KEY DIFFERENCES BETWEEN GUARANTY AND AVAL
A Comparative Legal Analysis of Personal Security Institutions
Attorney - Mediator Fatih Mehmet Tercan
1. Introduction
Guaranty (kefalet) and aval (aval) are two fundamental legal institutions aimed at providing personal security (şahsi teminat) in Turkish law. Both represent obligations undertaken by third parties to secure a debtor's obligation. However, it is observed that these two institutions differ significantly in terms of their legal basis, the statutory provisions they are subject to, and the consequences they produce.
Guaranty is regulated under Articles 582 et seq. of the Turkish Code of Obligations (TCO) No. 6098 and is an accessory (fer'î) security subject to general obligations law. Aval, on the other hand, is an abstract and independent security institution regulated under Articles 700 et seq. of the Turkish Commercial Code (TCC) No. 6102, which is exclusive only to bills of exchange (kambiyo senetleri). This article discusses the key differences between these two institutions within their legal dimensions, particularly highlighting the points that must not be confused in practice.
2. Difference in Terms of Scope of Application
An aval can only be given for persons who are debtors on a bill of exchange—namely bills of exchange (poliçe), promissory notes (bono), and checks (çek). Therefore, aval is evaluated within the unique, strict rules of negotiable instruments law and cannot be applied outside of these instruments. Guaranty, however, has a much broader scope of application; it can be established to provide security to a creditor in any kind of obligatory relationship, such as lease agreements, bank loans, or commercial contracts.
3. Difference in Terms of the Principle of Accessoriness
The most fundamental distinction between the two institutions is the principle of accessoriness (fer'îlik). The existence and validity of a guaranty depend entirely on the existence and validity of the principal debt. If the principal debt terminates or becomes invalid for any reason, the guaranty also automatically ceases to exist. The guarantor can assert all defenses (defiler) available to the principal debtor (TCO Art. 583 et seq.).
In contrast, aval does not possess an accessory nature; the obligation of the avalist is an independent commitment. Even if the debt secured by the aval is invalid, or the person in whose favor the aval is given is incapacitated, or their signature is forged, or the person does not exist at all, the liability of the avalist remains in force (TCC Art. 702/2). The avalist can only assert formal defects regarding the mandatory shape of the bill of exchange. This regulation is a fundamental safeguard that reinforces trust in bills of exchange and facilitates their circulation.
4. Difference in Terms of Formal Requirements
Pursuant to Article 583 of the TCO, a guaranty contract must be made in writing; the maximum amount for which the guarantor will be liable and the date of the guaranty must be specified. In the case of a joint guaranty (müteselsil kefalet), this phrase must be handwritten by the guarantor. A guaranty can be written on the document indicating the principal debt relationship, or it can be drafted as a separate contract.
The aval endorsement, on the other hand, must be written directly on the bill of exchange (bill of exchange, promissory note, or check) or on an allonge (alonj) attached to these instruments, and must be signed by the avalist (TCC Art. 701). An aval cannot be given through a separate contract. Any signature written on the front face of the bill, other than the signatures of the drawee or the drawer, is deemed to be an aval endorsement.
5. Difference in Terms of Joint and Several Liability
An avalist is jointly and severally liable (müteselsilen sorumlu) by operation of law together with the other persons liable on the bill of exchange (TCC Art. 724). This liability does not require any additional condition or declaration of intent. The creditor can apply directly to the avalist without observing any order of priority.
In guaranty, however, the default rule is simple guaranty (adi kefalet); the guarantor cannot be prosecuted before the creditor applies to the principal debtor. The guarantor only enters into joint and several liability with the principal debtor if they write the phrase "joint guarantor" (müteselsil kefil) in their own handwriting (TCO Art. 585). This distinction is one of the most important practical differences that a creditor considers when choosing which type of security to employ.
6. Difference in Terms of Defenses That Can Be Asserted
A guarantor can assert all defenses related to the validity of the principal debt, including the personal defenses belonging to the principal debtor. This makes the guaranty sensitive to changes in the debtor's personal circumstances.
An avalist, however, cannot assert the personal defenses of the person in whose favor they gave the aval regarding the validity of the debt. They can only rely on the following three defenses: a mandatory formal defect in the bill of exchange, the payment of the debt by the avalist, and set-off (takas). This limited right of defense is a regulation aimed at protecting the security function of aval in bills of exchange.
7. Difference in Terms of Statute of Limitations
In a guaranty relationship, the interruption of the statute of limitations running against the principal debtor also interrupts the statute of limitations for the guarantor (TCO Art. 155/2). The limitation regimes of the guarantor and the debtor are connected to this extent.
In aval, this connection does not exist. The interruption of the statute of limitations regarding the person in whose favor the aval is given does not interrupt the statute of limitations for the avalist (TCC Art. 751/1). This rule is a natural reflection of the independent nature of the aval obligation in the area of prescription.
8. Difference in Terms of Merger of Qualities of Creditor and Debtor
In the law of obligations, the merger of the qualities of creditor and debtor in the same person terminates the principal debt (TCO Art. 135). Since guaranty is connected to the principal debt due to its accessory nature, this merger terminates the guaranty to the extent that it terminates the principal debt.
Conversely, in aval, the merger of the qualities of creditor and debtor in the same person does not terminate the aval obligation due to the independent nature of the debt arising from the bill of exchange. This difference is of practical importance, especially in intra-company transfers and merger transactions.
9. Difference in Terms of Right of Recourse After Payment
A guarantor is subrogated to the rights of the creditor to the extent that they perform payment to the creditor (TCO Art. 596/1). In other words, the guarantor takes over all rights and securities held by the creditor in proportion to the amount paid; they can recourse against the principal debtor by relying on both personal and real securities.
An avalist, however, is not subrogated to the creditor by payment. The avalist only acquires a right of recourse specific to negotiable instruments law and limited solely to the rights arising from the bill (TCC Art. 702). It must be strongly emphasized that in order to benefit from these rights, the payment by the avalist must have been made due to a legal obligation to pay. An avalist who makes a payment to a holder who has lost their right of recourse, without any obligation to pay, cannot acquire these rights arising from the bill.
10. Conclusion
Although both guaranty and aval are institutions aimed at providing personal security, they differ distinctly in terms of the legal regime they are subject to, their application conditions, and the consequences they produce. While guaranty is an accessory and general security institution linked to the principal debt; aval is an independent and abstract obligation specific to negotiable instruments law.
In practice, confusing these two institutions can lead to serious legal and financial risks. Particularly, differences regarding joint and several liability, defenses, and rights of recourse yield practical results that directly affect which security institution should be chosen. Therefore, obtaining legal support from an expert while establishing security in commercial relations is of great importance in terms of preventing future disputes.
Legal Bases
Turkish Code of Obligations No. 6098, art. 135, 155, 582-596
Turkish Commercial Code No. 6102, art. 700-702, 724, 751
Supreme Court Joint Chambers (Grand General Assembly of Unification of Jurisprudence), E.2017/4, K.2018/5 (20.04.2018) – Decision ruling that spousal consent is not required for aval