Impact of Force Majeure on Liquidation of Letters of Guarantee

Abstract

Letters of guarantee are frequently encountered in practice in the form of guarantee contracts and are subject to disputes. However, to the best of our knowledge, few studies have been conducted specifically on the impact of force majeure on the liquidation of letters of guarantee. In general, force majeure may affect letters of guarantee in two aspects. First, force majeure may affect secured risk. Second, the risk may have already been realized but the demand for liquidation may not have been fulfilled by the beneficiary in time because of force majeure, or the documents submitted by the beneficiary may not have been examined by the bank. However, determining the terms and consequences of the effect of force majeure on guarantee contracts and thus on letters of guarantee is difficult because guarantee contracts create an independent obligational relationship on the one hand and qualify as security agreements on the other. In general, force majeure does not influence the obligations arising from the guarantee contract but on another (principal) obligational relationship secured by the guarantee agreement instead. In this respect, to examine the effect of force majeure on a guarantee contract means to examine the consequence of the performance of the obligation that gained effect from force majeure included in the original debt relationship in terms of the guarantee contract. In this article, the impact of force majeure on the liquidation of letters of guarantee is explained is consideration with different possibilities within the framework of the decisions of the Turkish Court of Cassation.