As you might have guessed from my previous two posts, I’m working on a guarantee. Unsurprisingly, contains a sentence that refers to waiver of presentment.
I knew this day was coming, and I’ve long been prepared for it. I reached for Howard Darmstadter, Hereof, Thereof, and Everywhereof: A Contrarian Guide to Legal Drafting 197 (2d ed. 2008). (The discussion in his book is based on this 2002 article in Business Law Today.)
Howard Darmstadter is an interesting figure on the contract-drafting scene. I’ve never met him or corresponded with him, but I’ve read his articles with interest, and I cheerfully adopted one of his ideas. I suggest that his strength is that he’s a specialist in commercial and securities law.
That’s what allowed him to analyze in his book a sentence very similar to the one in the guarantee I’m working on:
The guarantor waives protest, presentment and notice of dishonor.
Howard explains that this sentence might have made sense before the 1990 changes to article 3 of the Uniform Commercial Code, but now it does not. Here’s his punchline:
So under post-1990 article 3, you can waive all suretyship defenses with “I waive defenses based on suretyship or impairment of collateral.”
Howard goes on to comment wistfully on how the copy-and-paste machine results in perpetuation of relics like the sentence that prompted his analysis. And I can confirm that waiver of presentment shows no signs of going away.
But a relative lack of intellectual curiosity might also be a factor, although I have no idea whether it contributes to the supremacy of copy-and-paste or is a consequence of it. Specifically, I’ve found zero trace of any discussion prompted by Howard’s analysis of that sentence.
I want to follow Howard’s recommendation for purposes of the guarantee I’m working on, but as a matter of scholarly rigor I don’t want to take his word for it. And it would be unpromising for me to start boning up on article 3 with a view to replicating Howard’s analysis. So UCC article 3 mavens, I welcome your input!
(By the way, however you express this concept, 98.3% of readers won’t have a clue what it’s about. But if the verbiage has been blessed by article 3, you go with it. And it’s unrealistic to expect that you could take the opportunity to also give the contract reader a quick tutorial.)
5 thoughts on “Another Guarantee Issue: Waiver of Presentment”
I’m not an article 3 boffin, but one has to start from the realization that it applies only to negotiable instruments (e.g. promissory notes, checks, etc.). There are lots of things that get guaranteed, like leases, commercial contracts, and accounts, that aren’t covered by UCC 3-605 and for which the magic words might not work.
Yes indeed. And “I’m not an article 3 boffin” would be a very generous way to describe the state of my own lack of knowledge.
Many years ago, waivers of protest, presentment and notice of dishonor were sometimes seen in bank guarantees. But they were not meant to waive “protest” etc. of the guarantee itself. They rather waived defenses the guarantor might raise under negotiable instruments law, with respect to instruments (such as drafts and notes) under which the principal debtor might be liable to the bank.
Agree that they are now obsolete in terms of Article 3, And I doubt they make any sense in any other context within a guarantee.
It’s been a few decades since I thoroughly analyzed the UCC chapter on negotiable instruments, but I assume the basic rule has not changed. (Such an assumption might be dangerous in the practice of law, but I will take my chances in making it in connection with a comment on a blog post.)
The maker of the note has the right to require the holder to present the note to the maker before the maker is obligated to pay the note. After all, the person claiming to be the holder might not be the holder. The UCC allows presentment to be waived.
Therefore the waiver of presentment should be in the body of the promissory note.
If it’s in the note, then the guarantor (who has no right of presentment) has no complaint if there is no presentment. The guarantor has guaranteed the note as written.
If waiver of presentment is in the guaranty and not in the note, then the maker hasn’t waived presentment. If there is no presentment, that could cause a problem in enforcing the guaranty because the guarantor could argue that the primary obligation has not yet come due.
And if it’s in both the note and the guaranty, then there is unhelpful wordiness in the guaranty.
As I recall, protest and notice of dishonor are relevant only to endorsers of a negotiable instrument and should have no bearing on a separate guaranty, but I don’t recall enough about protest and notice of dishonor to say that having a guarantor waive protest and notice of dishonor is meaningless.
To the extent the waiver of presentment, protest, and notice of dishonor are intended to be applied in the context other than negotiable instruments, it’s another example of mindless parroting of form language.
I found pretty quickly that NY didn’t adopt the 1990 or 2002 version of Article 3….
So if you’re writing a contract under NY law, which is super common for negotiable instruments…