In commercial loans, supply contracts and construction projects, creditors often ask for a surety, a shareholder’s personal guarantee or a bank guarantee. When a dispute arises, the first question is whether the security is a suretyship or an independent guarantee, because the form requirements, the surety’s defences and the timing of payment all depend on it. This article starts from the Majalla’s book on suretyship, then covers the rules of the Turkish Code of Obligations and the Turkish Commercial Code, the English distinction between guarantees and indemnities, and arbitral orders that have stopped calls on bank guarantees.
The Majalla: one liability joined to another
The third book of the Majalla is devoted to suretyship (Kitab al-Kafala). In the classical definition, suretyship means a person joining their own liability to another’s and so taking on the debt that person owes. The parties match today’s concepts: the surety, the principal debtor (makful ‘anh), the creditor (makful lahu) and the secured obligation (makful bihi).
Two consequences of that definition still hold. First, suretyship is accessory: the surety’s liability is attached to the principal debt and does not live independently of it. Second, a surety who pays can recover from the principal debtor. The form of security that breaks completely with this accessory nature is the modern independent guarantee and the bank guarantee.
Turkish law: form, joint liability and guarantees
- Form (TCO Art. 583): a suretyship is not valid unless it is in writing and states the maximum amount of the surety’s liability and the date of the suretyship. The surety must write the maximum amount, the date and, for a joint and several suretyship, that capacity in their own handwriting. The Court of Cassation treats suretyships lacking these handwritten entries as invalid.
- Spousal consent (TCO Art. 584): a married person may stand surety only with the written consent of their spouse. Consent is not required for suretyships given by the owner of a commercial enterprise, or by partners and managers of commercial companies, in connection with that enterprise or company.
- Joint liability in commercial matters (TCC Art. 7): a surety who undertakes payment of a commercial debt is jointly and severally liable with the principal debtor unless agreed otherwise. Under an ordinary suretyship the creditor must first pursue the principal debtor (TCO Art. 585); under a joint and several suretyship the creditor can go directly to the surety once the debtor is in default (TCO Art. 586).
- The ten-year limit (TCO Art. 598(3)): a suretyship given by an individual ends automatically ten years after it was made. It can be extended for a new period of up to ten years by a written declaration in the form required for suretyship, made no earlier than one year before it ends.
- A new label does not remove protection (TCO Art. 603): the rules on form, capacity and spousal consent also apply to contracts made under another name by which individuals give personal security. Calling a shareholder’s personal undertaking a “guarantee” does not take it outside the handwriting requirement.
- Independent guarantee (TCO Art. 128): a guarantor who undertakes the act of a third party is not bound by the accessory principle; the invalidity or extinction of the principal debt does not, as a rule, affect the guarantee. Bank guarantee letters are of this kind and usually provide for payment “on first demand, unconditionally”.
In practice, the most common problems are standard-form suretyships where the maximum amount is not handwritten, shareholders’ “guarantee” documents being treated as suretyships under Art. 603, and disputes over the scope of a suretyship after the underlying contract has been amended. These three points are worth checking before a commercial suretyship or guarantee is signed.
The English perspective: guarantee, indemnity and demand bond
English law also distinguishes accessory security (a guarantee) from independent security (an indemnity or on-demand bond). Under section 4 of the Statute of Frauds 1677, no action may be brought on a guarantee unless it is evidenced in writing signed by the guarantor or their authorised agent.
- Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] UKHL 17: a subcontractor’s claim against the employer, which had allegedly promised orally to pay the main contractor’s arrears, failed. The House of Lords held that enforcing an oral guarantee through estoppel would render section 4 nugatory.
- Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265: a chain of emails negotiating a ten-year charter could together form a written guarantee, and a name typed at the end of an email could satisfy the signature requirement. Compared with the Turkish handwriting rule, English law is far more flexible with commercial parties.
- Holme v Brunskill (1878) 3 QBD 495: a material variation of the principal contract made without the surety’s consent discharges the surety, unless it is self-evident that the variation cannot prejudice them. The rule does not apply to indemnities, which is why English-law guarantees commonly contain clauses excluding it.
- Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159: a performance bond payable on demand was likened to a letter of credit; the bank must pay unless there is clear fraud of which it has notice. A dispute under the underlying contract does not by itself stop payment.
Comparison: Turkish law protects individual sureties strongly through handwriting, spousal consent and the ten-year limit; English law keeps the formalities simple and protects sureties through rules of construction such as Holme v Brunskill. For independent bank guarantees the two systems converge: in both, payment is in principle independent of the underlying dispute and the exception is kept narrow.
Examples from international arbitration
Because a bank guarantee creates an independent relationship between the bank and the beneficiary, the arbitration clause in the underlying contract does not, as a rule, bind the bank. A contractor facing what it sees as an abusive call therefore often seeks interim measures in the arbitration against the beneficiary rather than against the bank.
- Bombardier / Hellenic Ministry of National Defence (ICC, 2013): by Procedural Order No. 11 of 13 August 2013, the tribunal enjoined the beneficiary ministry from demanding payment under the letter of guarantee until the final award. The final award held the underlying contract void from the outset and found that no liquidated damages were due. The guarantee-chain litigation reached the Supreme Court of Canada (Eurobank Ergasias SA v Bombardier inc, 2024 SCC 11).
- GE and Mytilineos / SAPE (ICC Case No. 25317, 2022): on a power plant project in Algeria, the employer said it would call performance guarantees of about USD 17 million unless the contractors abandoned the arbitration, and then made the call. The tribunal issued emergency interim measures in April 2022; these were confirmed by a New York court, which granted a preliminary injunction against the call.
These examples matter for companies from Türkiye working on projects abroad: where the contract contains an arbitration clause, the first place to resist an abusive call is often the tribunal or an emergency arbitrator. Any order must then be recognised in the country where it is to be enforced.
Frequently asked questions
I stood surety for my company’s loan as a shareholder. Is my spouse’s consent required? Under TCO Art. 584(3), spousal consent is not required for suretyships given by partners and managers of commercial companies in connection with the company. The handwriting and maximum-amount requirements of Art. 583 still apply.
I guaranteed a commercial debt. Must the creditor pursue the debtor first? Under TCC Art. 7, a suretyship for a commercial debt is joint and several unless agreed otherwise. The creditor can then go directly to the surety once the debtor is in default.
What can be done about an abusive call on a bank guarantee? Because the guarantee is independent of the underlying contract, the bank is in principle obliged to pay. Where there is clear abuse, interim relief can be sought from a court or, if the contract has an arbitration clause, from the tribunal; the prospects depend on the evidence available.
For general information only; not legal advice. Whether a security is a suretyship or a guarantee depends on the whole document and the facts. Sources: Majalla, Book of Suretyship; Turkish Code of Obligations Arts. 128, 583, 584, 585, 586, 598, 603; Turkish Commercial Code Art. 7; Statute of Frauds 1677 s.4; Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] UKHL 17; Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265; Holme v Brunskill (1878) 3 QBD 495; Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159; Eurobank Ergasias SA v Bombardier inc, 2024 SCC 11; ICC Case No. 25317 (GE and Mytilineos / SAPE), as reported in published court decisions and legal publications.