Banking – Guarantee – Effect of substantial modification

Banking – Guarantee – Effect of substantial modification

If, in a contract guaranteeing an overdraft with a bank, the principal debtor opens a second account without the guarantor’s knowledge and, on construction of the contract, this amounts to a substantial variation of that contract prejudicial to the guarantor, the effect is to discharge the guarantee and relieve the guarantor from liability. Where there is no substantial varia-tion the guarantee can be enforced against the guarantor

NATIONAL BANK OF NIGERIA LIMITED v. AWOLESI (1964) NCLR (page 26, line 40—page 27, line20; page 27, lines 26-40) P.C. (West)

Facts of the case

The appellant bank brought an action against the respondent ill the High Court of Western Nigeria for money due under a guarantee for the loan of money. The appellant permitted one of its customers overdraft facilities, later guaranteed by the respondent. The customer later opened a second account, unknown to the respondent, with the appellant. No further cheques were drawn on the first account, although a small amount was paid in.

The account, however, remained overdrawn. All further business was conducted through the second account. The appellant wrote to both customer and respondent demanding collateral security for the overdraft on the first account and a substantial reduction in the amount of the overdraft. When neither of these requests were complied with the appellant instituted proceedings against them in the High Court of Western Nigeria.

Ack: Alan Milner. All Rights Reserved (LawHub NG).

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