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We have found that many people do not realise the difference between a guarantee or warranty and undertaking. Consequently, the legal ramifications are unclear. This is particularly important from a position of successfully avoiding your risk and steering clear of excessive costs.
Guarantee or a warranty is defined as; “a formal promise or assurance (typically in writing) that certain conditions will be fulfilled… e.g. that a product will be repaired or replaced if not of a specified quality and durability.”
“a formal pledge to perform another person’s obligation in the case of default.”
The best explanation: “(in contract law) a promise that something in furtherance of the contract is guaranteed…”
An undertaking, on the other hand, is a “formal pledge or promise to do something.”
Some practical examples of guarantees and undertakings
In practice we often see the following regularly used guarantees:
- Warranting product durability or quality,
- Guaranteeing payments (e.g. bank guarantees).
Undertakings are lesser known to the general public and some examples include:
- A contract / agreement e.g. to pay or to do something once something else has first occurred,
- Agreeing to do something in general.
Recommendations for best practice
- Choosing the correct mechanism, depends on the nature of the transaction;
- A guarantee is more suited to transactions where fulfilling a specific obligation or characteristic is be warranted / guaranteed; and
- An undertaking is more suited to promise to do something.
Moreover, warrantees / guarantees are usually irrevocable or only revocable in very limited circumstances. Undertakings, on the other hand, are open to being revoked. For this reason, the latter is often viewed as unsecured and as a high risk by the recipient.
Get some professional assistance from the start, before you enter into the transaction and give any undertaking or guarantee. Constantly assess risk and implement measures to limit your risk. Here, prevention is really better than cure!
Nicolene Schoeman – Louw – Schoemanlaw Inc (Cape Town)