In commercial life, parties can request guarantee from each other when they want to secure the execution of a job, the delivery of a good, or the fulfilment of a debt. The need to show guarantee has revealed the bank letters of guarantee in commercial life and the use of these letters has become widespread. The fact that the receivables can be collected securely and quickly plays an important role in the preference of bank letters of guarantee.
- There is a trio relationship in bank letters of guarantee.
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- It is the bank that provides collateral in bank letters of guarantee. The person for whom the bank assumes the risk of failing to fulfil its obligations by giving a guarantee in it assume is the debtor (beneficiary) and the person whose receivable is guaranteed is the creditor (interlocutor).
- Bank letters of guarantee can be issued for various reasons. The important thing is that the cash equivalent of the risk can be determined. For example.
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- Bank letters of guarantee can be issued to secure the collection of a cash receivable.
- Under the Public Procurement Law, a bank letter of guarantee can be submitted when the contractor needs to provide a guarantee for the work undertaken.
- According to the law on consumer protection, the seller is obliged to take out building completion insurance or offer collateral for projects with thirty or more apartments before starting the sale of the apartment.
- According to the enforcement and Bankruptcy Law, when the debtor’s objection to enforcement proceedings is temporarily removed, the debtor must offer guarantee in the amount to cover fifteen percent of the debt in order to action in denial of debt. This guarantee can be given with a bank letter of guarantee.
- It should be emphasized that the situations are not limited to the situations listed above. Bank letters of guarantee may also be issued in different ways than in the above situations.
- Bank letters of guarantee are in the contract of guarantee according to the predominant opinion.
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- Although there is a debate in the doctrine and practice regarding the legal nature of the bank letters of guarantee; in the decision numbered 2016/1 E. – 2017/6 K. and 27.12.2017 dated issued by the Court of Cassation’s Assembly on the Unification of Conflicted Judgments, it was accepted that the bank letters of guarantee should be considered as contract of guarantee, referring to the previous decisions of joint chambers. Therefore, the bank enters into an obligation independent of the original debt by issuing a bank letter of guarantee.
- Consequently, if it is not clearly written in the letter that this is a surety, the main approach in the Turkish Legal System is that bank letters of guarantee are considered “guarantees”.
- Bank letters of guarantee can be issued in different types. However, unconditional bank letters of guarantee are frequently encountered in practice.
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- The types of letters of guarantee vary depending on their maturity, bank limits and the area in which they will be used. Consequently, there are different types of bank letters of guarantee dated (term), indefinite (demand), conditional, unconditional, direct, and indirect.
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- The most common type of bank letter of guarantee in practice is the first request payment registered (unconditional) letters of guarantee. In this type of letter, the bank undertakes to pay immediately, at the request of the creditor. Thus, since no conditions are required for the bank to pay, the receivables will be collected quickly and securely. Therefore, this bank letter of guarantee is the preferred type.
- As we have stated before, if the number of apartments in pre-paid apartment sales is thirty or more, the seller has an obligation to provide security. However, if the seller will provide this collateral by giving a bank letter of guarantee, this bank letter of guarantee must be “first request payment registered “, “final” and “indefinite” in accordance with the Pre-paid Apartment Sale Regulation.
- If the bank letters of guarantee are dated, a written application must be made to the within the term of guarantee for bank for compensation.
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- Due to the fact that the bank letters of guarantee are considered as undertaking the act of the third person within the scope of the decision numbered 1696/4 E. – 1969/6 K. and 11.06.1969 dated issued by the Court of Cassation’s Assembly on the Unification of Conflicted Judgments; in accordance with the explicit provision of the law, a written application must be made within the term of the guarantee.
- In order to the bank guarantee letters to be encashment, the risk must first occur.
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- In order for the creditor to make a request for the encashment of the bank letters of guarantee, first, the risk which compensation is guaranteed must occur. The risk is that the borrower cannot pay their debt. In order to ensure this, generally in the content of the letters; it states that the guaranteed amount will be paid in case of contradiction to matters such as the relevant tender, contract, specification, that is, the reasons for the issuance of the letter or if the beneficiary cannot pay the debt for whatever reason. At this stage, we would like to remind you that unconditional debt payment guarantees such as “for whatever reason” is usually written on demand in each letter. For this reason, we recommend that you pay special attention to the statements on the letter.
- Can the creditor request the bank letter of guarantee to be encashment even though the risk is not realized?
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- Since the subject of the bank letter of guarantee is the realization of the risk secured, the risk will also have to be realized in addition to the written application of the creditor in order for the bank to pay the creditor.
- As we have stated frequently encountered in practice, since no conditions are sought in the bank letters of guarantee which first request payment registered unconditional, the bank will make a payment in case the bank is contacted even though there is no risk. Therefore, it should not be forgotten that the creditor holding such bank letter of guarantee can apply to the bank before the risk occurs and the bank can make a payment.
- The creditor’s application to the bank before the risk is realized or before the deadline can be considered as an abuse of the right. In such cases, it depends on the proof that the application made by the creditor is unfair to avoid making the payment by the bank. Therefore, in such cases, the bank may refrain from making a payment only if it can be clearly determined by the bank that the application is unfair.
- It is possible for Turkish banks to issue bank guarantee letters in foreign currency.
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- With the 18th article of the decision numbered 32 of the Council of Ministers; in cases where banks and persons resident outside Turkey are beneficiaries, persons resident in Turkey are creditors, and in cases where persons resident in Turkey are both beneficiaries and creditors in relation to international auctions to be opened domestically, where appropriate in exchange through letters of guarantee arrangements are possible. It can be seen that banks, except for an international tender to be opened domestically, cannot issue a bank letter of guarantee in foreign currency in cases where foreign residents are beneficiaries and Turkish residents are creditors.
- It is possible for foreign banks to issue bank guarantee letters in business related to Turkey.
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- Although it is possible for a foreign bank to provide a bank letter of guarantee directly in cases where the creditor is resident in Turkey and the debtor is resident outside Turkey, in practice, a bank letter of guarantee is provided by the Turkish bank based on the counter-guarantees provided by the foreign bank to the Turkish bank. Counter-guarantee is generally guaranteeing the commitment made by someone else. If this definition is adapted to the bank letters of guarantee issued by foreign banks; Counter-guarantee means that the payment made by the Turkish bank to the creditor can be received from the foreign bank that has given it a counter-guarantee.
- When issuing bank letters of guarantee, giving a confirmatory letter is important in distinguishing the fake letters of guarantee.
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- In practice, in order to prevent the issuance of fake bank letters of guarantee; it is seen that the bank that issued the bank letter of guarantee has prepared a confirmatory letter signed by two authorized. Therefore, when making a transaction with a bank letter of guarantee; the existence of the confirmatory letter is a clue that the letter of guarantee is genuine.
Berk Özşenoğulları, Attorney At Law
