Bank letter of guarantee

A bank letter of guarantee is a document issued by a bank, at its customer's request, addressed to a beneficiary and undertaking to pay the stated amount if a defined risk materialises. Turkish courts characterise it as a guarantee contract, independent of the underlying transaction.

Public tenders, construction contracts, lease relationships and court securities are its main fields of use. Where the letter is payable on first written demand, the bank must in principle pay without raising defences arising from the underlying relationship.

The bank's liability is confined to the wording of the letter, and for fixed-term letters the demand must be made within the term. Against abusive demands, the account party's main remedy is a preliminary injunction, which is granted only under strict conditions.