Material variation of the underlying contract
One of the key distinguishing features between a guarantee properly so-called and a demand guarantee is that a guarantee properly so-called will be discharged in the event of a material variation of the underlying contract made without the guarantor’s consent, whereas a demand guarantee will not. This is because in the case of a traditional guarantee the liability of the debtor and surety is, in principle, co-extensive1. The rule that a traditional guarantee will be discharged by a material variation in the underlying contract made without the consent of the guarantor is known as the rule in Holme v Brunskill.
2 This chapter will explain the basis for and application of this rule.