[Updated January 11, 2012, to tweak the analysis.]
Let’s consider how the verb guarantee is used in contracts.
(No, I’m not going to discuss guarantee versus guaranty. For that, go to this 2006 blog post on AdamsDrafting. Perhaps my most popular post evah. Go figure.)
Everyone knows what the verb guarantee means. Here’s how Black’s Law Dictionary defines it:
guarantee, vb. (18c) 1. To assume a suretyship obligations; to agree to answer for a debt or default. 2. To promise that a contract or legal act will be duly carried out.
But when the verb guarantee is used in a contract (and followed not by a that-clause but by a noun, which is usually the case), its complete meaning derives not from the word itself but from the context—in other words, exactly what Acme is guaranteeing.
Consider the following example:
The New Borrower hereby guarantees payment and performance when due, whether at stated maturity, by acceleration, or otherwise, of all Obligations.
If you consider hereby guarantees in isolation, it simply conveys the meaning “will be liable for.” What the New Borrower is liable for is spelled out in the rest of the sentence. That’s what results in the dictionary definition of guarantee.
The same applies to the verb indemnify. It too means, in effect, “will be liable for,” with context being provided by what follows the verb.
Life would be simpler if drafters stopped using the fancy but empty verbs guarantee and indemnify. That’s because drafters and readers can be under the impression that they’re freighted with extra meaning.
Drafters could use instead will be liable for. For example, in this February 2011 blog post I wrote about how commentators and judges somehow pull out of a hat hidden nuances in the meaning of indemnify, and why that led me to recommend using will be liable for for purposes of Koncision’s confidentiality-agreement template.
The notion of term-of-art verbs conveying a more straightforward meaning than at first appears should be familiar to readers of this blog. I’ve droned on often enough (most recently in this December 2011 blog post) about how the verbs represent and warrant, used separately or (groan) together, are best understood as simply serving to identify which party is making the assertion in question, rather than conveying some fiendishly subtle meaning.
Drafters could use an “if … then” structure instead of all the aforementioned term-of-art verbs; for how that would work as an alternative to the verb warrant, see MSCD 12.438.
I’m not suggesting that these alternatives (using will be liable for or an “if … then” structure, as appropriate) are always feasible. But don’t assume that just because you call a contract a “guarantee” that you have to use the verb guarantee in that contract. Or that just because you give a section the heading “Warranty” that you have to use in that section the verb warrant.
My main point, though, is that if you use the verbs guarantee, indemnify, represent, and warrant, bear in mind that it’s counterproductive to look for the verb itself to convey nuanced meaning.
5 thoughts on “Using “Guarantee” and Other Verbs as Terms of Art: Less Than Meets the Eye”
Here’s a practical problem, though: When I’ve tried using simple, if-then language like this, I’ve had some contract reviewers object to the absence of comfortingly-familiar words like warrant or indemnify. It’s almost as though they’re afraid they might be giving up something by leaving out those words. (Of course, if you were to ask them what they were giving up, they probably wouldn’t be able to say. We could call it the “but we’ve always done it that way” school of legal analysis ….)
D.C.: You have to do whatever is necessary to get the deal done, including catering to stubborn traditionalists. But as alternative approaches are discussed more widely and find their way into more drafts, they should become more palatable. Ken