Fortron Automotive Treatments Pty Ltd v Eurotime Holdings Pty Ltd - [2000] WADC 262

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: FORTRON AUTOMOTIVE TREATMENTS PTY LTD -v- EUROTIME HOLDINGS PTY LTD & ORS [2000] WADC 262

CORAM: COMMISSIONER GREAVES

HEARD: 29, 30, 31 AUGUST 2000

DELIVERED : 26 OCTOBER 2000

FILE NO/S: CIV 3110 of 1998

BETWEEN: FORTRON AUTOMOTIVE TREATMENTS PTY LTD
Plaintiff
AND
EUROTIME HOLDINGS PTY LTD
First Defendant
ANTON VUKNIC
Second Defendant
ROGER JOHN MORRIS
Third Defendant

Catchwords:

Contract - Guarantee - Non est factum - Onus of proof - No reasonable mistake about the nature or extent of the obligations created by the contract - Variations of credit terms by creditor and principal debtor without express consent of guarantor - Onus upon creditor to establish variations unsubstantial and not prejudicial to guarantor - Guarantor discharged by variations.

Legislation:

Nil

Result:

Plaintiff's claim against the first and second defendants allowed.
Plaintiff's claim against the third defendant dismissed.

Representation:

Counsel:

Plaintiff:     Mr G A Rabe
First Defendant             :     No appearance
Second Defendant         :     No appearance
Third Defendant           :     Mr S B Watters

Solicitors:

Plaintiff:     Stables Scott
First Defendant             :     No appearance
Second Defendant         :     No appearance
Third Defendant           :     McCallum Donovan Sweeney

Case(s) referred to in judgment(s):

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Corumo Holdings Pty Ltd v Itoh Ltd and Ors (1991) 24 NSWLR 370
Nelson Fisheries Ltd v Boese (1975) 2 NZLR 233
Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking [2000] HCA 20
Petelin v Cullen (1975) 132 CLR 355

Case(s) also cited:

Nil

COMMISSIONER GREAVES:

The plaintiff's claim against the first and second defendants

The plaintiff in this action is a manufacturer and distributor of automotive goods. At some time during the first half of 1994, the plaintiff and the first defendant entered into a distribution agreement. The agreement was not produced in evidence but it can quickly be seen that during 1994, 1995 and 1996, the plaintiff sold and supplied its goods to the first defendant for subsequent sale in eastern Europe. The second defendant was at all material times a director of the first defendant. The third defendant was a secretary of the first defendant.
The plaintiff first sold and supplied goods for cash to the first defendant in August 1994. Thereafter, the second defendant asked the plaintiff to sell and supply further goods on credit. By par 4, par 5 and par 8 of the amended statement of claim, the plaintiff pleads three contracts for the sale and supply of further goods in July 1995 and February 1996. The plaintiff invoiced the first defendant in the sum of $89,605.01 for goods sold and delivered under the first two contracts. The first defendant paid the plaintiff the sum of $40,000 under these contracts, leaving a balance due of $49,605.01. The plaintiff subsequently invoiced the first defendant under the third contract in the sum of $56,370.20, being a total under the three contracts of $105,975.21, which the plaintiff claims against the first defendant together with the sum of $1,258.13 in respect of premiums paid by the plaintiff on the life of the second defendant.
The plaintiff claims the sum of $105,975.21 against the second defendant, pursuant to the provisions of a guarantee executed by the second defendant. The first and second defendants did not give evidence at the trial. In my opinion, the evidence for the plaintiff establishes that the plaintiff is entitled to judgment against the first and second defendants as pleaded.
I turn to the claim against the third defendant.

The claim against the third defendant

The claim against the third defendant is pleaded in par 13 of the statement of claim in which the plaintiff relies upon the guarantee contained in Exhibit 3 in the following terms:
"In consideration of the supplier at our request as directors of the customer agreeing to grant to it credit trading facilities, we the abovementioned and undersigned directors do hereby jointly and severally and irrevocably guarantee (by way of continuing security) the payment to the supplier by the customer of all moneys now or at any time in the future due and owing in respect of goods sold or services rendered by the supplier and we jointly and severally agree to be bound by the terms and conditions of agreement to provide credit next following and declare that the supplier may make claim against us as if we were the principal debtors and not guarantors/sureties of the customer."
For present purposes it is only necessary to refer to cl 6(b) of the Terms and Conditions of Agreement to Provide Credit on the reverse of Exhibit 3 which reads:
"Unless otherwise stated the terms of payment shall be net thirty (30) days from the date of the invoice."
By his statement of defence the third defendant admits that he was company secretary of the first defendant from 15 July 1994 to 10 May 1995. The third defendant does not admit the three contracts in respect of the sale and supply of goods to the first defendant which I have found to be established on the evidence of the plaintiff. At par 10 of the statement of defence of the third defendant, he relies upon the defence of non est factum:
"Save to admit that on or about 23 December 1994, at the request and direction of the plaintiff, he affixed his signature to a document entitled 'Terms and Conditions of Agreement to Provide Credit' (the 'Credit Terms') as company secretary of the first defendant, the third defendant denies par 13 of the amended statement of claim and each and every particular and allegation contained therein."
At par 16 et seq of his statement of defence, the third defendant alleges three variations to the credit terms between the plaintiff and first defendant and pleads that any liability which the third defendant may have had to guarantee the obligations of the first defendant have been discharged. The third defendant also relies upon pleas of misrepresentation and breach of duty by the plaintiff, but these pleas were not pursued at the trial.

The evidence for the plaintiff against the third defendant

Mr Ivan Hoffman said that he first spoke to Mr Roger Morris on 2 September 1994 about the distribution agreement between the parties. Mr Hoffman gave evidence that his State Director of Operations, Mr Kenneth Jones told him that the first defendant had called him about a second shipment of goods, this time on credit. On 21 November 1994, Mr Hoffman wrote to the first defendant by facsimile, which became Exhibit 15, in the following terms:
"If the next container is to be on a delayed payment basis, then, as I explained to you on the telephone, I would need to have a personal guarantee signed by you and Roger. So that I can put that in place would you please fax to me the full name, occupation and address of both yourself and Roger. If you can do that now I can get things in progress so that this will not delay shipment when the time comes."
On 23 November 1994 Mr Hoffman again wrote to the first defendant by facsimile as follows:
"Before we can proceed with the next order which you want to be on a credit basis, it is necessary for me to have the information that I require on yourself and Roger Morris. I would appreciate it if you could fax to me full name, address and occupation of you both. It will be necessary in our normal way of doing business to run credit checks before we put guarantee forms in place. If you can do that now we can get everything set up so it will not delay shipment when the time comes."
On 20 December 1994, Mr Hoffman wrote to the third defendant as follows:
"In relation to the dealings with Eurotime Holdings Pty Ltd and the proposed next order, I have attached a credit application form. The form incorporates personal guarantees for yourself and Tony Vuknic. Would you please complete the form and affix the common seal and for you and Tony to sign where indicated. Would you please return the form to me as soon as possible so that we have that in place before the order is completed."
Mr Hoffman gave evidence that the credit application form and terms of trading agreement (Exhibit 3) was attached to his letter of 20 December 1994 (Exhibit 17).
On 4 January 1995, Mr Hoffman wrote to the first defendant in part as follows:
"We are proceeding with the next order for Eurotime Holdings Pty Ltd and this should be on a ship out of Fremantle about 20 January. The payment terms for that shipment are $20,000 on or before 15 February 1995 and the balance on or before 15 March 1995. We will notify you of the precise amount when this has been finalised."
Mr Hoffman accepted that by Exhibit 18 the plaintiff agreed to extend what had previously been the arrangement in relation to 30 days for payment and agreed to some further time. These goods were invoiced on 17 January 1995 (Exhibit 19) and shipped on 20 January 1995. The evidence of Mr Hoffman was that the goods the subject of Exhibit 19 were eventually paid for in April or May of 1995. On 21 June 1995, Mr Hoffman and Mr Jones met the second defendant in Perth. Mr Hoffman made a file note of that meeting which became Exhibit 23 and which reads:
"Eurotime Holdings - 21 June 1995
Present: T Vuknic/I Hoffman/K Jones/B Hoffman
Discussed ways to help Tony purchase product in 40 ft containers - our risk is up to $100,000. We discussed the need to advertise through the car rally at a cost to Tony of $25,000. Tony does not believe he can now get out of the sponsorship. We also discussed the possibility of Tony taking out insurance to cover any eventuality - this will happen. Payments for first container of drip feed payment completed by end of October. If possible the payment may be paid by end of September. Second container will not be shipped until at least half of first container has been paid for. No movement until we receive a copy of Tony's insurance policy."
In evidence, Mr Hoffman explained:
"We agreed to look at shipping in 40 ft containers and on the basis that the first container would be sent without advance payment but no further shipments would be made until around one half of the value of the first container had been paid and that we expected payment within about 90 days."
On 4 July 1995, Mr Hoffman wrote to the second defendant as follows:
"This letter is to set out in brief form payment arrangements which have been agreed between your company and Fortron. We have agreed to supply you with an amount of product needed to fill a 40 ft container due for shipment towards the end of July 1995. You agreed at our meeting on 21 June 1995 this container would be fully paid for no later than the end of October 1995. You also agreed to procure a keyman insurance policy to the value of $100,000 made payable to Fortron." (Exhibit 22)
Exhibit 22 bears the endorsement of the second defendant dated 4 July 1995.
On 27 July 1995, as alleged in par 6 of the statement of claim, the plaintiff supplied the goods invoiced in Exhibit 8 in the total sum of $89,605.01. The first defendant paid the plaintiff the sum of $40,000 on 31 January 1996, leaving unpaid a balance of $49,605.01.
The plaintiff next alleges in par 8 and par 9 of the statement claim that the first defendant ordered further goods from the plaintiff on 12 February 1996 by purchase order Exhibit 10. Mr Hoffman referred to the passage at the foot of Exhibit 10 "Payment terms: 120 days from pick up of container, as agreed". Mr Hoffman said that he telephoned the second defendant and continued:
"I phoned him and told him that 120 days was longer than we would normally want to extend credit in these circumstances. He explained that business was going very, very well and he needed the product, and that it was slow getting the money out of Croatia and he needed some extra time to ensure that he could make payment when due, and I agreed to that. … There was about $49,000 outstanding. I told him that I needed to have that paid and this new order paid within 120 days, and on those conditions I would accept that. He expected to be paying me the old $49,000 off during the course of that time as money came through from Croatia, but I had an out of date limit on that."
Mr Hoffman accepted that the goods the subject of this order left Fremantle on 22 February 1996. He said that the goods were not paid for within 120 days and the plaintiff received no further payment from the first defendant.
In cross-examination, Mr Hoffman said that he had never personally met the third defendant. He said that as at 2 September 1994, as far as he was concerned, Mr Morris was the company secretary of the first defendant. He said that in December 1994, he had "a very brief conversation" with the third defendant about the credit application and guarantee. In cross-examination, Mr Hoffman stated:
"… all that I discussed with him was that I would be sending him the credit application form which would require the company seal of Eurotime being affixed and signatures and witnessing of himself and Mr Vuknic."

The evidence of the third defendant

Mr Morris gave evidence that from 1991 the first defendant was the corporate trustee of the Valueforce Unit Trust. Mr Morris said that shortly thereafter the trustee of his family trust, Rahadas Nominees Pty Ltd, acquired a 50 per cent interest in the Valueforce Unit Trust in return for accounting services and advice. Mr Morris confirmed that he was appointed secretary of the first defendant on 15 July 1994 and resigned on 10 May 1995. He said:
"As I recall Tony Vuknic required me, or someone, to be appointed an additional company secretary in the absence of himself or Judy Midrow for the purpose of attesting the seal, the company seal."
Mr Morris said that he recalled speaking to Mr Hoffman on the telephone on a number of occasions but he could not recall what sort of matters he discussed with him.
Before me, Mr Morris was shown Exhibit 3 and was asked why he signed the document. He said:
"It was a credit application that Tony Vuknic required me to sign and seal at that late hour on 23 December and I so signed."
Mr Morris was asked whether he recalled receiving Exhibit 17, the letter dated 20 December 1994, and he said he did not. He was shown the letter from the plaintiff to the second defendant dated 4 July 1995, Exhibit 22, and asked whether he recalled seeing that letter and he said he did not. He said that the second defendant did not speak to him about its contents. He was shown the purchase order from the first defendant to the plaintiff dated 12 February 1996, Exhibit 10, and his attention was drawn to the passage at the foot, "Payment Terms: 120 days from pick up of container, as agreed". He was asked whether he was aware of any such agreement and he said he was not. He was shown the combined commercial invoice and packing list dated 20 February 1996, Exhibit 11, and his attention was drawn to the passage "Payment term account per agreement with Fortron management". He was asked whether he was aware of any such agreement and he said he was not.
In cross-examination, Mr Morris confirmed that he has been a certified practising accountant for some 30 years and he is the director or secretary of a number of companies. He said that he understands "theoretically" what a guarantee is. He was shown Exhibit 3 and agreed that the document contains a form of guarantee but said that it did not follow that he recognised it as such. He said he was the company secretary and he signed Exhibit 3 to attest the company seal. He was shown Exhibit 17 and accepted in cross-examination that he would have read the letter when it arrived. He explained:
"I am saying that I would have got this letter at some stage but I am not certain that I received it on 20 December or subsequent to it but I certainly remember Vuknic bringing that credit application with him because I had to return to the office to seal it with my secretary."
Mr Morris accepted that his signature appears twice at the foot of Exhibit 3. He was asked, "Why did you sign this document twice?" and responded, "It appeared that I was required to".
Mr Morris accepted that at the time he signed Exhibit 3 his family trust stood to gain from any profits made by the first defendant upon the resale of goods supplied by the plaintiff.
Mr Morris was shown Exhibit 18 and accepted that he received it and read it. He was shown Exhibit 20 and accepted that he most likely read it. He accepted that he received and read Exhibit 21 and that he spoke to Mr Hoffman. Mr Morris accepted in cross-examination that Mr Hoffman advised him about the terms on which the plaintiff supplied goods to the first defendant on 20 January 1995.

The issues for determination between the plaintiff and third defendant and the law applicable thereto

The first issue between these parties is that raised by the plea in par 12 of the defence of the third defendant that he did not intend to execute Exhibit 3 as a guarantee. I listened carefully to the evidence of the third defendant that the second defendant asked him to witness the seal of the first defendant at the foot of Exhibit 3 and to his evidence that he signed twice at the foot of Exhibit 3 because he then believed the form required him to. I have considered whether this explanation is plausible in the circumstances revealed by the evidence. In my opinion, I could reach that conclusion only if I had formed the opinion that Mr Morris was and is completely stupid. On his own evidence and from my observation of him, I formed quite the contrary opinion. Mr Morris is plainly an experienced accountant and businessman. I accept the submission of counsel for the plaintiff that the plea of non est factum is dependant upon proof that the person seeking to avoid the contract signed it while reasonably mistaken about the nature or extent of the obligations created by it. The third defendant asserting the mistake is under a heavy onus of proof in establishing the elements of the plea: See Petelin v Cullen (1975) 132 CLR 355 at 360. Accordingly, I do not accept his explanation as plausible and I do not accept he was reasonably mistaken. I have no hesitation in concluding on the balance of probabilities that when he executed Exhibit 3 he knew that he was attesting the seal of the company and accepting personal liability as a guarantor.
The second issue remaining between the plaintiff and the third defendant is whether the third defendant was discharged from liability under the guarantee as a consequence of the variations pleaded in par 18 to par 21 of the statement of defence of the third defendant as follows:
"18.The plaintiff varied the Credit Terms without the first defendant's knowledge or consent by permitting the time for payment thereunder to be extended from 30 days to in excess of 90 days ('the first variation').
Particulars
The first variation is contained in the letter from the plaintiff to the first defendant and the second defendant dated 4 July 1995.
19.Further or alternatively, the plaintiff agreed to a further variation of the Credit Terms without the third defendant's knowledge or consent by permitting the first defendant to export goods from Australia at a time when monies were still allegedly outstanding in relation to them ('the second variation').
Particulars
The second variation is contained in a letter from the plaintiff to the first defendant and the second defendant dated 4 July 1995.
20.Further or alternatively, the plaintiff has granted the first defendant a substantial extension of time within which to pay any outstanding monies then due to the plaintiff from the first defendant pursuant to the Credit Terms.
21.Further or alternatively, on or about 12 February 1996, the plaintiff varied the Credit Terms without the first defendant's knowledge or consent so as to permit the plaintiff to grant the first defendant further credit, such monies to be paid within 120 days after collection of the goods by the first defendant's shipping company ('the third variation').
Particulars
21.1The third variation was partly written and partly oral.
21.2Insofar as the third variation was in writing, it consisted of the following documents:
(a)Order No 120296 from the first defendant to the plaintiff dated or about 12 February 1996; and
(b)a further written order from the first defendant to the plaintiff on 'T Vuknic' letterhead dated on or about 12 February 1996.
21.3Insofar as the third variation was oral, it consisted of a conversation or conversations between Ivan Hoffman on behalf of the plaintiff, and the second defendant on behalf of the first defendant on or about 12 February 1996."

By its reply, the plaintiff does not deny the first and third variations alleged. Counsel for the plaintiff submitted that upon a proper construction of the agreement to provide credit and guarantee, the Court should find that cl 6(b) means "unless otherwise subsequently agreed the terms of payment shall be net 30 days from the date of the invoice". He then submitted that the Court should find that the first and third variations are in each case a new contract between the plaintiff and the first defendant, rather than a variation of the original agreement, and that therefore the rule that a variation to the principal contract discharges the guarantor does not apply. In my opinion, no such construction can reasonably be placed upon cl 6(b), which contemplates that the terms of payment shall be 30 days from the date of subsequent invoice unless otherwise stated at the time the agreement to provide credit and guarantee was executed. The evidence for the plaintiff in this case establishes that the plaintiff, the first defendant and second defendant entered into the agreement to provide credit contained in Exhibit 3 in contemplation that the plaintiff would supply goods to the first defendant from time to time upon "extended trading credit terms … set forth under the heading 'terms and conditions of agreement to provide credit'" on the reverse of Exhibit 3. In my opinion, the agreement to provide credit did not contemplate the formation of a new contract to provide credit upon each subsequent occasion when the plaintiff agreed to supply goods to the first defendant. So far as it is material, I think I should observe that the issue addressed in these submissions of counsel for the plaintiff is not an issue which in my opinion was adequately pleaded in the statement of claim and reply, but since I am of the opinion that the Court should not accept the submissions in the determination of the issues, I do not find it necessary to give further consideration to that question.
I have referred to the evidence of Mr Hoffman and Exhibit 22 that the plaintiff agreed to extend credit terms to the first defendant from 30 days to 90 days in July 1995 and from 30 days to 120 days in February 1996. I have referred to the evidence of the third defendant that he did not recall seeing the letter from the plaintiff to the second defendant dated 4 July 1995, Exhibit 22, and that the second defendant did not speak to him about its contents. I have referred to his evidence about the purchase order from the first defendant to the plaintiff dated 12 February 1996, Exhibit 10, and that he was not aware of the agreement to extend credit terms from 30 days to 120 days.
On the pleadings and the evidence, therefore, there is no issue between the plaintiff and the third defendant that the plaintiff and the first and second defendants varied the principal agreement to provide credit in the way which I have described in July 1995 and February 1996. On the pleadings and the evidence, however, there is an issue between these parties whether the plaintiff made the first and third variations without the knowledge or consent of the third defendant.
Counsel for the plaintiff submitted that the variations to the principal agreement to provide credit in this case should not be found to discharge the third defendant from liability because, among other things, he said that the third defendant either expressly or impliedly consented to the extensions of time for payment granted by the plaintiff. It is in this context, I think, that some consideration of the circumstances in which a creditor's breach of a contract of guarantee discharges the surety from liability under the contract is necessary.
The High Court examined this question in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549. In their joint judgment, Mason ACJ and Wilson, Brennan and Dawson JJ observed at p 556 of the report that many guarantees are unilateral instruments containing no promises on the part of the creditor except insofar as the recital of the consideration may refer to such a promise. The case before their Honours was not such, the respondent in that case arguing that the creditor's breach of express terms in the contract of suretyship did not discharge the surety. Their Honours distinguished between cases dealing with a breach of a term in the suretyship contract and cases in which conduct on the part of the creditor materially altered the surety's obligations. Speaking of the latter case, their Honours said at p 558:
"Such an alteration takes place when the creditor agrees to a variation of the principal contract or to an extension of time within which the debtor may comply with that contract. The creditor's agreement with the debtor thereby alters the nature of the surety's obligations without the surety's consent."
Their Honours then referred to earlier authority and continued at p 559:
"These statements of the principle, like that of Blackburn J in Polak v Everett (1876) 1 QBD 669 at 674, indicate that the principle is the by product, not so much of the general law of contract, as of the special relationship between creditor and surety arising out of the suretyship contract upon which equity fastened to protect the surety when the creditor's conduct affected the surety's liability: Holme v Brunskill (1877) 3 QBD at 505. According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alterations. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, eg, a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety."
Counsel also referred to the subsequent decisions of the New South Wales Court of Appeal in Corumo Holdings Pty Ltd v Itoh Ltd and Ors (1991) 24 NSWLR 370 at 382 and of the High Court in Pan Foods Company Importers and Distributors Pty Ltd v Australia and New Zealand Banking [2000] HCA 20 (13 April 2000) at par 11 and following. The facts of each of those cases were vastly different from the present and more particularly did not involve the application of the well established principles explained by the High Court in Ankar to a unilateral contract such as that before the Court in the present case.
In accordance with these principles, the first question of fact for the Court to determine in this case is whether the third defendant expressly consented to the first and third variations in July 1995 and February 1996. In my opinion, there is no evidence of such express consent to these variations by the third defendant. The second question of fact for the Court to determine, therefore, is whether the third defendant impliedly consented to these variations at the time they were made. The onus is upon the plaintiff to establish that implied consent in each instance. To determine this question on the evidence, it is relevant to consider whether each variation is unsubstantial and not prejudicial to the third defendant.
Counsel for the plaintiff submitted that in the present case the Court should conclude that the variations were beneficial to the third defendant only because, firstly, the third defendant accepted that there was a prospect that his family trust may have benefited from the sale of the goods which the plaintiff supplied to the first defendant upon the varied terms, and, secondly, because the third defendant accepted that it was to his personal advantage that the plaintiff did not enforce its rights against the first defendant by putting the first defendant into liquidation in 1996, but rather agreed to vary the credit terms.
Upon the evidence which I have explained, I conclude that the first and third variations altered the third defendant's rights in circumstances in which the plaintiff has not shown that the variations were unsubstantial and not prejudicial to the third defendant. The rule does not permit the courts to inquire into the effect of the variation and in my opinion the plaintiff has not established that the variations were beneficial to the surety only or that by their nature the variations could not in any circumstances increase the guarantor's risk. In my opinion, therefore, the Court should not conclude that the third defendant either expressly or impliedly consented to the extensions of time for payment granted by the plaintiff.
Counsel for the plaintiff further submitted that the "principal debtor" clause in the guarantee preserved the third defendant's liability notwithstanding any variation of the principal obligation. In my opinion, I should not accept that submission in the present case because the evidence establishes that the plaintiff agreed to the first and third variations to the agreement to provide credit without the knowledge and consent of the third defendant.
I also reject the submission of counsel for the plaintiff that the guarantee preserves the third defendant's liability as a principal debtor notwithstanding any variation of the principal obligation. In my opinion, upon a proper construction of this guarantee the third defendant agreed to be bound by the terms and conditions of agreement to provide credit and any such liability is therefore discharged by the first and third variations of the principal contract without the knowledge or consent of the third defendant. In Nelson Fisheries Ltd v Boese (1975) 2 NZLR 233, Wild CJ found that a substantial alteration had occurred to the principal contract which discharged the defendant from his obligations as guarantor. The guarantee contained a principal debtor clause and Wild CJ considered the liability of the guarantor under it in this way:
"This must, in accordance with principle, be strictly construed. In my view the alteration I have referred to was not a mere 'waiver or default' which, in terms of that latter part of the document, was not to discharge the defendant or lessen or affect his liability. It was a matter of express agreement made between the plaintiff and the guarantor without knowledge of the defendant. Moreover, the covenant that, as between himself and the plaintiff, the defendant's 'position and liabilities …shall be those of a principal debtor in all respects' is qualified by the use of the word 'hereunder'. That word, in a document, which begins with the recital 'the advances hereinbefore referred to', plainly relates the defendant's 'position and liabilities' to the deed and, in my view, he cannot be held liable as a principal when, without his agreement or even knowledge, a substantial departure has been made from the contractual terms of that deed. The covenant does not provide, as it might have done, that the defendant shall not be released by any variation in the provisions of the deed or by any agreement relating there to made between its parties."
In my opinion, the same approach should be taken to the guarantee in the present case.

Conclusion

In my opinion, therefore, the third defendant is discharged from liability to the plaintiff under the guarantee and it follows that the plaintiff's claim against the third defendant should be dismissed. The plaintiff is entitled to judgment against the first and second defendants.