Valstar v Silversmith

The New South Wales Court of Appeal considered the liability of guarantors to a mortgagee in *Valstar v Silversmith*. The dispute concerned whether the guarantors were liable as principal debtors under the terms of a mortgage, and whether a variation to the mortgage discharged their obligations as sureties.

The court was required to determine two primary legal issues. Firstly, whether a clause within the mortgage, which stated the mortgagor and any guarantor were to be taken as principal debtors, rendered the guarantors liable as principal debtors in their own right, thereby excluding them from the protections afforded to sureties. Secondly, the court had to consider whether any variation to the mortgage agreement operated to discharge the guarantors from their obligations under the deed of guarantee.

The Court of Appeal, with McColl JA, Basten JA, and Sackville AJA all providing reasons, held that the "principal debtor clause" did not exclude the guarantors from the equitable doctrine of discharge of a surety where the principal debt was varied without their consent. The court reasoned that the clause was intended to ensure the mortgagee could pursue guarantors directly, but it did not alter the fundamental relationship of surety and principal debtor in equity. Consequently, the variations to the mortgage, which increased the principal debt, were found to have discharged the guarantors from their liability.

The appeal was dismissed, and the appellant was ordered to pay the respondent's costs of the appeal.