The difference between Indemnities, Sureties, Warranties and Guarantees and the Prescription Periods in regard thereto

Published on December 13, 2022

An INDEMNITY is created where an insurer, for instance, indemnifies the insured (client) against damages as a result of the insured's or a third party's actions. The insurer's obligation to pay is contingent on the negligence of a third party. Therefore, there must be a finding of liability against the third party for the insurer to be liable. Prescription therefore begins to run against the insurer on the date or which the insured was found liable to the third party in a determinate sum.

MAGIC EYE TRADING t/a TITANIC TRUCKING vs. SANTAM 2022(6) 120 (SCA).

In SURETIES liability arises from the time the principal debtor is in default, provided an enforceable claim is proved. The debt of a surety who is also a co-principal debtor becomes enforceable at the same time as the principal debt becomes enforceable.

HILLMAN N.O. vs. MASTERBOND 1997 (1) S.A. (c)

A surety may however rely on a defense arising from the obligation, such as the extinction of the principal debt by prescription. The reason is that the obligation of a surety is an accessory obligation, and its validity depends on the existence of a valid principal obligation.

DESERT STAR TRADING vs. NO 11 FLAMBOYANT EDLEEN CC 2011(2) S.A. 266 (SCA)

A WARRANTY is a term in a contract warranting or promising that a merx will comply with certain requirements or standards. In Construction Law the contractor usually warrants that the building will comply with the drawings, plans and/or requirements of appointed professionals. A contractor may warrant that the gutters erected will endure for a period of 10 years. The time period of the warranty however does not dictate the prescription period in the event of damages. Prescription of a claim starts on date the owner becomes aware of the non-compliance and/or damages. In the example of gutters installed, the warranty may run for a period of 10 years, but when the gutters collapsed only after a few months, prescription of a claim immediately commenced.

A GUARANTEE is usually provided in property transactions for the purchase price to be paid on date of registration of the property and/or bond. Prescription of a claim resulting from the guarantee will start to run from date of registration of the property/bond.

When considering the possible prescription of a matter, the original cause of action dictates the time period(s) applicable as to the commencement of prescription.

C.M. Weiss
Practicing Consultant