Corporate & Securities Law

?Guarantees That?

By Ken Adams

Today I saw the following in a contract I pulled from the SEC’s EDGAR system:

SunPower hereby guarantees that, subject to Section 22, it shall supply and deliver each of the Products to the delivery point specified in a given Purchase Order (each, a Delivery Point ) on or prior to the scheduled delivery date therefor specified in such Purchase Order (with respect to such Products and such Delivery Point, a Guaranteed Delivery Date ).

When in the MSCD-approved manner you’re using shall to impose an obligation on the subject of the sentence?in this case, SunPower?nothing is accomplished by having the party under the obligation guarantee that it will perform the obligation. The obligation itself is all that’s necessary.

And in this context, the verb to guarantee doesn’t serve to convey its legal meaning, namely “To assume a suretyship obligation; to agree to answer for a debt or default.” Instead, to guarantee that is a form of rhetorical emphasis that simply reinforces the speaker’s passion, as in I guarantee that Accrington Stanley will defeat Scunthorpe on Saturday! Obviously, that isn’t what the drafter of the SunPower contract intended.

It also follows that, more generally, to guarantee that has no place in a contract, whatever the category of contract language. You wouldn’t even say Parent hereby guarantees that Sub will repay the Sub Loan. Instead, you’d say Parent hereby guarantees repayment of the Sub Loan?you’d use guarantees without a that-clause.

By the way, while we’re on the topic, you might find of interest this October 2006 blog post on guaranty or guarantee.

Full post as published by AdamsDrafting on January 04, 2010 (boomark / email).