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Likewise, if being a surety is assessed as being beyond the subject of
activity of the company pursuant to TCC Art. 371/2, such surety shall
not bind the company where the articles of association does not include
the relevant provision. However, when the transaction of becoming a
surety is assessed within the scope of a company’s subject, thus not
falling within Art. 371/2 of the TCC, this will result in the joint stock
company becoming bound by such surety.
Joint Stock Companies’ Capacity of Becoming a Surety
A joint stock company’s capacity of becoming a surety and pro-
viding a guarantee used to be analyzed in accordance with the ultra
vires principle, pursuant to the Abrogated TCC. Art. 137 of the
Abrogated TCC specified that the companies may acquire any right,
and undertake any obligation, provided that they fall within the subject
of activity of the company, as stated in the company’s articles of asso-
ciation. The ultra vires principle, and the literal interpretation of such
article, could result in the conclusion that companies may not become
a surety unless it is expressly provided for in their articles of associa-
tion. However, the Court of Cassation prevents such interpretation, and
concluded in clear and established precedents that such guarantee is in
the ordinary course of business of a company.
The Court of Cassation, while evaluating the ultra vires principle,
defines a company’s subject of activity as being comprised of the con-
tinuous transactions concluded by the company. Additionally, it states
that businesses and agreements that are not directly included in a com-
pany’s articles of association, while evaluating the ultra vires principle,
but which facilitates the business of the company, are required to be
included in the company’s subject of activity, even though not specifi-
cally set forth in the articles of association. Otherwise, this would be
contrary to the natural flow of life. Indeed, the subject of activity of a
joint stock company must be evident in the title of the joint stock com-
pany, and stipulate the fundamental activity areas of the company, such
as tourism, construction and commerce. Joint stock companies may be
established for any economic purpose that is not prohibited by the law
(TCC Art. 351). Since becoming a surety or providing a guarantee are
not regarded as economic activities alone, they do not constitute the
purpose and subject of the company. However, they are transactions
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