarantee Contracts are Accessory
The main difference of guarantee contracts from
warranties and bank guarantees, which are also types of personal
assurance, is the fact that, the validity of the guarantee is
strictly bound on a valid, binding and continuing legal relationship
between the creditor and the original debtor. So, guarantee contracts
are accessory. As a result of this feature, the guarantor will be
responsible to the creditor, at the same extent and for the same
amount with the original debtor. If the original debt relationship is
invalid due to any reason or it is dissolved, the guarantee contract
will not be automatically invalid, however then the guarantor will
not responsible to the creditor any more. Moreover, if the guarantor
happens to accept a stipulation to the contrary, this stipulation
will not be valid due to the violation of the principle of guarantee
contracts being accessory.
As a result of this characteristic, the guarantor
is able to set forth the defense opportunities (objection, plea)
againist the creditor, which would be set forth by the original
debtor himself. (Please see Obligations Code art. 497). Even if the
guarantor fails to use this right, the original debtor might lose
this right too, with the presence of certain conditions.
B- Guarantee Contracts are Secondary
With the secondary characteristic, the creditor is
unable to address the guarantor without addressing the original
debtor first. This feature only exists at the ordinary guarantee.
Because, in ordinary guarantee, the creditor shall firstly address to
the original debtor and should recourse to the foreclosure, if the
debt is assured with a pledge. If the creditor addresses the
guarantor without trying these, the ordinary guarantor shall be able
to set forth the pleas which are stated at article 486 of Obligations
Code.
However, at the successive guarantees, the secondary quality of
guarantee is ineffable.
C- Being Alienated from the Main Debt
This characteristic is especially important,
regarding the difference between the successive indebtedness and
successive guarantee. That is, whether the main subject of the legal
relationship between the original debtor and the creditor is
commodities, services or money, as a general rule, the subject of the
guarantor’s debt is only “money.” Because, the
guarantor does not assure to perform the liability of original
debtor; instead, he strictly undertakes to fulfill the benefits
expected by the creditor from the performance of the liability. In
simple words, these benefits are the expectation interests.
Secondly, when the guarantor pays to the creditor
his expectation interest, his guarantee debt is dissolved; but this
does not mean the dissolution of the original debtor’s debt.
Therefore, the guarantor who performs his liabilities to the creditor
acquires right of recourse to the original debtor, being the
successor of creditor’s rights.
D- Gratious Contract Fastening the Obligation to a
Sole Party
Only person who undertakes a debt with the guarantee contract is the
guarantor. The creditor is not subject to a performance liability
arising from this contract.
II – VALIDITY CONDITIONS OF GUARANTEE
CONTRACT
A– The debt which is assured with the
guarantee contract must be valid and binding. This is also a result
which arises from the accessory feature. Therefore, if the original
debt relationship is invalid due to the lack of capacity to contract,
fictituous bargain or any of the reasons listed at article 19 of OC,
or the original debt relationship is dissolved due to the reasons
stated at article 113 et seq. of OC, the guarantor shall not be
responsible in any means. Even if there are stipulations to the
contrary at the contract, the guarantor shall not be responsible;
unless the contract’s main target is warranty.
The meaning of OC art. 485/final is, at any
original debt relationship in which the guarantor has one-sided
disconnectedness due to error or partial incapacity, if the guarantor
furnishes a collateral giving the impression of being aware of the
actual situation, it is commonly accepted that, actually there’s
a contract of warranty which is dependent on the form requirements of
the guarantee contract. In this case, the guarantor is able to set
forth the original debtor’s all objections and pleas, other
than the error of the original debtor or invalidity of the debt
relationship due to the partial incapacity.
The debt assured with the guarantee contract can either be existent
or prospective.
B – The guarantee contract has to carry the
validity conditions set forth at art. 19 of OC, which are binding for
all types of contracts in general. Here, about the capacity to be
guarantor, the provisions of Turkish Civil Code art. 449,
art.429/b.9, Turkish Law of Bankruptcy art. 290 and the legal
entities’ capacity to conclude guarantee contracts only with
limited to their establishment aims are worth mentioning.
C- The guarantee contract should be concluded in
ordinary written statement form and the liability amount of the
guarantor should be written on the guarantee bond. Numerically
determination of this amount is not mandatory, it is widely accepted
that, if the guarantor’s liability amount is comprehensible
from the guarantee bond or from the original debt relationship in
which the guarantee bond is bound to (in practice, especially for the
guarantees which are bound to the credit cards), these will be
sufficient.
The amount of guarantor’ liability might be shown in foreign
currency.
All types of contracts which increase the liability burden of
guarantor should be concluded with the formal requirements, shown at
art. 484 of OC.
III- TYPES OF GUARANTEE CONTRACTS
A- Ordinary Guarantee: OC art. 486. It is not much
used at the practice, due to its secondary features. In ordinary debt
relationships, the guarantor is assumed to be ordinary guarantor, if
the succession fact is not explicitly mentioned at the contract. The
ordinary guarantor has special pleas, such as discussion (spot case)
and foreclosure.
B- Successive Guarantee: It is widely used in
practice. In ordinary business deals, the guarantor gives assurance
with the title of successive guarantor and in commercial business
deals, the guarantor is automatically assumed to be successive, upon
art. 7 of Turkish Commercial Code and the creditor is free to address
either one of them (original debtor or guarantor) or both.
C- Common Guarantee: More than one person acts
together with the desire and intention of being common guarantors. It
has two kinds, such as ordinary and successive common guarantee. In
ordinary common guarantee, the guarantors have the distribution plea
right as well as their other pleas arising from ordinary guarantee,
according to OC art. 488.
D- Recourse Guarantee: OC art. 489/ II. If the
guarantor which is successor to the creditor having paid to him
recourses to the original debtor, this guarantor assures the
guarantor that original debtor will pay his debt to him.
E- Guarantee to Guarantor: OC art. 489/ I. This
type has no practical usage. Here, another guarantor assures the main
guarantor to the creditor with another guarantee contract.
SCOPE OF
THE GUARANTOR’S LIABILITIES
If the amount of money for which the guarantor
will be liable is explicitly written at the guarantee contract, this
will be definitely beneficial for the guarantor. Because, the
guarantor is liable from the original debt (main debt) + all result’s
of original debtor’s default (such as default interest) + if
any contractual interest rate is determined at the contract, one
yearly interests and the yielding interests + if he is duly informed,
the court expenses, with the amount stated at the guarantee contract
being the maximum. If the total amonut of these listed items exceed
the maximum amount of the guarantee bond, the guarantor shall be only
liable to pay to its extent. If the guarantor himself is in default
of his “guarantee debt”, then he will be liable without
being bound to this maximum.
REASONS
FOR DISSOLUTION OF GUARANTEE CONTRACTS
Dissolution of the original debt relationship (OC
art. 492)
Change of the original debtor. (In case of
imperfect delegation) the guarantor’s unwillingness to show
his explicit acceptance (OC art. 176)
In
guarantee with a certain period, if the creditor does not start the
execution proceedings within one month after the expiry of guarantee
period or suspends the execution proceedings for a long time, the
guarantor shall be automatically freed from the guarantee debt. We
have to stress on the fact that, if there isn’t any explict
understanding about the original debt relationship to be
time-limited as well as the guarantee contract, then the guarantee
contract shall not be automatically time-limited.
At a guarantee contract which is concluded for an
unlimited time, if the creditor does not enforce its credit within
one month after the debt’s maturity date or suspends the
execution proceedings for a long time, the guarantor shall be freed
from the guarantee debt.
The
creditor and the guarantor are free to determine the dissolution of
guarantee contract, in any time they wish.
According to OC art. 501, if the creditor does
not accept the payment done by the debtor without any rightful
reason, the guarantor will be freed from his guarantee debt without
being obliged to pay.
According to OC art. 502, if the original debtor
goes bankrupt and the creditor fails to inform the guarantor, the
guarantor will be freed from the guarantee debt in proportion to his
losses arising from his unability to inform the trustee of the
bankrupt’s estate about his prospective right of recourse.
The creditor is obliged to provide the guarantor,
who is about to make the payment, the documentation on his hands
which are required for the execution proceedings againist the
original debtor and the other warranties which are obtained for the
original debt. If he fails to perform this duty (liability), the
guarantor will be freed from his guarantee debt, according to OC
art. BK md. 501/c.2.
GUARANTOR’S
RIGHT OF RECOURSE TO THE ORIGINAL DEBTOR
When the guarantor pays his guarantee debt to the
creditor, his guarantee debt will be dissolved, however the original
debtor will not be freed from his debt. The guarantor, who has paid
his debt to the creditor will be his successor and then, start the
execution proceedings againist the original debtor. The guarantor’s
pre-renouncement of this right is invalid, according to OC art. 496.
At the recourse stage, the original debtor is able to set forth the
objections and pleas, arising from the original debt relationship and
which had to be set forth to the creditor during the execution
procedure, to the guarantor. Consequently, if there are any defense
means which weren’t used during the previous execution
procedure, the guarantor will lose his recourse right in proportion
to them, upon OC art. 497. Besides, in case of a situation stated at
art. 498 of OC, the guarantor will lose his recourse rights.
MATURITY AND PRESCRIPTION OF THE GUARANTEE DEBT
At earliest and if anything about the maturity
date is determined at the contract, the guarantee shall be mature
whenever the original debt relationship is mature. If the creditor is
obliged to notify the debtor to have the original debt mature, the
guarantor is entitled to claim the immaturation plea, in case the
guarantor is informed about this notification. If the debt assured by
the guarantor becomes mature before the due date, because of original
debtor’s bankruptcy, the guarantor cannot be enforced by the
creditor before the original debt’s actual due date, according
to OC art. 491. However, this provision is not mandatory.
The guarantee contract is up to the 10 yearly
general prescription period after its date of maturity.
REFERENCES: Tandogan, Special Debt Relationships,
V.2, Ankara, 1987; Reisoglu, Guarantee upon Turkish Law and Banking
Practice, Ankara, 1992; Elcin-Grassinger, Guarantor’s Defense
Opportunities againist the Creditor, upon Turkish Obligations Code,
Istanbul, 1996
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