LEGAL PRINCIPLE: CONTRACT LAW — Guarantees — Variation of Guarantee — When Guarantor Discharged
PRINCIPLE STATEMENT
Where a guarantee is a continuing security, and documents relied upon to show variation are merely an invitation to treat and a reply thereto, they do not constitute an alteration or variation of the original guarantee so as to discharge the guarantor.
RATIO DECIDENDI (SOURCE)
Per Onu, JSC, in Union Bank of Nigeria Limited v. Nwaokolo (1995) NLC-2171991(SC) at pp. 16–17; Paras. D–A.
"Where further advances are made to the principal debtor without the consent of the guarantor, the question of whether the guarantor is discharged depends on the terms of the guarantee. Where the guarantee is a continuing security, and the documents relied upon to show variation (Exhibits 4 and 5) are merely an invitation to treat and a reply thereto, they do not constitute an alteration or variation of the original guarantee so as to discharge the guarantor."
EXPLANATION / SCOPE
Not every communication with the principal debtor varies the guarantee. An invitation to treat is not a variation. The guarantor is not discharged by such communications. The principle applies to continuing guarantees. The guarantor’s liability depends on the original terms. The rule protects the creditor’s rights. The court will examine whether there was a binding variation.