Bank Guarantee

1. Legal Nature & Conceptual Framework

In Turkish legal doctrine and settled court practice, bank guarantee letters (Banka Teminat Mektupları) are characterized as guarantee agreements (garanti sözleşmesi), which fall under the scope of Article 128 of the Turkish Code of Obligations (TBK No. 6098) regarding the "undertaking of a third party's performance" (üçüncü kişinin fiilini taahhüt). They represent a tripartite commercial structure involving:

• The Applicant (Lehtar): The debtor under the underlying contract who instructs the bank to issue the guarantee.
• The Guarantor Bank (Garanti Veren/Banka): The professional financial institution that issues the letter and assumes an independent payment obligation.
• The Beneficiary (Muhatap): The creditor who holds the right to draw on the guarantee if the applicant defaults.

The core characteristic of a bank guarantee is its independence (aslilik). The bank's obligation to pay is separate and detached from the underlying contract between the applicant and the beneficiary. This means that if a proper demand is made in compliance with the terms of the guarantee, the bank must pay the beneficiary immediately, without evaluating the performance or validity of the underlying contract.

2. Distinction Between Bank Guarantees and Suretyship (Kefalet)

Under Turkish law, distinguishing between a bank guarantee and a suretyship (kefalet) is of critical practical importance due to differences in statutory protection and defenses:

Feature	Bank Guarantee (Garanti Sözleşmesi)	Suretyship (Kefalet)
Nature of Obligation	Independent (Asli): Detached from the underlying contract's validity.	Accessory (Fer'i): Strictly dependent on the validity of the primary debt.
Defenses & Objections	The bank cannot raise defenses arising from the underlying contract.	The surety can raise all defenses and objections belonging to the principal debtor.
Spousal Consent	Not Required: Exempt from family law restrictions.	Mandatory: Spousal written consent is required for individuals (TBK 584).
Corporate Status	Typically issued by banks as highly regulated commercial documents.	Can be commercial or personal, governed by strict formal requirements.

3. Core Elements & Strict Written Form

To establish a valid bank guarantee under Turkish banking regulations and the TBK, specific formal requirements must be met:

• Written Form: The guarantee must be executed in writing. In practice, this is done via physical letters on bank letterhead with authorized signature circulars, or electronically via secure networks like SWIFT.
• Specified Maximum Limit (Limit): The letter must clearly state the maximum monetary liability of the bank. This is an absolute ceiling; the bank cannot be held liable for any amount exceeding this limit, regardless of the applicant's actual default magnitude.
• The Guaranteed Risk (Taahhüt Edilen Risk): The document must identify the specific performance, transaction, or contract being guaranteed so that the occurrence of the risk can be objectively verified.

4. Types of Bank Guarantees in Turkish Commerce

Depending on the commercial purpose, Turkish banks issue several standard forms of guarantee letters:

• Temporary Guarantees (Geçici Teminat Mektubu): Used in public or private tenders to ensure that the bidder does not withdraw their bid before the tender is finalized and will sign the contract if awarded.
• Performance Guarantees (Kesin Teminat Mektubu): Ensures that the contractor or supplier performs their contractual duties fully and in accordance with the specifications.
• Advance Payment Guarantees (Avans Teminat Mektubu): Guarantees that any advance payments made by the beneficiary to the applicant will be returned if the applicant fails to perform.
• Customs Guarantees (Gümrük Teminat Mektubu): Issued to customs authorities to secure the payment of customs duties, taxes, or penalties that may arise from import/export transactions.

5. The First-Demand Payment Mechanism

Most bank guarantees in Turkey are structured as first-demand guarantees (ilk talepte ödemeli). Under this mechanism, the bank commits to pay the beneficiary immediately upon their first written statement that the applicant has failed to perform. The bank is legally barred from investigating whether the applicant is actually in breach, whether the applicant has defenses, or whether the beneficiary is acting in good faith under the underlying contract. The rule is simple: pay first, litigate later.

6. Relationships and Recourse Mechanisms

A bank guarantee involves three distinct legal relationships:

1. Underlying Relationship (Valüt İlişkisi): The commercial contract between the applicant and the beneficiary (e.g., a construction or sales contract).
2. Issuance Relationship (Provizyon İlişkisi): The contract between the applicant and the issuing bank, where the bank agrees to issue the letter in exchange for commission, fees, and collateral.
3. Guarantee Relationship (Garanti İlişkisi): The independent agreement between the bank and the beneficiary created by the issuance of the guarantee letter.

When the bank pays the beneficiary, it has a statutory right of recourse (rücu hakkı) against the applicant to recover the paid amount, plus interest and expenses. This recourse is typically secured by cash collateral, mortgages, or commercial pledges provided by the applicant during the issuance phase.

7. Abuse of Rights & Legal Remedies Against Wrongful Drawdowns

Because first-demand guarantees require the bank to pay without questioning, there is a risk of wrongful drawdowns by the beneficiary. Under Turkish law, the primary defense against such abuse is the prohibition of abuse of rights (dürüstlük kuralı ve hakkın kötüye kullanılması yasağı) under Article 2 of the Turkish Civil Code (TMK):

• Bank's Duty of Care: If the beneficiary's draw is a clear and obvious abuse of right (e.g., if the bank has written proof that the debt was already paid, or if the contract was declared null and void by a final court order), the bank must refuse payment. If the bank pays despite obvious abuse, it loses its right of recourse against the applicant.
• Preliminary Injunction (İhtiyati Tedbir): The applicant can petition the Commercial Court for an urgent injunction under Article 389 of the Civil Procedure Law (HMK) to block the bank from paying, or to prevent the beneficiary from collecting. To obtain this, the applicant must present solid, liquid evidence (likit delil) showing that the draw is fraudulent or completely groundless.
• Restitution Lawsuit (Sebepsiz Zenginleşme): If the bank has already paid, the applicant can file a lawsuit against the beneficiary for unjust enrichment or damages to recover the funds.

8. Impact of Concordat (Moratoryum) on Bank Guarantees

A critical issue in modern Turkish commercial practice is the effect of an applicant's concordat (konkordato) on outstanding bank guarantees. Under Article 289 of the Enforcement and Bankruptcy Law (İİK), when a debtor is granted a concordat project and temporary/definitive moratorium, creditors cannot initiate or proceed with enforcement actions against the debtor. However:

Crucial Rule: The concordat moratorium applies only to the debtor (the applicant). Because the bank guarantee is an independent obligation of the bank, the moratorium does not prevent the beneficiary from drawing on the bank guarantee. The bank must pay the beneficiary.

Once the bank pays the beneficiary, the bank's recourse claim against the applicant becomes subject to the applicant's concordat proceedings, meaning the bank will be treated as an ordinary concordat creditor and may only receive fractional payment according to the approved concordat project.

9. Statute of Limitations (Zamanaşımı)

The statute of limitations for claims arising from a bank guarantee under Turkish law depends on whether the letter has a validity period:

• Definite Guarantees (Vadeli): The letter specifies an expiry date. The beneficiary must submit a written demand to the bank on or before the expiry date. If the demand is made in time, the claim for payment is subject to the general 10-year statute of limitations (TBK 146) starting from the date of the demand.
• Indefinite Guarantees (Vadesiz): The letter does not specify an expiry date. The bank's liability continues until the guaranteed risk terminates. The claim is subject to the 10-year statute of limitations, which begins running from the date the risk materialized.

10. International Applications & ICC Rules (URDG 758)

In international trade transactions involving Turkish entities, bank guarantees are frequently made subject to the International Chamber of Commerce (ICC) rules, specifically the Uniform Rules for Demand Guarantees (URDG 758). When URDG 758 is explicitly incorporated by reference into the letter, its rules govern the presentation of documents, examination, transfer, and termination, overriding domestic default rules where they conflict, provided they do not violate public policy (kamu düzeni).