Surety Agreement — Notary Requirement and Validity Conditions

A surety agreement is a type of contract in which the surety undertakes to assume liability toward the creditor in the event that the debtor fails to perform their obligation. The surety agreement, regulated in detail in Articles 581-603 of the Turkish Code of Obligations No. 6098, is one of the most frequently used security instruments in commercial life and individual credit relationships. The validity of the surety agreement is subject to strict formal requirements, and non-compliance with these requirements renders the agreement absolutely void. In this article, we will comprehensively examine the definition, validity conditions, notary requirement, spouse's consent, the difference between ordinary and joint surety, and practical issues of surety agreements.

Definition and Legal Nature of the Surety Agreement

A surety agreement, pursuant to Article 581 of the TCO, is a contract in which the surety undertakes to be personally liable to the creditor for the consequences of the debtor's failure to perform their obligation. Surety is not an independent obligation relationship but an accessory security agreement dependent on the principal debt. Therefore, if the principal debt is invalid or has terminated, the surety also becomes invalid or terminates.

The accessory nature of surety means that the surety's liability is limited to the principal debtor's debt. Pursuant to Article 586 of the TCO, the surety cannot in any case be held liable for more than the principal debtor's debt. If the principal debt decreases, the scope of the surety also decreases; however, an increase in the principal debt does not expand the scope of the surety.

The parties to a surety agreement are the surety and the creditor. The debtor is not a party to the surety agreement. Therefore, a surety agreement can be established without the knowledge or consent of the debtor. However, in practice, there is usually a relationship of trust between the debtor and the surety (kinship, friendship, business relationship, etc.).

Formal Requirements of the Surety Agreement

Article 583 of the TCO subjects the validity of the surety agreement to strict formal requirements. These formal requirements are mandatory in nature and are intended to protect the surety. Non-compliance with the formal requirements renders the surety agreement absolutely void.

1. Written Form: The surety agreement must be made in written form. Surety agreements made orally are invalid.

2. Statement of Maximum Liability Amount: Pursuant to Article 583/1 of the TCO, the maximum amount for which the surety will be liable must be explicitly shown in the surety agreement. If the maximum amount is not stated, the surety agreement is invalid. This provision aims to ensure that the surety knows in advance the extent of debt they may face.

3. Statement of Surety Date: The date on which the surety is given must be written in the surety agreement. Failure to state the date affects the validity of the agreement.

4. Surety's Handwritten Declaration: Pursuant to Article 583/2 of the TCO, the surety must write in their own handwriting the maximum amount for which they will be liable, the surety date, and, if they are a joint surety, this capacity. This provision aims to ensure that the surety is aware of the risk they are assuming. If the handwriting requirement is not fulfilled, the surety agreement is invalid.

All of these formal requirements are mandatory in nature and are intended to protect the surety. The Supreme Court has rendered many decisions emphasizing that formal requirements must be strictly applied.

Spouse's Written Consent in Surety Agreements

Article 584 of the TCO requires the written consent of the spouse for the surety agreement to be valid. This provision is an important innovation introduced by TCO No. 6098 and is intended to protect family unity.

Pursuant to Article 584/1 of the TCO, for one spouse to become a surety, the written consent of the other spouse must be obtained. This consent must be given before or at the latest at the time of the conclusion of the surety agreement. Consent given after the agreement (ratification) does not render the surety agreement valid.

The spouse's consent must be obtained from the spouse of the person designated as surety in the surety agreement. The consent must be given in written form, and the spouse must be aware of the nature, scope, and risks of the surety. It is also important that the maximum amount for which the surety will be liable is stated in the consent.

Exceptional situations where the spouse's consent is not required are regulated in Article 584/2 of the TCO. Accordingly, the spouse's consent is not required for sureties given by the owner of a commercial enterprise registered in the trade registry or by a partner or manager of a commercial company in connection with the enterprise or company. This exception aims to meet the requirements of commercial life.

A surety agreement made without the spouse's consent is absolutely void. This voidness means that the agreement is invalid from the beginning. The judge investigates ex officio whether the spouse's consent exists.

Difference Between Ordinary and Joint Surety

The TCO divides surety agreements into two main types: ordinary surety and joint (solidary) surety. The difference between these two types is of great importance in terms of the conditions under which the creditor can apply to the surety.

Ordinary Surety (TCO Art. 585-588): In ordinary surety, the creditor must first apply to the principal debtor. The creditor can only apply to the surety if the enforcement proceedings against the principal debtor have been unsuccessful or the debtor has clearly become insolvent. Pursuant to Article 585 of the TCO, the creditor cannot pursue the surety without initiating enforcement against the debtor and converting real estate pledges into money. This provision reflects the surety's secondary (subsidiary) liability.

In ordinary surety, the surety has the right of discussion (beneficium excussionis). The surety can demand that the creditor first apply to the debtor. When the right of discussion is exercised, the creditor must complete the necessary enforcement procedures against the debtor before being able to pursue the surety.

Joint Surety (TCO Art. 586-588): In joint surety, the creditor can apply directly to the surety without applying to the debtor. The surety is jointly and severally liable together with the debtor. In this type of surety, the surety has no right of discussion; the creditor can bypass the debtor and initiate enforcement directly against the surety if they wish.

For the validity of joint surety, the surety must write the capacity of "joint surety" in their own handwriting in the surety agreement (TCO Art. 583/2). If this handwriting requirement is not fulfilled, the surety is accepted as ordinary surety; absolute voidness does not apply.

Notarial Practice in Surety Agreements

The TCO does not require the surety agreement to be made before a notary; written form is sufficient. However, in practice, having surety agreements prepared or authenticated before a notary provides advantages in several respects.

A surety agreement prepared before a notary constitutes an official deed and has conclusive evidentiary power. This becomes particularly important when the surety claims they did not sign the agreement or that the handwriting does not belong to them. The notary verifies the surety's identity, confirms that the handwriting belongs to the surety, and reads the content of the agreement to the parties.

In banking practice, surety agreements are generally made on standard forms prepared by the bank. Care must be taken in fulfilling the handwriting requirement in these forms. The Supreme Court has rendered many decisions invalidating surety in bank surety agreements where the handwriting requirement was not fulfilled.

Having commercial surety agreements prepared before a notary is also advantageous in terms of the agreement serving as a basis for enforcement proceedings with a writ of execution. Pursuant to Article 68 of the Notary Law, deeds containing specific monetary obligations prepared by notaries may be subject to enforcement proceedings with a writ of execution.

Provisions Regarding the Duration of Surety

The TCO has introduced various limitations regarding the duration of surety agreements. These limitations are intended to prevent the surety from facing long-term and indefinite commitments.

Fixed-Term Surety: Pursuant to Article 598/1 of the TCO, if the surety is given for a specific period, the surety terminates upon the expiry of the period. The surety's liability is limited to debts that arose and became due within the period.

Indefinite-Term Surety: Pursuant to Article 598/2 of the TCO, in indefinite-term surety, the surety may request the creditor to exercise their right of enforcement within one month from the date the principal debt becomes due. If the creditor does not initiate enforcement within this period, the surety is released from the debt. This provision prevents the surety from being held liable for an indefinite period.

Time Limit for Natural Person Surety: Pursuant to Article 598/3 of the TCO, the liability of a natural person surety terminates upon the passage of 10 years from the date of surety. This period is absolute and cannot be extended by agreement of the parties. Upon the expiry of the 10-year period, the surety terminates automatically. However, the surety may renew their liability by entering into a new surety agreement before the 10-year period expires.

Rights of the Surety and Recourse

The surety has the right of recourse against the debtor after making payment to the creditor. Pursuant to Article 596 of the TCO, the surety subrogates the rights of the creditor to the extent of the performance made to the creditor. This subrogation is legal subrogation in nature and does not require a separate transfer transaction.

The surety's right of recourse covers the amount paid, interest from the date of payment, and necessary expenses incurred. The surety can apply to the debtor and claim the entirety of these amounts. If there are multiple sureties, the sureties can exercise their rights of recourse against the debtor independently.

For the surety to be able to exercise the right of recourse against the debtor, it is important for the surety to inform the debtor before making payment to the creditor. Pursuant to Article 597 of the TCO, if the surety has made payment without informing the debtor and the debtor has also separately made payment to the creditor, the surety cannot have recourse against the debtor; they can only file an unjust enrichment lawsuit against the creditor.

Termination of the Surety Agreement

A surety agreement may terminate for various reasons:

Termination of the Principal Debt: Due to the accessory nature of surety, the surety automatically terminates when the principal debt terminates through payment, release, statute of limitations, or other reasons.

Expiry of Period: The surety terminates upon the expiry of the period in fixed-term surety and upon the expiry of the 10-year period for natural person surety.

Creditor's Culpable Conduct: Pursuant to Article 599 of the TCO, if the creditor relinquishes securities (pledges, mortgages, etc.) that existed at the time of surety or were subsequently obtained from the debtor to the detriment of the surety, the surety terminates to that extent.

Bankruptcy: In the event of the surety's bankruptcy, a claim is registered with the bankruptcy estate. In the event of the debtor's bankruptcy, the creditor acquires the right to apply to the bankruptcy estate.

Common Issues in Practice

Various issues frequently arise in the practice of surety agreements:

Non-Fulfillment of the Handwriting Requirement: The most common issue in practice is the omission of elements that the surety must write in their own handwriting pursuant to Article 583/2 of the TCO (maximum amount, date, joint surety capacity). This omission leads to the invalidity of the surety agreement.

Failure to Obtain Spouse's Consent: Surety agreements made without the spouse's written consent pursuant to Article 584 of the TCO are invalid. In practice, some creditors, particularly banks, are meticulous in obtaining the spouse's consent; however, deficiencies can still be observed.

Leaving the Maximum Amount Undefined: Failure to determine the maximum amount for which the surety will be liable or the use of vague expressions such as "all debts of the debtor" causes the surety agreement to be invalid.

Issues with Bank Surety Forms: It is sometimes observed that standard surety forms used by banks do not comply with formal requirements. The Supreme Court strictly scrutinizes the validity of such forms.

Surety in Light of Supreme Court Decisions

The Supreme Court adopts a strict stance regarding the formal requirements of surety agreements:

The 19th Civil Chamber of the Supreme Court has stated that a surety agreement in which the surety did not write the maximum amount in their own handwriting is absolutely void and this voidness must be considered ex officio.

The General Assembly of Civil Chambers of the Supreme Court has ruled that a surety agreement without the spouse's consent is absolutely void, this voidness may be asserted at any stage of proceedings, and must be investigated ex officio by the judge.

The 11th Civil Chamber of the Supreme Court has stated that if the joint surety capacity is not written in the surety's own handwriting, the surety remains valid as ordinary surety and the sanction of absolute voidness does not apply. This decision reflects the balance between the principle of protecting the surety and the principle of preserving the contract.

The 13th Civil Chamber of the Supreme Court has emphasized that surety commitments of natural person sureties exceeding the 10-year time limit terminate automatically upon the expiry of the period, and that the regulation on this matter is mandatory in nature and not left to the parties' discretion.

Frequently Asked Questions

Final note: This article has been prepared for general informational purposes and does not constitute legal advice. We recommend that you consult a lawyer for your specific legal issues.