“Absolutely, Unconditionally, and Irrevocably Guarantees”

In guarantees for payment of debt, the key language of performance—hereby guarantees—is usually supplemented with one or more of the following adverbs: absolutely, unconditionally, and irrevocably. I recommend you omit all three.

I suspect that many who work with guarantees would find that a shocking notion. But to insist on retaining some combination of the three adverbs is to misunderstand the nature of contract language. Absolutely, unconditionally, and irrevocably are unclear, they’re unnecessary, and whatever meaning they convey won’t prevail over explicit deal terms, so you’re better off stating the deal terms explicitly instead of relying on jargon.

Allow me to explain:

Absolute Guarantee—Meaning

First let’s consider what it means to say that a guarantee is absolute—that’s what use of absolutely with hereby guarantees seeks to accomplish.

Here’s what Restatement (Third) of Suretyship & Guaranty § 8 (1996) says:

An offer to become a secondary obligor [i.e., a guarantor] commonly invites the offeree to accept by advancing money, goods, or services on credit. Notification is not essential to acceptance of such an offer, and often is not necessary at all. … An offer of guaranty that does not require notification is often called an “absolute guaranty.”

The Restatement offers the following illustration of an offer of guarantee that doesn’t require notification:

To induce C to sell goods to D Corporation on credit, S, the president of D Corporation, offers to guarantee payment for the goods. C sells and delivers the goods. C has accepted S’s offer; no notification to S of acceptance is necessary because S has adequate means of learning of C’s performance.

But others have a somewhat different notion of what it means to describe a guarantee as absolute. Here’s what 38 Am. Jur. 2d Guaranty § 15 says:

An absolute guaranty is a contract in which the guarantor promises that if the debtor does not perform the principal obligation, the guarantor will perform some act (such as the payment of money) for the creditor’s benefit, the only condition being the principal’s default. An obligation that is absolute or unconditional becomes fixed when the principal debt matures, and the guarantor of payment is not entitled to require that the creditor first proceed or exhaust remedies against the principal debtor. …

A conditional guaranty requires the happening of some contingent event (other than the default of the principal debtor) or the performance of some act on the part of the creditor before the guarantor will be liable. The usual form of a conditional guaranty is an undertaking that the guarantor is liable for the principal’s default in case the satisfaction of the principal obligation cannot be obtained from the principal with reasonable diligence.

A guaranty of the payment of an obligation, without words of limitation or condition, is construed as an absolute or unconditional guaranty.

So Am. Jur. 2d explains what an absolute guarantee is without referring to notification, the key concept in the Restatement‘s explanation.

Absolute Guarantee—Relevance of Terminology

If you describe a guarantee as an absolute guarantee, or use absolutely in the key language of performance, does that make the guarantee an absolute guarantee? Some commentators say it does. For example, this is from Peter A. Alces, The Efficacy of Guaranty Contracts in Sophisticated Commercial Transactions, 61 N.C. L. Rev. 655, 667 (1983):

If the guaranty is absolute in form, as when the form is labelled ‘Absolute Guaranty’ or merely recites in the text that it is an absolute guaranty, the prevailing view provides that no notice of acceptance is necessary.

This article cites six cases to support this proposition, but in five of the six, the guarantee at issue didn’t use the word absolute or absolutely. And in the sixth case, the court didn’t rely on use of the word absolutely in the guarantee to hold that it was an absolute guarantee. So the proposition is effectively unsupported.

It makes sense that how a guarantee refers to itself shouldn’t be dispositive: generally U.S. courts are interested in substance, not magic words. Here again is 38 Am. Jur. 2d Guaranty § 5:

A document that is entitled “Guaranty” and contains clear and unambiguous language that the obligation of the debtor is personally guaranteed is a guaranty. On the other hand, labeling a document or a promise a “guaranty,” or using that word, does not automatically make it a guaranty in the legal sense, or a collateral obligation, although the title may be considered along with the rest of the language in the document.

…

Specific language is usually not needed to create a guaranty unless it is required by statute. The nature of the obligation, and not the words used, determines whether a guaranty exists. The instrument’s language should first be considered, and surrounding circumstances should be taken into account only if that language is indefinite or ambiguous. The courts generally attempt to determine whether the words used, in light of the circumstances, would cause the creditor to believe reasonably that the promisor had agreed to answer for a principal obligation on the part of another person. Thus, the word “guaranty” need not appear in the writing to have the contract construed as one of guaranty. Likewise, while the fact that the word “guaranty” or “guarantee” appears in the instrument indicates that the undertaking was probably intended to be a guaranty, such a use of the term is not conclusive of the question since it has sometimes been recognized that the word “guaranty” or “guarantee” is frequently employed in business transactions to describe an intention to be bound by a primary or independent obligation.

By extension, saying hereby absolutely guarantees in a document doesn’t make it an absolute guarantee unless the totality of the circumstances suggest as much.

On the other hand, one can find cases in which the court ascribes significance to use of the word absolute in a guarantee. See, e.g., BNY Fin. Corp. v. Clare, 172 A.D.2d 203, 205, 568 N.Y.S.2d 65, 67 (1991) (“Here, the guaranty specifically provided that it was absolute, unconditional, unlimited”).

But it’s hard to take that seriously, because all that it takes to make a guarantee absolute is to say the guarantor hereby guarantees whatever is being guaranteed and leave it at that. I won’t be convinced that use of the word absolutely matters unless someone shows me a case where the terms suggest that the guarantee isn’t absolute but the court relies on use of absolutely to hold that the guarantee was in fact absolute. And that would be a travesty.

Unconditional—Meaning and Relevance of Terminology

Regarding use of the word unconditionally, here’s the Black’s Law Dictionary definition of conditional guaranty:

– conditional guaranty (1813) A guaranty that requires the performance of some condition by the creditor before the guarantor will become liable.

If you waded through the above discussion of absolutely, you won’t be surprised that one commentator says “The terms ‘absolute’ and ‘unconditional’ are generally deemed to be synonymous.” Raymer McQuiston, Drafting A Enforceable Guaranty in an International Financing Transaction: A Lender’s Perspective, 10 Int’l Tax & Bus. Law. 138, 142–46 (1993) [hereinafter McQuiston].

It follows that for our purposes, the implications of unconditionally are the same as those of absolutely.

Irrevocably—Meaning and Relevance of Terminology

What about irrevocably? Here’s what McQuiston says:

The term “irrevocable” implies that a guaranty may not be rescinded by a guarantor. Its usage in guaranties is thought to be derived from the convention governing letters of credit according to which an agreement was presumed to be revocable unless it specifically stated that it was irrevocable. However, the irrevocable nature of a guaranty is properly linked to the consideration given. If adequate consideration has been given and accepted, the guarantor is bound by the terms of its agreement, barring breach of contract.

So you don’t have to say in a guarantee that it’s irrevocable for it to be irrevocable.

On the other hand, irrevocable doesn’t really mean irrevocable. Again, McQuiston:

Even when a guaranty provides that it is continuing and irrevocable, a guarantor may revoke its guaranty as to future advances not yet lent. Moreover, this right of revocation is generally not waivable.

So as applied to guarantees, the word irrevocably is, like absolutely, inherently unclear.

Furthermore, saying in a guarantee that it’s irrevocable doesn’t make it so. See, e.g., Everts v. Century Supply Corp., 264 Ga. App. 218, 220, 590 S.E.2d 199, 202 (2003) (“Although the guaranty form describes the guaranty as ‘irrevocable,’ all parties to the instrument could terminate it regardless of the irrevocability language.”)

Conclusion

So here’s what I conclude regarding use of the words absolutely, unconditionally, and irrevocably in guarantees:

They’re unclear. Our three adverbs are terms of art. Terms of art are shorthand, and as such they tend to be confusing. That’s the case here. McQuiston says, with respect to absolutely, irrevocably, and a word outside the scope of this post, continuing, “their specific meanings remain obscure and should be carefully defined within the body of the agreement.” And Howard Darmstadter, Hereof, Thereof, and Everywhereof: A Contrarian Guide to Legal Drafting 203 (2d ed. 2008), says, “Phrases like ‘absolute and unconditional’ are the bane of legal drafting—they generally mean nothing, except when they mean something unexpected.”

They add unnecessary words. Normally the trade-off with terms of art is that although they tend to be confusing, they allow you to be concise. But it’s absence of anything to the contrary that allows a guarantee to be absolute (and unconditional). Similarly, a guarantee is irrevocable (subject to the limit described above), unless you say it isn’t. So in this case, adding our three terms of art just clogs up the works.

They don’t prevail over the deal terms. If you use one of our three adverbs in a contract but it’s inconsistent with the deal terms, a court that pays attention to caselaw on guarantees and the more general caselaw on this sort of inconsistency should hold that the deal terms are what matter.

So although using some combination of absolutely, unconditionally, and irrevocably might seem to offer certitude, they do nothing of the sort. So instead, just say what the deal is. In that regard, it’s what you don’t say that makes a guarantee absolute, unconditional, and, to a limited extent, irrevocable.

I haven’t yet looked at how this issue plays out in England, Canada, and Australia, but I can’t think of any reason why the same analysis shouldn’t apply. Is there some dreadful caselaw I should be aware of?

(By the way, see this post for why I use the noun guarantee and not guaranty.)