What is a Guarantee Promissory Note and How Does it Work?

A guarantee promissory note (Teminat Senedi in Turkish) is a type of promissory note that is endorsed with the words "for security" or "as collateral." These notes are often used in contractual agreements to guarantee the fulfillment of a product or service, ensuring that the obligations or promises made are backed by security. Guarantee promissory notes can be linked to a specific obligation or serve as collateral for a loan. If the obligations are not met, these notes place the issuer in a legal commitment to cover the stated amount.

How is a Guarantee Promissory Note Issued?

Guarantee notes are commonly used in employment contracts, sales agreements, rental, and transfer transactions. For example, when renting a house, the tenant may provide a security promissory note to the landlord. This note must include the statement "This is a security note"; however, this alone is not enough. If terms such as "This is a security note, non-transferable, and non-endorsable" are included, the note might be deemed invalid because it would be considered accepted solely as a guarantee.

In cases like rental agreements, a separate contract should reference the security note to clearly indicate its purpose. Without such a contract, the note’s enforceability may be questioned. In fact, negotiable instruments (such as bills of exchange) endorsed as "for security" are only accepted as collateral when a contractual agreement exists. As stated in the Turkish Code of Obligations, Article 169, any note intended as a guarantee must clearly reference its underlying agreement and include relevant details such as due dates and amounts.

Differences Between Guarantee Promissory Notes and Debt Notes

A key distinction between guarantee notes and regular debt notes is the conditional nature of guarantee notes. While debt notes represent an unconditional obligation to pay a specified amount by a certain date, guarantee notes are conditional on the fulfillment of an underlying obligation or agreement. This means that guarantee notes are directly linked to the cause of their issuance—such as a service, product, or promise—whereas debt notes remain independent.

How to Create a Valid Guarantee Promissory Note?

To create a valid guarantee note, the following guidelines must be followed:

1. Write "This is a security note" on the due date section of the note.
2. On the front of the note, clearly mention "This note was prepared in connection with [specific agreement]".
3. On the back, explain the purpose of the note, e.g., "This note was prepared as a guarantee for the following agreement and becomes void once the agreement is fulfilled."
4. Include a clause stating that the note is non-endorsable and non-transferable.
5. Avoid signing blank guarantee notes. All fields should be filled in before signing, and both parties should have complete knowledge of the details.

Semosis: Your Solution for Managing Promissory Notes

Through the digital promissory note platform Semosis, you can manage and create promissory notes online, at any time and from any place, without the need to visit a bank branch. With Semosis, reminders are automatically sent to debtors to ensure timely payments, making the entire process more efficient and secure.

For more information about Semosis, you can contact us at 0850 477 10 64.