Holme v Brunskill
A guarantor is discharged if the creditor and principal debtor vary the principal contract without the guarantor's consent, unless the variation is obviously unsubstantial or necessarily beneficial to him.
Facts
Brunskill guaranteed the obligations of a tenant of a farm to return a flock of sheep in good condition at the end of the tenancy. The landlord and the tenant later agreed, without Brunskill's consent, that the tenant would surrender a field in return for a reduction in rent. At the end of the tenancy, the sheep were not returned in good condition, and the landlord sued Brunskill on his guarantee.
Legal principle
The Court of Appeal held that the guarantor was discharged. Cotton LJ said that the true rule is that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged, yet that if it is not self evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the court will not go into an inquiry as to the effect of the alteration. The rule in Holme v Brunskill is why guarantees usually contain clauses allowing variations without the guarantor's consent.
Related cases on lending, guarantees and security
- Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd) [2001] UKPC 28, [2001] 2 AC 710
- Barclays Bank plc v O'Brien [1994] 1 AC 180
- Re Charge Card Services Ltd [1987] Ch 401
- Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] UKPC 19
- Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
- Kleinwort Benson Ltd v Malaysia Mining Corp Bhd [1989] 1 WLR 379
- Moschi v Lep Air Services Ltd [1973] AC 331
- National Westminster Bank plc v Morgan [1985] AC 686
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