Ercüment Erdem Att. Alper Uzun

General Assembly of the Court of Cassation Decision that Unification of Judgments where Consent of Spouse for Surety is not required for Aval

October 2018

The Summary of the Decision

The General Assembly of the Court of Cassation on the Unification of Judgments decided by the majority of the votes that the regulation regarding the requirement of consent of the spouse for the suretyship regulated under Article 584 of the Turkish Code of Obligations (“TCO”) is not applicable for the “aval” transaction in its decision dated 20.04.2018, numbered 2017/4 E. - 2018/5 K. and published in the Official Gazette on 16.10.2018.

The Starting Point of the Differences of Opinion

Originally, the discussions on this subject originate from the provision of Article 603 of the TCO that regulates the application area of the suretyship, as follows: “The provisions regarding the form of the suretyship, capacity of the surety, and consent of the spouse, shall also apply to the other agreements that are concluded under different names for provision of personal guarantees by natural persons”.

Yet, certain chambers of the Court of Cassation argued that the fact that aval is an unilateral personal guarantee does not rule out the aforesaid requirement, and that the legislator had the intention to prevent the parties from gravitating towards other agreements for the purpose of eliminating the requirements regarding the form in suretyship contracts; in other words, eliminating the consent of the spouse as the requirement of form by choosing a different personal guarantee, and that the experience gained from the practice shows the legitimacy of the concern. Article 603 applies to aval, and aval is not one of the cases wherein the consent of the spouse is not required.

However, some of the chambers stated that suretyship and aval are completely different transactions, and are regulated by different laws, and that aval is a unilateral legal transaction, and due to this feature, it cannot be accepted as a “contract” as is shown in Article 603 of the TCO. Pursuant to the principle of narrow interpretation of exceptional provisions, it is not possible to extend the condition set forth in Article 584 of TCO for the consent of spouse to include aval.

The Assessment of the General Assembly of the Court of Cassation on the Unification of Judgments

Due to different precedents, the General Assembly of the Court of Cassation on the Unification of Judgments took the matter under review as it relates to whether Articles 584 and 603 of the TCO will be applied to “aval”.

The decision states that, the rules regarding the form of aval are regulated, both specifically and explicitly, in Article 701 of the Turkish Commercial Code (“TCC”). In this respect, aval is an exchange suretyship, and is formed by a unilateral declaration of avaliste to this end. For the form of an aval, it is sufficient for the avaliste to write "for aval" or another equivalent expression on the bill of exchange, to indicate for whom the aval is given, and to sign the same. If it is not stated in the statement of aval to whom it is given, it is accepted that the payment is given to the account of the drawer.

In accordance with Article 584 of the TCO, if it is accepted that the consent of spouse is sought for aval, firstly, whether or not the avaliste is married should be ascertained from the bill. This is essential for subsequent endorsers to know whether or not the aval is valid, and to trust the bill. However, the Decision states that writing or adding information as to the marital status of the avaliste on the bill would is not appropriate and functional in terms of practice. Pursuant to Article 701/3 of the TCC, the rule is that “Each signature affixed to the policy is considered as annotation of aval except for the signatures of addressee or drawer”. The spouse will be in the position of avaliste, but if it is placed on the reverse side of the bill, it may be confused with the endorsement.

There is no doubt that both suretyship and aval provide personal assurance. However, while the provisions on surety protect the surety against the creditor, the provisions on aval protect the bearer against the principal debtor and the applicant debtors. In this respect, the comparison of suretyship and aval provisions also contradicts the purpose of the regulation. At this point, it is also stated that the requirement for the consent of spouse for aval does not comply with the negotiability of the bill of exchange. It is indisputable that the bill of exchange will expand with the addition of other records and documents as to whether or not the avaliste is married; if yes, whether the spouse has consented to the circulation.

It is clear that the lawmaker limited the scope of Article 584 of the TCO through the third clause added to Law No. 6455 shortly after the Law came into force. The fact that the lawmaker did not include aval in the limitation is interpreted as not seeing aval within the scope of Article 603 of the TCO. Otherwise, it is deduced that it is the bearer’s obligation to ascertain whether or not the avaliste is married, and if the exceptions in Article 584/3 of the TCO exist or not. Consequently, this will have an adverse effect on the negotiability of the exchange. The General Assembly on the Unification of Judgments stated that exceptional provisions, such as Article 603 of the TCO, should be interpreted narrowly, and that the broad interpretation of limitations regarding the form and capacity in such a way so as to exceed the purpose of the lawmaker will damage the principle of legal security and the principles of freedom of contract and freedom of form in the TCO.

The purposes of the provisions are also mentioned in the decision. There is a serious difference between aval and suretyship in terms of protected persons and interests. In the doctrine, aval is considered only as a guarantee in relation to bills of exchange. It is stated that the existence of an economic function, in addition to the guarantee function of the aval, prevents the application of Article 603 of the TCO to the aval. Considering that speed and convenience are required in commercial affairs, and a bill of exchange is the bill that has the fastest negotiability rate as a characteristic of negotiable instruments, it is accepted that the consent of spouse will not be compatible with the system formed by negotiable instruments law.

Conclusion

The General Assembly of the Court of Cassation on the Unification of Judgments emphasized that the suretyship and the aval regulations serve different purposes, and are decided by the majority of votes that Article 584 of the TCO as to the consent of spouse in the suretyship is not required to be applied to the aval according to Article 603 of the TCO.