This article explains when Turkish courts treat a guarantee as a suretyship and how foreign creditors can draft enforceable parent company and personal guarantees.
Foreign suppliers, lenders and investors dealing with Turkish counterparties routinely ask for additional security: a guarantee from the parent company, a personal guarantee from the shareholders, or an undertaking from the managing director. These documents are often prepared from the creditor's own templates, signed quickly, and filed away until the day they are needed. Under Turkish law, however, the label on the document does not decide what it is. If a Turkish court treats a "guarantee" as a suretyship (kefalet), strict form requirements apply, and a document that lacks a handwritten maximum amount or, in the case of an individual, the written consent of the guarantor's spouse may be void. This article explains how Turkish law distinguishes guarantees from suretyships, why personal guarantees from individuals are especially exposed, how parent company guarantees should be drafted, and what a foreign creditor should consider when choosing the governing law.
1. Two Instruments, Two Regimes
The Turkish Code of Obligations (TCO) recognises two main forms of personal security:
- Suretyship (Articles 581 et seq. TCO): the surety undertakes to answer for the principal debtor's failure to perform. A suretyship is accessory: if the principal debt is invalid, has been extinguished, or is subject to a defence, the surety can rely on that defence against the creditor.
- Guarantee (Article 128 TCO): the guarantor promises that a third party will perform, or that a certain result will occur, and undertakes to compensate the creditor if it does not. A guarantee is independent of the underlying debt, and the guarantor generally cannot raise the principal debtor's defences.
The distinction has real consequences. A suretyship is subject to protective rules on form, spousal consent and duration. A guarantee given by a company is, as a rule, not subject to any particular form and places the creditor in a much stronger position.
2. How Turkish Courts Tell Them Apart
Turkish courts look at the substance of the undertaking, not its title. The main indicators are:
- Independence: an express statement that the obligation is independent of the validity of the underlying contract and of the debtor's defences points strongly towards a guarantee.
- Payment on demand: wording such as "on first written demand", "unconditionally and irrevocably" and "notwithstanding any objection or defence of the debtor" supports a guarantee.
- The guarantor's own interest: where the guarantor has a direct economic interest in the transaction, as a parent company typically does in its subsidiary's business, this supports a guarantee.
- Close linkage to the principal debt: an undertaking framed entirely by reference to the debtor's obligations, and rising and falling with them, points towards a suretyship.
Where the position is unclear, there is a tendency to adopt the interpretation less burdensome for the person giving the undertaking, which is suretyship. Standard "guarantee" templates drafted for common law jurisdictions, which often combine independent payment language with "principal obligor" and accessory wording, can therefore be characterised as suretyships in Türkiye.
3. The Form Trap: Handwritten Amounts
Under Article 583 TCO, a suretyship is valid only if:
- it is made in writing;
- it states the maximum amount for which the surety is liable;
- it states the date of the suretyship; and
- the surety writes the maximum amount, the date and, for a joint and several suretyship, that capacity in their own handwriting.
A typed amount, or an amount filled in by someone else, does not satisfy the requirement. A suretyship without a maximum amount is void, even if it is signed as joint and several. These requirements also apply where the surety is a company: the handwritten elements must then be written by the company's authorised representative. For a foreign creditor used to signing guarantees electronically or by typed execution blocks, this is a fundamental difference.
4. Personal Guarantees from Individuals and Article 603
Article 603 TCO extends the suretyship rules to every contract under which an individual provides personal security, whatever it is called. In practice, a personal guarantee from a Turkish shareholder or director, even if drafted as an independent first demand guarantee, is subject at least to the suretyship rules on form, capacity and spousal consent.
Spousal consent: under Article 584 TCO, a married individual can, as a rule, give a suretyship only with the written consent of their spouse, given no later than when the contract is signed. Consent given afterwards does not, as a rule, cure the defect. There are important exceptions, in particular for suretyships given by the owner of a business registered in the trade registry, or by the shareholders or managers of a company, in connection with that business or company. These exceptions are read narrowly: a family member who is not a shareholder or manager still needs spousal consent.
Ten-year limit: a suretyship given by an individual expires automatically ten years after it was given, even if a longer term was agreed. It can be extended only by a written declaration in the required form, made no earlier than one year before expiry.
5. Parent Company Guarantees
Article 603 does not apply to companies. A parent company guarantee that clearly qualifies as an independent guarantee can therefore be valid without the suretyship formalities. The risk lies in characterisation: if the court treats the document as a suretyship, the handwritten maximum amount and date become mandatory, and a guarantee without them can fail.
When taking a parent company guarantee from a Turkish group, foreign creditors should also check:
- Authority: the signatories' authority should be verified against the company's signature circular and the trade registry.
- Corporate benefit: for upstream and cross-stream guarantees, the company's interest and the required corporate approvals should be documented.
- Capital maintenance: security given in favour of a shareholder's obligations raises separate issues under Turkish company law rules on capital maintenance and disguised profit distribution.
6. Letters of Comfort
Parent companies often offer a letter of comfort instead of a guarantee. Under Turkish law, a "soft" letter of comfort, merely confirming awareness of the transaction or an intention to support the subsidiary, generally creates no payment obligation. A "hard" letter, in which the parent undertakes to ensure that the subsidiary will be able to meet its obligations, may create liability and can be close to a guarantee. Foreign creditors should not treat a letter of comfort as equivalent to a guarantee without careful review of its wording.
7. Choosing the Governing Law
Under the Turkish Private International Law (PIL), parties to an international contract may choose the governing law, and formal validity is generally satisfied if the contract complies with either the law governing it or the law of the place where it was concluded. A parent company guarantee governed by English or Swiss law may therefore avoid the Turkish formalities. Three caveats apply:
- there must be a genuine international element; a guarantee between two Turkish parties for a purely domestic debt cannot escape Turkish law simply by choosing foreign law;
- it remains debated whether the protective rules on personal guarantees, in particular spousal consent, may be applied as overriding mandatory rules where the guarantor is a Turkish individual; and
- a guarantee governed by foreign law must still be enforced against assets in Türkiye, which requires recognition and enforcement of the foreign judgment or arbitral award.
For personal guarantees from Turkish individuals, the safest course is to comply with Turkish form requirements whatever the governing law. For enforcement, an arbitration clause will often be more effective than a foreign court jurisdiction clause, since Türkiye is a party to the New York Convention.
8. Guarantees When the Debtor Restructures
If the Turkish debtor enters konkordato, Türkiye's court-supervised restructuring, a creditor that votes in favour of the plan keeps its rights against sureties and guarantors only if it notified them of the creditors' meeting at least ten days in advance and offered in writing to assign its claim to them against payment. We explained this rule in our article on konkordato. Bank guarantees and standby letters of credit, which are independent instruments, are generally unaffected by the debtor's restructuring. We discussed them in this article.
9. Practical Checklist for Foreign Creditors
- Decide at the outset whether you want an independent guarantee or a suretyship, and draft consistently; avoid mixing "principal obligor" and accessory wording with independent payment language.
- For an independent guarantee, state expressly that the obligation is independent of the underlying contract, waives the debtor's defences and is payable on first written demand.
- For any guarantee from a Turkish individual, have the guarantor write the maximum amount, the date and the words "joint and several surety" in Turkish in their own handwriting.
- Check whether the spousal consent exception applies; if in doubt, obtain the spouse's written consent at signing.
- For parent company guarantees, consider having the authorised signatory handwrite the maximum amount and date as protection against recharacterisation.
- Verify signing authority, corporate approvals and corporate benefit, and keep the documents on file.
- Diarise the ten-year limit for guarantees given by individuals.
- Where possible, consider bank guarantees or standby letters of credit, which avoid most of these risks.
10. Conclusion
A guarantee is only as good as its enforceability in the jurisdiction where the guarantor's assets are located. For guarantees connected with Türkiye, the key points are:
- The substance of the undertaking, not its title, decides whether it is a guarantee or a suretyship.
- A suretyship is void without a written document, a handwritten maximum amount and date and, where joint and several, a handwritten statement of that capacity.
- Personal security from an individual is subject to the suretyship rules under Article 603, whatever the document is called.
- Married individuals generally need their spouse's prior written consent, subject to exceptions for business owners, shareholders and managers.
- Parent company guarantees can be free of formalities, but only if drafted clearly as independent guarantees.
- Choosing foreign law can help, but enforcement in Türkiye and overriding protective rules must still be considered.
For advice on drafting and reviewing guarantees and suretyships from Turkish companies and individuals, assessing the validity of existing security and enforcing guarantees in Türkiye, please contact us at info@guzeloglu.legal.