The New Turkish Code of Obligations numbered 6098 ("TCO") which has entered into force on 01.07.2012 regulates the contract of surety under article 581 et seq.
Article 581 of the TCO defines the contract of surety. According to the definition, under a contract of surety, the surety undertakes to be personally liable towards the creditor in case the debtor fails to fulfill his obligations.
The contract of surety is deemed valid in case of the presence of the following conditions:
- there shall be a valid primary obligation,
- it shall be made in written form and
- approval of the spouse shall be received.
The Existence of a Valid Primary Obligation
According to article 582 of the TCO, the contract of surety requires the existence of a primary obligation. However, a contract of surety may be concluded for a future or a conditional obligation. In such case, contract of surety takes effect when the obligation becomes due or the condition is satisfied. The existence of primary obligation is not required at the time when the contract of surety is concluded; however primary obligation shall exist at the time when the creditor demands the performance of the contract of surety. The surety granted for a conditional obligation takes effect when the condition is satisfied. On the other hand, if the surety is granted for an obligation affiliated with a condition subsequent, obligation of the surety terminates when the condition is satisfied.
It is also stipulated in the article that the contract of surety may only be concluded for a valid obligation. Therefore, if the primary obligation is arising from a null and void transaction due to illegality, immorality, initial impossibility, informality, simulation, lack of judicial mind, then the surety granted will be deemed to be invalid.
However, if the person standing surety for performance of an obligation arising from a contract that is not binding upon the debtor as a result of error or incapacity to conclude a contract is liable for such obligation if he was aware of the defect vitiating the contract at the time he gave his commitment. According to article 582, the same applies to any person who stands surety for performance of an obligation that is time-barred for the debtor.
The Form of Contract of Surety
According to article 583, the contact of surety is valid if the surety makes a written declaration and indicates the date of the surety and the maximum amount for which he is liable.
The article provides for a specific written form since some clauses of the contract of surety shall be drafted in handwriting. Accordingly, the surety shall draft the followings in handwriting in the contract of surety:
- maximum amount for which he is liable
- the date of surety and
- if he is a joint surety, then he shall state that he is liable for the obligation as a joint surety.
The formal requirements applicable to the contract of surety also apply to the subsequent amendments which increase the total liability.
The same formal requirements also apply to the conferral of special authority to enter into a contract of surety and the promise to stand surety for a third party.
The parties may agree in writing to limit the liability of the surety with a certain portion of the obligation.
The Approval of the Spouse
Article 584 provides for a restriction which concerns a married person. A married person may validly stand as surety only with the written consent of his spouse unless the spouses are separated by court judgment.
The approval of the spouse shall be received in advance or at the latest when the contract of surety is concluded.
The approval of the spouse is not required if the subsequent amendments do not increase the total liability, transform a simple surety into a joint surety or substantially diminish the level of the surety's security.
Conclusion
Under article 581 et seq. of the TCO which has entered into force on 01.07.2012, the contract of surety is defined as "a contract where the surety undertakes to be personally liable towards the creditor in case the debtor fails to fulfill his obligations" and it is regulated that the validity of the contract of surety is subject to some conditions.
These conditions are:
- there shall be a valid primary obligation,
- it shall be made in written form and
- approval of the spouse shall be received.
The existence of primary obligation is not required at the time when the contract of surety is concluded; however primary obligation shall exist at the time when the creditor demands the performance of the contract of surety.
Furthermore, the primary obligation shall be valid. However, if the person standing surety for performance of an obligation arising from a contract that is not binding upon the debtor as a result of error or incapacity to conclude a contract is liable for such obligation if he was aware of the defect vitiating the contract at the time he gave his commitment. The same applies to any person who stands surety for performance of an obligation that is time-barred for the debtor.
The article provides for a specific written form. Accordingly, the contract of surety shall be concluded in writing and the surety shall draft in handwriting the maximum amount for which he is liable, the date of surety and if so, he is liable for the obligation as a joint surety.
Article 584 provides for a restriction which concerns a married person. Accordingly, a married person may validly stand as surety only with the written consent of his spouse given in advance or at the latest when the contract of surety is concluded.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.