M. S. Anirudhan vs The Thomco's Bank Ltd
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 131 of 1961
Decision Date: 14 February 1962
Coram: J.L. Kapur, A.K. Sarkar, M. Hidayatullah
In the matter titled M. S. Anirudhan versus The Thomco’s Bank Ltd, the Supreme Court of India delivered its judgment on 14 February 1962. The opinion was authored by Justice J. L. Kapur and was rendered by a bench consisting of Justices J. L. Kapur, A. K. Sarkar and M. Hidayatullah. The petitioner was identified as M. S. Anirudhan and the respondent as The Thomco’s Bank Ltd. The decision was reported in the 1963 All India Reporter at page 746 and also in the 1963 Supplement to the Supreme Court Reports at page 63. The case concerned the alteration of the terms of a letter of guarantee by the principal debtor and the resulting effect on the liability of a surety. The appellant had agreed to act as surety for an overdraft facility that the respondent bank extended to a third party, identified as S. The bank supplied a blank guarantee form to S, who subsequently had the form completed by the appellant. The completed guarantee stipulated a maximum liability of twenty‑five thousand rupees. When S presented the signed guarantee to the bank, the bank refused to accept the guarantee on the basis that it was not prepared to extend credit beyond twenty thousand rupees and therefore requested that the guarantee be limited to that lower amount. S then altered the guarantee, reducing the maximum liability to twenty thousand rupees, and submitted the altered document to the bank. In the subsequent suit filed by the bank against both the principal debtor S and the appellant on the basis of a guarantee for twenty thousand rupees, the appellant contended that the alteration had been made without his knowledge or consent and that, consequently, he should be discharged from liability.
The Court held, by a majority consisting of Justices Kapur and Hidayatullah, that the appellant remained liable under the original guarantee. Justice Kapur explained that S was acting on behalf of the appellant, since it was at the appellant’s request that he stood as surety and handed the guarantee deed to S for delivery to the bank. Accordingly, the appellant’s argument that the contract was avoided by a material alteration failed because the alteration was not made while the document was in the possession of the promisee; instead, it was effected by S, who at that time served as the appellant’s agent. Justice Sarkar, dissenting, argued that the suit against the appellant should fail because the altered document was not binding on him; the alteration had not been intended by the parties, and the bank had refused to accept the guarantee in its original form, indicating that no contract existed on the unaltered terms. Justice Hidayatullah added that the alteration did not discharge the surety, emphasizing that the document was not materially altered in a manner that changed its nature, and that the surety was estopped from denying liability because the bank had relied on S’s authority as the surety’s agent. The judgment consequently affirmed that the appellant’s liability under the guarantee was not discharged by the alteration.
In the matter before the Court, it was held that the document could not be described as having undergone a material alteration because the changes did not alter the essential nature of the instrument. The amendment was effected by a co‑executant who reduced not only his own exposure but also that of the surety. The alteration occurred while the document was in the custody of S, who had originally delivered the guarantee to the Bank in the capacity of the surety’s agent. The Court considered that the surety had, by his conduct, represented S to be his agent for this purpose, thereby creating an estoppel that prevented the surety from denying liability. Consequently, the alteration of the document did not discharge the surety from the obligations contained therein.
The appeal, identified as Civil Appeal No. 131 of 1961, challenged a decree dated 30 September 1957 issued by the Kerala High Court in Appeal Suit No. 19 of 1956. Counsel for the appellant and the respondent were listed, and the judgment was delivered by Justice Kapur on 14 September 1962. Justice Kapur observed that a recitation of the facts was unnecessary as they had been fully detailed in the opinions of Justices Sarkar and Hidayatullah. He concluded that the appeal must be dismissed. The High Court findings showed that the Bank had consented to an overdraft facility of Rs 20,000 for Defendant No. 1, while the appellant had executed a surety bond for Rs 25,000. When the principal debtor became aware of the bond amount, he altered the document, reducing the liability from Rs 25,000 to Rs 20,000. The appellant contended that he remained liable for the original sum of Rs 25,000 and that the reduction constituted a material alteration that voided the contract, even though the change was to his advantage. He argued that, regardless of the innocence of the obligee or the manner of alteration, a material change without his consent precluded him from being bound by either the altered or the original obligation, since the Bank had never assented to the original terms. The Court reiterated the principle that an unauthorised material alteration renders the contract ineffective against the party who did not consent, citing Halsbury’s Laws of England, which states that a promisee who materially modifies a written contract after execution, without the promisor’s agreement—whether by adding, deleting, or otherwise changing terms—causes the contract to be avoided as against the person who would otherwise be liable.
According to the third edition of Halsbury’s Laws of England, volume eight, paragraph 301, page 176, the law provides that a material alteration made by a stranger, without the promisee’s knowledge, discharges the other party if the contract is then in the possession of the promisee or the promisee’s agent. Conversely, if the stranger alters the contract while it is not in the promisee’s custody, the promisor is not released from liability. The same authority repeats this principle in the same paragraph and page reference. Moreover, a further qualification is set out in Williston on Contracts, volume VI, paragraph 1914, page 5354. That qualification states that when a guarantor entrusts a letter of guarantee to the principal borrower, and the principal borrower subsequently alters the document without the guarantor’s assent, the guarantor remains liable. The rationale is that the guarantor’s act of delivering the guarantee caused the document to stay with the principal debtor, and the debtor’s subsequent alteration prevents the guarantor from invoking a lack of authority.
Applying these legal rules to the facts before the Court, the appellant agreed to act as surety for an overdraft facility that the respondent bank extended to the principal debtor, Shankaran. The bank required a guarantee in a prescribed form and gave that form to Shankaran, who then obtained the appellant’s signature on a guarantee that specified a sum of Rs 25,000. The bank, however, refused to accept the guarantee at that amount and asked for the figure to be corrected to Rs 20,000 by inserting the lower amount. The altered document was returned to Shankaran, and it is alleged that Shankaran made the alteration. At the time of the alteration, Shankaran was acting on behalf of the appellant because the appellant had provided the guarantee to Shankaran for the purpose of delivering it to the bank. Consequently, the alteration was not made while the guarantee was in the possession of the promisee or the promisee’s agent, but rather by the principal debtor who was, at that moment, the appellant’s agent. Under the principles stated earlier, the doctrine of avoidance of a contract for material alteration does not apply in these circumstances. Therefore, the appellant’s defence of material alteration cannot succeed, and the appeal must be dismissed. No order as to costs was made.
Justice Sarkar noted that the appeal originated from a suit filed by the respondent bank against both the appellant, in the capacity of guarantor, and Shankaran, as the principal debtor, to recover monies advanced on the overdraft account. The trial court had decreed against Shankaran, and he did not appeal that decree. Consequently, the present appeal concerns only the claim against the appellant. The suit against the appellant was founded on a letter of guarantee dated 24 May 1947, as set out in the plaint.
According to the letter of guarantee, the appellant had promised to repay to the Bank the balance due on the overdraft account opened for Sankaran, with a ceiling of Rs. 20,0001/- which was also the maximum amount for which the overdraft had been arranged. The appellant defended the suit by asserting that he had consented to guarantee Sankaran’s liability on the overdraft only up to Rs. 5,000/-, and that he had signed a letter guaranteeing repayment only to that amount. He further claimed that the letter had subsequently been altered without his consent by replacing the figure Rs. 5,000/- with Rs. 20,000/-. The appellant argued before the lower courts that such a material alteration of the guarantee instrument released him from any liability under it. The trial court observed that the original letter had mentioned Rs. 25,000/- as the guaranteed amount and that this figure had been changed without the appellant’s consent to Rs. 20,000/-. The court noted that the alteration was undisputedly material and consequently concluded that the alteration invalidated the instrument, leading to the dismissal of the suit against the appellant and the passing of a decree in his favour. The respondent Bank appealed this decision to the High Court of Kerala. The High Court concurred with the trial court that the original guarantee had stated Rs. 25,000/- and that it had later been altered to Rs. 20,000/- without the appellant’s approval. The High Court added that the alteration was probably effected by the principal debtor, Sankaran. However, the High Court held that the appellant may have mistakenly written Rs. 25,000/- in place of Rs. 20,000/- and that the alteration was intended to give effect to the common intention of Sankaran, the appellant and the Bank, namely that the appellant would provide a guarantee for the Rs. 20,000/- overdraft facility granted to Sankaran. Relying on section 87 of the Negotiable Instruments Act, 1881, the High Court therefore passed a decree against the appellant. The appellant appealed this judgment before this Court. The Bank did not appear in the appeal for reasons not known to the Court, and Dr. Seiyid Muhammed was engaged to present the Bank’s position at the request of the Court. The Court noted that the provision of the Negotiable Instruments Act invoked by the High Court applies to negotiable instruments, whereas a letter of guarantee is not a negotiable instrument. Nonetheless, the Court observed that the principle underlying that provision might have a broader application. The Court quoted the principle as formulated in Halsbury’s Laws of England, 3rd edition, volume 11, page 370: “An alteration made in a deed, after its execution, in some particular which is not material does not in any way affect the validity of the deed; … It appears that an alteration is not material … ‘Which carries out the intention of the parties already’.”
It has become well settled that the rule concerning alterations, which requires the intention to be already apparent on the face of the deed, also extends to instruments that are executed by hand. The authority for this extension is found on page 380 of the same commentary and in the case of Master v Miller (1791) 4 Term Rep 320. Consequently, the immediate issue for consideration is whether the alteration made in the letter of guarantee falls within the category of changes contemplated by that rule. The judges of the High Court concluded that it did, and therefore they held that the altered letter of guarantee could be enforced. The present opinion does not concur with that conclusion. In my view, the rule permits an alteration only when the alteration carries out the very intention that existed at the time the instrument was executed. That is precisely why Halsbury’s Laws of England emphasizes that the intention must be “already apparent on the face of the deed.”
To illustrate this point, I refer to the observation of Le Blanc, J., in Knill v Williams (1809) 10 East 931; 103 E.R. 839. He stated that, had there been evidence showing that the words added later were originally intended to be inserted but were omitted by mistake, the jury should have been allowed to find in favour of that intention, recalling the principles laid down in Kershaw v Cox (3 Esp. N. Cas. 246). However, Le Blanc recorded that, based on his recollection of the evidence, it was impossible for a jury to reach such a conclusion. He explained that the decision in Kershaw v Cox was supported only on the ground that the alteration made in the bill the day after negotiation merely corrected a mistake by the drawer, namely the omission of the words “or order,” which had been intended at the time of execution.
The two authorities relied upon by the High Court are likewise cases where the mistake lay in the original drafting of the instrument. In Lachmi Rai v Srideo Rai (A.I.R. 1939 All. 248) the court found that the omission concerning the payment of interest was accidental. Similarly, in Ananda Mohan Saha v Ananda Chandra Naha (1916 1 L.R. 44 Cal. 154) the instrument originally stipulated interest on a loan of Rs 200 at Rs 1 per mensem, and later it was altered by inserting the words “per cent.” The court observed that the intention of the parties was clearly evident on reading the document, namely that interest was to be paid at the rate of one rupee per cent per mensem. From these authorities it follows that the rule requires the intention to be discernible from the instrument itself, not merely inferred from a prior agreement without examining the intention that accompanied the execution of the instrument.
In the circumstance where an instrument has been executed, the rule that permits alteration would lack any justification. To allow a party to modify a document that was deliberately prepared in contradiction to a prior agreement would amount to creating a new contract through unilateral action, disregarding the intention of the original drafter. The statutes do not contain any provision that authorises such a transformation. Consequently, while a person who drafts a document that deliberately departs from the terms of the underlying agreement may remain liable under that agreement, that person cannot be held liable for the document as altered solely by the other party, even if the alteration makes the document consistent with the agreement. The law therefore does not support the notion that a written instrument may be unilaterally changed to reflect a different intention without the consent of the original author.
In the present case there is no evidence that, when the letter of guarantee was prepared, the appellant intended to state a maximum guarantee of Rs 20,400/‑ and mistakenly wrote Rs 25,000/‑ instead. The High Court’s finding of such a mistake rests entirely on conjecture, as shown by its own wording: it suggested that “probably defendant 2 (the appellant) made a mistake in Ext C (the letter of guarantee).” No proof was offered to support that speculation. On the contrary, the evidence demonstrates that the figure of Rs 25,000/‑ was entered intentionally. This was affirmed by testimony of the bank’s agents. They explained that the overdraft arrangement began on 24 February 1947 when Sankaran executed a promissory note for Rs 20,000/‑ in favour of the bank. At that time the appellant was unavailable to sign the guarantee letter. The bank typed the letter, leaving blank spaces for the guarantor to fill in the maximum limit, the rate of interest and the date. Sankaran returned the letter in May 1947, and the blank for the limit was filled with Rs 25,000/‑. Sankaran declared that he required Rs 25,000/‑ and would renew the promissory note for that amount. The bank, however, was unwilling to advance more than Rs 20,000/‑, so it returned the letter to Sankaran, who later brought it back with the limit corrected to Rs 20,000/‑. The bank’s agent gave no testimony about any oral agreement with the appellant, nor any interview concerning the overdraft or the guarantee. The appellant’s written statement admitted that he had agreed to guarantee repayment of the overdraft up to Rs 5,000/‑, referencing the letter of guarantee and not asserting the existence of a verbal agreement.
In this case, the appellant’s own admission could be taken against him, but the court stressed that the admission must be considered in its entirety and not be isolated to a fragment. The bank, on its part, did not plead any verbal agreement concerning the guarantee, neither in its pleadings nor in the answer it filed to the appellant’s written statement. Consequently, the bank’s claim that the letter of guarantee, having been materially altered, could not give rise to a suit, lacked a factual foundation. Moreover, the trial court observed that it found no evidence of any oral agreement at all. Had any agreement existed, the typed letter of guarantee would have been issued without any blanks. Under these circumstances, it was impossible to conclude that a prior agreement regarding the guarantee or its monetary limit existed between the appellant and the bank, and the High Court’s view that the mention of Rs 25,000 in the guarantee was a mistake consequently lost its basis.
Even assuming, for argument’s sake, that a pre‑existing verbal agreement had been in place – an agreement that could only be verbal – Sankaran’s request to increase the overdraft limit to Rs 25,000 actually suggested that the guarantee was deliberately drafted to reflect Rs 25,000, not that the figure resulted from any clerical error. The evidence therefore failed to demonstrate any mistake in the drafting of the guarantee, even if an agreement were present. Accordingly, the High Court’s conclusion that the alteration was intended to effect the parties’ will was mistaken, and section 87 of the Negotiable Instruments Act was held inapplicable to the present facts. Dr Seiyid Muhammed offered a different perspective, asserting that an alteration made without a party’s knowledge can be avoided only if the alteration is material and prejudicial, citing Halsbury’s Laws of England, 3rd edition, vol. 11, p. 380. He argued that no alteration is material unless it harms a party, noting that the present alteration reduced the appellant’s liability from Rs 25,000 to Rs 20,000 and thus was not material. Consequently, he maintained that the guarantee was not avoided by the alteration. The Court found this contention unhelpful to the bank and adopted the view that an alteration which does not prejudice a party is not material and does not discharge the party from liability under the instrument.
However, the alteration does not render the instrument binding on that party. If it did, it would amount to a unilateral change of a contract that was created by the mutual consent of the parties, or to a unilateral alteration of an offer made by one party without the consent of the other. As previously noted, such unilateral modifications are not permitted under Indian law. No authority has been found that would hold an altered instrument to be binding in the circumstances described. Consequently, if Dr Seiyid Muhammed’s view were accepted, the alteration could simply be ignored and the instrument, in its original form, would be treated as if the alteration never occurred. In the present case, that would mean the existence of a letter of guarantee written by the appellant in which the appellant undertook to repay the balance due by Sankaran on the overdraft account up to a limit of Rs 25,000/‑. The suit, however, is not predicated upon a contract to guarantee up to Rs 25,000/‑. According to the Bank’s pleadings and the evidence produced, there was never any agreement for such a guarantee between the Bank and the appellant. Therefore, the letter cannot be considered proof of a contract for that amount. Moreover, the evidence already referred to shows that, as an offer, the letter was never accepted by the Bank. In its original form the letter provides no assistance to the Bank; it does not establish a guarantee for either Rs 25,000/‑ or Rs 20,000/‑.
The Bank argues that the letter contained an enforceable contract because it was supported by consideration that had already moved from the Bank, namely the advance made to Sankaran before the date of the letter and the promise to make further advances. It is also submitted that inadequacy of consideration does not defeat a contract, as stated in Explanation 2 of section 25 of the Contract Act, 1872, and that therefore the Bank’s undertaking to advance up to Rs 20,000/‑ could support the appellant’s promise to guarantee up to Rs 25,000/‑. Nevertheless, the Bank does not plead that there was such a contract of guarantee; its case is that the contract of guarantee was for Rs 20,000/‑ only. That contract is not supported by the letter, which is the sole basis of the suit. If the contract alleged in the letter does not exist, then no question of consideration can arise to sustain it. Accordingly, the contention that the alteration was immaterial and did not affect the instrument as regards the appellant serves no purpose in the present dispute. The position can therefore be summarised as follows: the suit against the appellant is founded on a written contract to guarantee repayment of Sankaran’s dues to the Bank up to Rs 20,060/‑; there is no evidence of any verbal guarantee; and the appellant wrote a letter guaranteeing repayment.
In the matter of the guarantee, the letter signed by the principal debtor, V. Sankaran, purportedly covered the amount of the bank’s dues up to Rs 251,000. Although Sankaran placed his signature on that document, the Court held that his signature bore no legal effect on the question of guarantee that was before the Court. The reasoning was that a debtor cannot guarantee his own indebtedness; consequently, his signature could only serve as evidence of his personal liability for the overdraft that the bank had extended to him. That personal liability had already been created when he executed a promissory note for Rs 20,000 in favour of the bank. Accordingly, the Court explained that Sankaran’s signature on the guarantee did not alter the legal relationships that required examination in this appeal.
Turning to the letter of guarantee that had been drafted by the appellant, the Court observed that the bank had refused to accept the letter and, on the bank’s own submission, no contract based on the terms of that letter had ever been formed. The Court found that the letter had been altered after its execution, apparently by Sankaran, who had replaced the figure of Rs 20,000 with Rs 25,600. Because the alteration was made without the appellant’s knowledge or consent, it could not be attributed to the appellant, nor could any implied consent be inferred. The record contained no evidence, pleading, or finding showing that the appellant had authorised the change. Consequently, the altered document could not bind the appellant, since the modification was not intended by the parties and the bank had declined to accept a guarantee on the altered terms. Moreover, the contract that formed the basis of the suit differed from any contract that might have existed had the unaltered document been accepted. The unaltered letter could not substantiate the claim asserted in the suit. On this basis, the Court concluded that the suit against the appellant, as framed, must fail. The appeal was therefore allowed, costs were awarded in the appellant’s favour, and the suit against the appellant was dismissed.
The judgment further noted that a senior judge, after reviewing the preparatory draft, expressed a contrary view, stating that, with due respect, the appeal should be dismissed. However, that opinion was set aside in favour of the reasoning outlined above. The factual background of the case was succinctly summarised: the original suit was brought by Thomco’s Bank Ltd., Trivandrum, against V. Sankaran as the principal debtor and N. S. Anirudhan as the surety. The suit relied on a promissory note dated 24 February 1947 executed by Sankaran in favour of the bank (Exhibit B) and on a letter of guarantee dated 24 May 1947 purportedly executed by the appellant. Since Sankaran had not appealed the decree against him, the Court did not revisit the circumstances leading to the execution of the promissory note. In his defence, the appellant asserted that the guarantee letter originally covered Rs 5,000 and that it had been altered without his knowledge to a sum of Rs 20,000.
The Court examined Exhibit C, the letter of guarantee, and observed that the original document displayed two visible corrections affecting both the numerals and the written amount. In the figure line, the numeral “5” representing Rs 25,000 was apparently altered to the letter “O,” and in the words “Rupees twenty‑five thousand” the word “five” had been struck out. The appellant contended that the original figure of Rs 5,000 had been changed to Rs 20,000 by inserting the digit “2” and by converting the “5” to “O,” while the corresponding words were altered by adding “twenty” and crossing out “five.” The Court did not accept this contention and held that the appellant’s case was not believed. Nonetheless, the Court noted that the correction was patent and framed the principal issue as whether such an alteration discharged the surety’s liability. The High Court had previously found that there was no prior oral agreement between the Bank and the appellant, and the Court reiterated that finding. It further observed that, based on the dates, the letter of guarantee was executed after the loan had already been advanced. The Bank’s position was that when the principal debtor, Mr Sankaran, presented the letter and sought an additional loan of Rs 5,000, the Bank refused further advances and declined to accept the guarantee for Rs 25,000, fearing it might be compelled to lend the extra amount. Subsequently, Mr Sankaran retrieved the letter, and after a period he returned it with the numeral “5” changed to “O” and the word “five” crossed out. Neither Mr Sankaran nor the appellant initialed these modifications. Despite the alterations, the Bank accepted the document, retained it, and instituted suit against the appellant on its basis. The Court then considered whether the appellant’s liability was extinguished by an alteration that had not been proved to have been made by him, nor with his knowledge or consent. It reiterated the established rule that only a material alteration renders a document void. The Court also restated the principle that a custodian who makes or permits an alteration while the document is in his possession cannot later sue on it, because he is obligated to preserve the document in its original condition. In the present case, the Bank was not the custodian at the time the alteration occurred, nor did it consent to or connive in the change. Consequently, the alteration must have been effected by the appellant, by the principal debtor, or by both of them. If the alteration was made by the appellant, either alone or jointly with the principal debtor, the document remains his instrument and the Bank’s suit is competent against him. If the alteration was made solely by the principal debtor, the Court must decide whether that change constitutes a material alteration that would render the guarantee void against the appellant. The High Court had held that the alteration was not material, and the Court expressed an inclination to adopt the same view.
In the case before the Court, Anirudhan had written to the Bank expressing his willingness to guarantee an overdraft for Sankaran, specifying that the guarantee would not exceed twenty‑five thousand rupees. The Bank, however, treated the guarantee as covering an amount of five thousand rupees, a claim that the Court did not accept. The original document had been drafted to cover twenty‑five thousand rupees, but it appeared that the amount was later reduced to twenty thousand rupees, an adjustment that was apparently made by Sankaran. The Bank had accepted the guarantee letter after this reduction. The Court examined whether the reduction of the guaranteed amount allowed Anirudhan to claim that the document he had executed had been materially altered and that his liability therefore ended. The Court concluded that such a claim could not be sustained. The document continued to reflect the purpose that Anirudhan had intended when he agreed to act as surety, namely to guarantee a loan of up to twenty‑five thousand rupees, which now included the reduced sum of twenty thousand rupees. Consequently, the Court found that Anirudhan could not assert that the guarantee was terminated merely because the amount had been altered.
The Court identified two possible defences that Anirudhan, as a surety, might raise. The first defence was that he had offered to stand surety under certain conditions, and that a change to those conditions discharged him from liability. The second defence was based on the doctrine of non est factum, asserting that the document he signed had been materially altered and was therefore void. Both defences relied on the notion that the contract of guarantee had been changed after Anirudhan had entered into it. The Court noted that a surety is regarded as a “favoured debtor” and that his liability is strict. It quoted Lord Westbury, L.C., in Blest v. Brown (1), who explained that a surety is bound only by the literal terms of his written engagement and that any alteration, however innocent, gives the surety the right to declare that the contract no longer exists in the form he originally guaranteed. The Court observed that the specific facts of the Blest v. Brown case involved a guarantee for the supply of flour to a banker who, in turn, supplied bread to the Government, and that the case turned on governmental stipulations and their breach. While that case could not serve as direct authority for the present facts, its general principle was relevant. The Court also referred to the Court of Appeal’s consideration of the same principle in Holme v. Brunskill (2), where Cotton, L.J., reiterated the legal rule concerning alterations to a surety’s contract.
In the passage quoted, the principle articulated was that when the parties to the principal contract agree on any change that affects the contract which a surety has guaranteed, the surety must be consulted. The passage further explained that if the surety has not given his consent to the alteration, the surety cannot be released from his liability, even though in some circumstances the alteration may appear, without detailed inquiry, to be minor or inevitably beneficial to the surety. However, when it is not evident on the face of the document that the alteration is minor or that it cannot prejudice the surety, the Court will not examine the consequences of the change in a suit against the surety. The passage cited the authorities (1862) 4 De G. F. & J. 365; 45 E. R. 1225 and (1877) 3 Q.B.D. 495 to support this view. To that statement of law the dissent of Brett, L.J. was added. Brett observed that in the case before him the surety was not released, arguing that the doctrine of release of sureties had already been extended as far as justice permitted and should not be pushed further. The commentary notes a clear divergence between the strict rule expressed by Lord Westbury and the position taken by Cotton L.J., and observes that contemporary law now recognises that minor alterations which are to the surety’s advantage do not discharge the surety from liability. Conversely, if an alteration disadvantages the surety, or if the minor nature of the alteration is not obvious, the surety may claim discharge. In such situations the Court will not investigate whether the alteration actually caused harm. The dictum of Cotton L.J. was later endorsed by the Judicial Committee in Ward v. The National Bank of New Zealand Limited, and similar liberal approaches were noted in two other decisions referenced by the Court.
Before turning to the specific position of Anirudhan under the law governing sureties, the judgment examined the law relating to the alteration of documents, recognizing that the two issues are intertwined in the present case. Historically, a very strict rule held that any slightest alteration rendered a document void. The leading authority for this doctrine for many years was Pigot’s case, reported in (1883) 8 App. Cas. 755 and (1911) 11 Co. Rep. 26 b; 77 E.R. 177, where Lord Coke articulated the principle that if a lawful deed is altered in any material point—whether by the plaintiff, a stranger, or without the obligor’s privity—by means such as interlineation, addition, raising, or even by striking through a line or part of a word, the deed becomes void. The case explained that when a lawful deed is raised and thereby becomes void, the obligor may plead non est factum and introduce the matter as evidence, because at the time of the pleading the document is no longer his deed. The judgment also noted that this strict rule was later softened in subsequent cases, but reiterated that at the time of Pigot’s case the doctrine was that any material alteration, however minor, destroyed the validity of the instrument.
The passage observed that when a deed is altered in words that are not material, the deed nevertheless becomes void; however, if a stranger who lacks any privity with the parties alters the deed in any material point by any of the methods previously described, such alteration does not avoid the deed. The same passage appears in the article “Discharge of Contracts by Alteration” by Williston, published in volume 18 of the Harvard Law Review at page 105. The rigidity of the rule that any alteration renders a document void was later softened by later decisions and was expressly departed from in Aldous v. Cornwell. In that case, Justice Lush, speaking for himself and for Justices Cockburn, Blackburn and Westbury, after citing numerous authorities, stated: “This being the state of the authorities, we think we are not bound by the doctrine of Pigot’s case or the authority cited for it; and not being bound, we are certainly not disposed to lay it down as a rule of law that the addition of words which cannot possibly prejudice anyone destroys the validity of the note. It seems to us repugnant to justice and common sense to hold that the maker of a promissory note is discharged from his obligation to pay it because the holder has put in writing on the note what the law would have supplied if the words had not been written.” The observations concerning the addition or alteration of a promissory note were made before the enactment of the Bills of Exchange Act in England, which has since altered the law relating to negotiable instruments. Nevertheless, those observations are forcefully applicable to the present document, which was executed by two parties: one the debtor and the other his surety. In the present case the debtor did not increase but actually reduced both his own liability and that of his surety, as noted in the citation (1868) 3 Q.B. 573. The principle that immaterial alterations do not affect a document is reinforced by the remark of Justice Swinfen Eady in Bishop of Creditor v. Bishop of Exeter, where the court declined to accept the rule from Pigot’s case and the earlier statement in Sheppard’s Touchstone, 7th ed. (Preston’s), p. 55. During argument, Justice Swinfen Eady referred to cases in which corrections made in the testimonium of documents to bring them into conformity with existing facts were held not to constitute material alterations. The Court was therefore asked to consider whether a document jointly executed by two persons, creating equal liability for each, should be treated as having been materially altered when the liability is reduced equally for both parties but the alteration is effected by only one of them. In the Court’s view, such an alteration is unsubstantial, it benefits the surety, and it does not trigger the strict rule advanced by Lord Coke or the rule articulated by Lord Westbury in the cited authorities. To illustrate, the Court considered a hypothetical where A places an order with a trader for ten bags of wheat on credit and B endorses the order by writing, “I guarantee payment up to ten bags.”
The Court considered whether it could be said that a guarantee given by B was terminated when A accepted the note and, after discovering that the merchant possessed only six bags of wheat, altered both the original order and the endorsement by changing the word “ten” to “six”. In the Court’s view, neither of the two established rules concerning material alteration was applicable to such a correction. The Court referred to the strict rule of law illustrated by the well‑known Suffell’s Case (3), in which a Bank of England note had been mutilated and its number destroyed. In that case the number of the note was held to be its essential element, and the alteration was treated as a material alteration. However, the Privy Council later declined to follow Suffell’s doctrine in a different situation where a bank note, which was merely a contract and not legal tender, was destroyed after the owner inadvertently left it in a garment that was subsequently washed. The note was reconstructed, showing the contract but not the number, and the Privy Council held the bank liable even though the contract had been altered by an eraser (see Hong Kong and Shanghai Banking Corporation v. Lo Lee Khi (1)). These authorities demonstrate that the two lines of argument that Anirudhan sought to rely upon do not succeed in the present circumstances.
Applying these principles, the Court held that the document in question could not be described as having been materially altered. The alteration did not change the nature of the instrument, nor did it relieve the surety of liability under the guarantee. The change was made by one of the co‑executants and reduced not only the altering party’s liability but also that of the surety. The surety himself understood the law in this way, having asserted that the original document guaranteed an overdraft of Rs 5,000 but was later altered to guarantee Rs 20,000. That claim was found to be false, and the surety never alleged that the document became void because the guaranteed amount was reduced from Rs 25,000 to Rs 20,000. It is not suggested by Anirudhan that he intended to guarantee Rs 25,000 but not Rs 20,000, as he never approached the bank to make such a condition. Consequently, Anirudhan cannot contend that the altered document is void against him or that the contract, which arose from the bank’s acceptance of the altered document, does not bind him. The Court saw no necessity to examine any alleged prior oral agreement, noting that there was no proof of such an agreement. The letter sent by Anirudhan to the bank was based on a consideration that had already been transferred to Sankaran and which Anirudhan sought to guarantee. Even if that letter were treated as an offer by Anirudhan, the bank’s acceptance of the amended terms created a binding guarantee supported by the original consideration.
In this case the Court observed that the written communication from Anirudhan to the Bank constituted an offer. The Bank, identified as the Batik in the record, accepted the offer after it had been amended. The Court held that Sankaran, who had reduced the amount of the guarantee, must be considered to have possessed the authority to make a reduction, but not to increase the amount, citing precedent (1) [1928] A. C. 181. The Court further noted that the document containing the guarantee was altered while it remained in the possession of the same individual who, acting as Anirudhan’s agent, had originally presented it to the Bank on two separate occasions. Consequently, the Court deemed that Anirudhan had represented Sankaran (referred to as Sarikaran in the judgment) as his agent for the purpose of modifying the guarantee. This representation created an estoppel against Anirudhan because the Bank relied on the belief that Sankaran had the requisite authority. As a result, the offer, now in its amended form, continued to be an offer made by Anirudhan to the Bank, and the Bank’s acceptance transformed it into a binding contract of guarantee. The contract was supported by the past consideration that underlay Anirudhan’s original offer. The Court concluded that the appeal had no merit and therefore must fail. Accordingly, the Court dismissed the appeal. In accordance with the majority’s view, the appeal was dismissed without any order as to costs.