Surety agreements are an important legal tool that enhances security in debt relationships and provides additional assurance to the creditor in case the debtor fails to fulfill their obligations. However, certain conditions must be met for these agreements to be valid. In this article, we will examine in detail the validity conditions of the surety agreement under the headings of the existence of a valid primary debt, the execution of a substantially valid contract, and compliance with formal requirements. We will also focus on the written form requirements that must be adhered to in surety agreements and the consequences of not complying with these requirements.

The Existence of a Valid Primary Debt

For the surety agreement to be valid, a valid primary debt must exist. According to Turkish Code of Obligations (TCO) Art. 582, a surety agreement can only be made for an existing and valid debt. A surety agreement can also be established for a future or conditional debt, but it becomes effective when that debt arises or the condition is met.

If the primary debt is invalid, the surety agreement is also invalid. If the debt relationship is null and void due to reasons such as being contrary to law, morality, or initial impossibility, the surety will not be valid. When the primary debt is extinguished, the surety agreement also terminates.

According to the principle of subsidiarity, the existence of the primary debt is a condition for the validity of the surety agreement, and when this debt becomes invalid, the surety also loses its validity. The parties must draft a new surety agreement.

Executing a Substantially Valid Contract

Surety agreements can be validly made within the limitations of TCO Art. 26 and Art. 27. The contract’s illegality, immorality, impossibility, or lack of competence are reasons for invalidity.

The surety agreement is established through mutual and consistent offer and acceptance by the creditor and the surety. The contract can also be made by appointing a representative.

Compliance with the Form Requirement

Purpose and Validity Condition of the Form in Surety Agreement

For the surety agreement to be valid, it must be made in writing. According to TCO Art. 583, surety agreements that are not made in writing and do not specify the maximum amount for which the surety is liable and the date of surety are invalid. The surety must state this information in their own handwriting.

Among the validity conditions of the surety agreement are the written arrangement of the contract, the surety stating the maximum amount they are liable for, the date of surety, and if it is a joint surety, this expression must be written in the surety’s own handwriting. Contracts made without complying with the form rules will not be valid.

Even if a valid surety agreement is lost or destroyed, it retains its validity, and the party claiming its existence can prove this with any evidence. For the surety agreement to be valid, an accessory liability must be assumed, and the contract must be made in compliance with the validity conditions.

The form requirements in the surety agreement are related to the surety and do not regulate the conduct of the creditor. The creditor’s oral or written declaration of intent is valid, and the creditor’s failure to sign does not invalidate the contract. In practice, the creditor’s acceptance of the surety bond is considered acceptance of the contract.

Compliance with Form in Surety

Features Related to the Text and Signature Element

According to TCO Art. 583, for surety to be valid, the date of surety, the maximum amount for which the surety will be liable, and if applicable, the will to be a joint surety must be stated in the surety’s own handwriting. Other parts can be filled in by typewriter or computer. The surety text can be written in another language, but transactions between Turkish companies and foreign companies with Turkish institutions must be in Turkish.

The surety’s signature must cover the entire surety undertaking. The creditor’s signature is not mandatory because the surety agreement imposes a debt on one party only. For individuals who are illiterate or have physical disabilities, the surety agreement can be made officially in the presence of a notary.

TCO Art. 583 regulates that the elements that must be stated in the surety’s handwriting are essential and that filling them in by someone other than the surety will invalidate the contract. In legal entities, the representative must fill in and sign with their handwriting.

The Unity of the Document Containing the Text and Signature

The surety agreement must be arranged in a single document. If the will to be a surety is in one document and the maximum amount in another, the contract will not be valid. In cases where there are multiple creditors, a separate surety undertaking must be made for each creditor.

Scope of the Form in the Surety Agreement

The surety agreement is established with the agreement of the parties on essential points. Essential points include the declaration that the surety assumes responsibility for another person’s debt as an accessory and the individualized primary debt. The maximum amount for which the surety is liable and the date of surety are also regulated within the form article. Joint surety is one of the subjective essential points and is included in the form scope by TCO Art. 583.

Declaration of Assuming Accessory Responsibility

The surety agreement must include the surety’s declaration that they assume the consequences of the third person’s failure to fulfill the debt as an accessory. This declaration is one of the objective essential points of the contract, and its absence will invalidate the contract. The surety statement does not necessarily have to be included; the surety’s intent must be understood from the text.

Individualization of the Primary Debt

For the surety agreement to be valid, the primary debt must be individualized. This is ensured by stating “the subject and scope of the debt,” “the names of the creditor and debtor,” and “the reason for the debt” in the contract. It is sufficient for the creditor of the primary debt to be specified or determinable; it does not need to be specified by name.

Since the creditor may change, a surety agreement can also be made for future debts. However, the primary debtor must be explicitly stated because the surety must assess the risks by knowing the debtor’s economic situation. This is also important in the transfer of debt; the surety must consent to the change of the debtor.

The primary debt must also be explicitly stated. If there is only one debt between the parties, it is not legally necessary to correctly characterize the debt. For debts arising from different legal reasons, the cause of the debt must be stated. A surety made for indeterminate debts is invalid.

To determine the maximum amount for which the surety is liable, the primary debt must be identified, but it is not necessary to state this amount numerically. If there are multiple debt relationships between a creditor and a debtor, and it is not clear which debt the surety is for, the contract is invalid.

The Unity of the Document Containing the Text and Signature

The surety agreement must be arranged in a single document. If the will to be a surety is in one document and the maximum amount in another, the contract will not be valid. If there are multiple creditors, a separate surety undertaking must be made for each. However, these undertakings can be included in the same document.

Elements That Must Be in Handwriting

The TCO stipulates that the maximum amount for which the surety will be liable, the date of surety, and if it is a joint surety, this must be written in the surety’s own handwriting. If the handwriting requirement is not met, the contract is invalid. This requirement is also valid for legal entities; the representative must fill in and sign with their handwriting.

Indication of the Maximum Amount for Which the Surety Is Liable in the Contract

For the surety agreement to be valid, the maximum amount for which the surety is liable must be explicitly stated in the contract. This amount must be written in the surety’s own handwriting. The Supreme Court’s decisions considering the principal debt amount as valid in cases where the amount is not specified are no longer valid with the new regulation in the TCO.

In periodic debts such as rent and interest, the contract period and monthly debt amount must be specified for the contract to be considered valid. The Supreme Court accepted that the surety is valid for the debts that will arise during the rental period in cases where the maximum amount is not specified, but this is no longer possible with the new regulation in the TCO.

The maximum amount must be stated in monetary terms, but it is not mandatory to be in Turkish Lira. In a surety agreement made in foreign currency, the surety may request adaptation or termination of the contract due to excessive performance difficulty when the currency appreciates.

According to TCO Art. 589, the maximum amount for which the surety will be liable includes the principal debt, the consequences of the debtor’s fault and default, contractual interest, and litigation costs.

Date of Surety

According to TCO Art. 583, another element that must be stated in the surety agreement is the “date of surety.” Although the date of surety is not a mandatory element for the formation of the contract, it is considered an essential element by the Law. This date is important in determining the surety’s liability, obtaining the spouse’s consent, the termination date of the surety, and the determination of the surety’s competence.

Joint Surety or an Equivalent Phrase

During the period of the Code of Obligations numbered 818, the existence of joint surety was subject to interpretation. TCO Art. 583 introduced the requirement for the joint surety to be written in the surety’s handwriting as a validity condition. While TCC Art. 7 regulates joint liability in commercial transactions, TCO Art. 583 adopts that ordinary surety is valid in the absence of the will to be a joint surety.

In the doctrine, there are different opinions on whether TCO Art. 583 abolishes the presumption of joint liability foreseen in TCC Art. 7. One view argues that TCO Art. 583 abolishes the presumption of joint liability for commercial transactions. Another view argues that TCC Art. 7 provides a special regulation for commercial transactions and does not require the condition of writing the will to be a joint surety in handwriting.

Provisions Related to Execution Surety

According to EBL Art. 38, execution sureties are considered joint sureties. In the doctrine, whether the execution surety complies with the form requirements stated in TCO Art. 583 is debated. The Supreme Court states that the form conditions required by the TCO should also be complied with in execution surety. Considering the purpose of legal changes to provide more protection for the surety, it should be accepted that the form conditions of the TCO must be complied with.

Subjective Essential Points

In addition to the objective essential points in the surety agreement, subjective essential points that affect the parties’ intentions should also be included. Agreements that increase or decrease the surety’s liability fall within this scope. Since the purpose of the form is to protect the surety, agreements that alleviate the surety’s situation are not subject to form. If records that increase the surety’s liability are not included in the contract text, even if other validity conditions are met, these records will be invalid.

Consequences of Non-Compliance with the Form Requirement

According to TCO Art. 583, non-compliance with the form requirement, the lack of a written declaration by the surety, the maximum amount, the date of surety, and the expression of joint surety written in the surety’s handwriting constitute a breach of form and render the contract invalid. The prevailing view in the doctrine is that this invalidity is absolute nullity. A surety agreement that violates the form is effective for everyone and can be asserted at any stage.

A surety agreement made without complying with the form requirements is invalid. However, if some provisions violate the form rule, only the relevant parts are invalid. For example, if the declaration of joint liability is missing, the contract is considered valid as ordinary surety.

The creditor cannot resort to the surety based on a surety agreement that violates the form. A surety agreement that violates the form does not impose an obligation on the surety to enter into a new surety agreement. The parties’ subsequent ratification does not validate the contract.

Non-compliance with the form requirements also affects joint surety. If the surety of one of the joint sureties is invalid due to a breach of form, the surety of the others also terminates. However, if the surety deliberately commits the breach of form, it may be considered an abuse of rights, and the contract may be deemed valid.