Guarantee Not Discharged By Variation of Primary Obligation

Some suggest that a variation of the primary obligation has the effect of voiding a guarantee supporting that obligation. That analysis is true for a simple guarantee but not if the guarantee is drawn to anticipate a variation of the primary obligation.

Today's decision in the Court of Appeal in Business Development Bank of Canada v. Nandrajog, 2008 ONCA 349 provides:

"In Manulife Bank of Canada v. Conlin (1994), 20 O.R. (3d) 499, this court held that a guarantor will not be released by changes to a loan agreement if such changes are provided for under the terms of the guarantee, or are otherwise within the contemplation of the contract.  It is open to parties to a guarantee to make their own arrangements modifying or excluding the rights and defences to which a surety is entitled in law or in equity." 
James Morton
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