Representation by proxy in suretyship agreements

Introduction
Form requirements
Enacting a suretyship agreement by proxy


Introduction

Suretyship is one of the personal securities regulated by the Code of Obligations (6098). Suretyships are a kind of security commonly used in loan transactions which provide personal security to lenders if a borrower fails to fulfil its payment obligation.

Article 583 of the code sets out certain requirements regarding the validity of suretyship agreements. This article examines these requirements in detail.

Form requirements

Written form
Suretyship agreements must be made in writing as per Article 583/1 of the Code of Obligations. This is a condition of validity and not of proof.

Since there must be a written agreement, a suretyship agreement will include the surety's signature as a condition of validity. On the other hand, a suretyship agreement, by definition, is a gratuitous contract. Although it imposes certain secondary liabilities on creditors, they are not obliged to fulfil any counter-obligations. In this regard, the surety's declaration of intent (ie, their signature) is considered sufficient for the validity of a surety agreement.

Date of suretyship agreement
The date of a suretyship agreement was not included as a condition under the previous Law of Obligations 818; however, under the Code of Obligations, suretyship agreements must include a date of surety handwritten by the surety. Failure to do so will result in the surety being null and void. This condition aims to prevent creditors from dating the surety in a way that is disadvantageous to the surety provider.

Maximum liability amount
As per Article 583/1 of the Code of Obligations, a surety must handwrite the maximum liability amount for which they will be liable. The rationale of forcing the surety to handwrite the liability amount is to:

• set a limit for each surety; and
• make sure that the surety understands how much risk they are taking.

Joint suretyship phrase
Under Article 583/1 of the Code of Obligations, if the suretyship involves joint suretyship agreement provisions, the surety will state in writing that they are under joint liability under the agreement.

In a nutshell, the surety's statement in writing of the amount, date and type of suretyship is required as a condition of validity. The aim is to protect the surety and prevent them incurring debt without consideration. If these requirements are not handwritten by the surety (eg, if they are written on a computer and printed out or written by a third party), the validity conditions of the suretyship agreement will not have been met.

Enacting a suretyship agreement by proxy

Article 583/2 of the Code of Obligations indicates that giving special authorisation to a proxy or committing a third party to stand surety are also bound by the above conditions.

Under the previous code, the surety amount in the proxy was not sought as a validity condition; rather, it was sought for the validity of suretyship agreements. The Court of Cassation has found that a suretyship agreement enacted by proxy which does not include the suretyship amount can be deemed valid.(1)

In other words, the maximum liability amount of the surety, surety date and joint suretyship or any other words with equivalent meaning must be indicated to the proxy in writing by the surety.

For further information please contact Ali Temuçin Akalın at Selvi & Ertekin by telephone (+90 212 236 12 12) or email (aliakalin@selviertekin.com). The Selvi & Ertekin website can be accessed at www.selviertekin.com.

Endnotes

(1) Court of Cassation 11th Civil Department, 2010/6336E, 2010/5641 K.