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14 Material variation of the underlying contract

Refund Guarantees

14 Material variation of the underlying contract Introduction 14.1 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-extensive 1 . 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.

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