M. S. Anirudhan Vs. The Thomco's Bank
Ltd. [1962] INSC 52 (14 February 1962)
14/02/1962 KAPUR, J.L.
KAPUR, J.L.
SARKAR, A.K.
HIDAYATULLAH, M.
CITATION: 1963 AIR 746 1963 SCR Supl. (1) 63
CITATOR INFO:
R 1967 SC1634 (6)
ACT:
Guarantee--Surety--Alteration of terms of
letter of guarantee by principal debtor--Discharge of surety's liability.
HEADNOTE:
The appellant agreed to stand surety for an
overdraft allowed by the respondent Bank to S. A blank form of guarantee was
given by the Bank to S, who then had it filled up by the appellant stating the
maximum amount which he guaranteed as Rs. 25000/-. When S brought the letter of
guarantee duly signed by the appellant and himself to the Bank the latter
refused to accept the guarantee up to that limit as it was not prepared to give
S accommodation for a larger sum than Rs. 20000/and wanted it to be limited to
Rs. 20000/-. S then made alterations in the letter with the amount of the
maximum limit corrected to Rs. 20000/and gave it to the Bank. In a suit
instituted by the Bank against the principal debtor, S, and the appellant on
the basis of the contract of guarantee for Rs. 20000/-, the appellant pleaded
that as the document was altered without his knowledge or consent, he was
discharged from his liability.
Held, (per Kapur and Hidayatullah, JJ.,
Sarkar, J., dissenting), that the appellant was not discharged from his
liability under the contract of guarantee.
64 per Kapur, J.-S was acting for and on
behalf of the appellant since it was at his instance that the appellant was
standing surety and the appellant handed over the deed of guarantee to S for
the purpose of being given to the Bank. The plea of avoidance of contract by
material alteration was of no avail to the appellant because the document was not
altered while in possession of the promisee but was altered by S who was at the
time acting as the agent of the appellant.
per Sarkar, J.-The suit against the appellant
as framed must fail. The altered document was not binding on the appellant, for
the alteration had not been made to carry out the intention of the parties. If
the alteration, is ignored as immaterial, then the document creates no
liability in the appellant, for the Bank refused to accept a guarantee on the
terms contained in it before it was altered and therefore there was no contract
made between the parties by the document. Further, the contract sued upon is
different from the contract which might have been made by acceptance of the
document as it stood before the alteration. The unaltered document cannot
establish the contract sued on.
per Hidayatullah, J.-The document in this
case could not be said to have been materially altered because it was not altered
in such a manner as to change its nature. The alteration was made by a co-executant
who reduced not only his own liability but that of the surety also. The
document was altered while in the possession of S, the very person who, as the
agent of the surety, brought it to the Bank.
The surety must be deemed to have held out S
as his agent for this purpose and this created an estoppel against the surety
because the Bank believed that S had the authority..
Accordingly, the alteration of the document
did not save the surety from liability under it.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 131 of 1961.
Appeal from the judgment and decree dated
September 30, 1957, of the Kerala High Court in Appeal suit No. 19 of 1956 (T).
T. N. Subramania lyer, R. Mahalingier and
M.R. Krishna Pillai, for the appellant.
V. A. Seyid Muhammed for the respondent.
1962. September
14. The judgment of the Court was delivered
by KAPUR, J.-It is not necessary for me to give the facts of this case as they
are set out in detail in the 65 judgments of my learned brethern Sarkar &
Hidayatullah, JJ.
In my opinion this appeal should be dismissed
and my reasons are these On the findings of the High Court it appears that the
Bank had agreed to allow an overdraft to defendant No. 1 for Rs. 20,000/-, that
the appellant gave a surety bond for the repayment of Rs. 25,000/-and when that
was pointed out to defendant No. 1, the principal debtor, lie (the latter) made
the alteration in the document by reducing the figure of Rs.
25,000/to Rs. 20,000/The case of the
appellant was not that he never stood surety for defendant No. 1 but that he
stood surety for Rs.
25,000/which was subsequently altered to Rs.
20,000/and that any change of figure was a material alteration resulting in the
avoidance of the contract, even though the alteration might have been advantageous
to him, the obliger.
It was argued that howsoever innocent the
obligee might be or howsoever innocent the alteration might have been made so
far as it is material the non-accepting obliger-the appellant in this
case-cannot be held liable on the obligation in the altered form because he
never made be consented to such an obligation and he can not be held liable on
the obligation in the original form because the obligation was never assented
to by the creditor respondent Bank. Now an unauthorised material alteration
avoids a contract so that if a promisee after a written contract has been
executed materially alters it without the consent of the promisor whether by
adding anything to the contract or striking out any part of it or otherwise the
contract is avoided as against the person who was otherwise liable upon it
(Halsbury's laws of England, 3rd Edn., Vol. 8, para 301, p.
176). It may also be taken to be the law that
even if the alteration is made by a stranger without the knowledge of the
promisee the other party is discharged if the contract is in possession of the
promisee or his agent. But if the contract is altered 66 by a stranger when the
contract was not in the custody of the promisee the promisor is not discharged.
(Halsbury's Laws of England, 3rd Edn., Vol. 8, para 301, p. '176).
There is also a further qualification and
that is that if a guarantor entrusts a, letter of guarantee to the principal
borrower and the principal borrower makes an alteration without the assent of
the appellant then the Guarantor is liable because it is due to the act of the
guarantor that the letter of guarantee remains with the principal debtor, in
this case defendant No. 1, and what the principal debtor did will stop the
guarantor from pleading want of authority (Williston on Contract, Vol. VI. para
1914, P.5354).
Thus the position in the present case comes
to this. The appellant agreed to stand surety for an overdraft allowed by the
respondent Bank to the principal debtor, Shankaran. The Bank required a guarantee
in the form which was handed over to the principal debtor, Shankaran. Shankaran
got it filled by the appellant for a sum of Rs. 25,000/-. The Bank did not
accept the guarantee up to that limit but wanted the figure to be corrected
i.e. by insertion of Rs. 20 000/-.
The document was there upon handed back to
the principal debtor who, it is stated, altered the document. At that stage the
principal debtor was acting for and on behalf of the appellant because it was
at his instance that the appellant was standing surety and the appellant handed
over the deed of guarantee to the principal debtor for the purposes of being
given to the balik, the respondent. In these circumstances the avoidance of
contract by material alteration is in applicable because the document was not
altered while in possession of the promisee or its agent but was altered by the
principal debtor who was at the time acting as the agent of the guarantor, the
appellant.
In these circumstances the plea of material
alternation is of no avail to the appellant and the 67 appeal must therefore
fail and is dismissed but no order as to costs.
SARKAR, J.-This appeal arises out of a suit
filed by the respondent Bank against the appellant as the guarantor and one
Sankaran as the principal debtor, to recover moneys advanced to the latter on
an overdraft account. The suit was decreed against Sankaran by the trial Court
and he never, appealed from that decree. We will, therefore, be concerned in
this appeal only with the claim against the appellant.
The suit against the appellant was based on a
letter of guarantee dated May 24, 1947. It was stated in the plaint that by
this letter of guarantee the appellant had undertaken to repay to the Bank the
balance due on the overdraft account opened in favour of Sankaran, up to a
maximum of Rs. 20,0001/which was also the maximum amount for which the
overdraft had been arranged. The appellant's defence to the suit was that he
had agreed to guarantee the liability of Sankaran on the overdraft up to Rs.
5,000/-and had signed the letter guaranteeing thereby repayment up to that sum
but the letter had been altered .without his consent by substituting Rs.
20,000/for Rs. 5,000/-. The appellant contended in the courts below that as
this was a material alteration of the instrument of' guarantee. he was absolved
of ill liability on it.
The trial court found, that the amount
guaranteed had originally been mentioned in the letter as Rs. 25,000/and this
had been altered without the consent of the appellant to Rs. 20,000/-. It
observed that as it was not disputed that the alteration was material, the suit
against the appellant had to be dismissed and passed a decree accordingly,
obviously in the view that the alteration had avoided the instrument.
The respondent Bank then appealed to the High
Court of Kerala, the High Court agreed with the trip 68 court that the letter
of guarantee originally mentioned Rs. 25,000/and this figure was later altered
to Rs.20,000/without the consent of the appellant. It .added that probably the
alteration had been made by the principal debtor, Sankaran. It however held
that the appellant had mentioned Rs. 25,000/in the place of Rs. 20,000/in the
letter probably by a mistake and that the alteration had been made in order to
carry out the common intention of Sankaran, the appellant and the Bank that for
the overdraft accommodation of Rs. 20,000/allowed to Sankaran the appellant
would give a letter of guarantee to the Bank. In this view of the matter the
High Court, relying on the principle contained in s. 87 of the Negotiable
Instruments Act, 1881, passed a decree against the appellant.
The appellant has come up to this Court in
appeal against the judgment of the High Court. Unfortunately, the Bank, for
reasons unknown to us, has not appeared in this appeal.
Dr. Seiyid Muhammed argued the case for the
Bank at our request and has rendered us great assistance.
Now, the provision of the Negotiable
Instruments Act on which the High Court relied in terms applies to a negotiable
instrument which a letter of guarantee is not. The principle of that provision
may however be of wider application. That principle has been formulated in
Halsbury's Laws of England, 3rd edn., vol. 11, p. 370, in the following words :
"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
apparent on the face of the deed. .
It is now well settled that, this principle
applies to instruments under hand also : see ibid 69 p. 380, f. n. (c) and
Master v. Miller, (1791) 4. Term Rep.
320. The question then is, was the alteration
in the letter of guarantee of the kind contemplated by this principle.
The learned judges of the High Court thought
it was and so held that the letter of guarantee as altered could be enforced. I
am unable to accede to that view.
It seems to me that the intention to carry
out which an alteration is permissible under the rule on which the High Court
has relied, is the intention with which the instrument was executed. That is
why in formulating the rule it has been stated in Halsbury's Laws of England
that the intention has to be "already apparent on the face of the deed".
I need only refer to the observation of Le Blanc, J., in Knill v. Williams(1)
in support of this proposition, "If I had thought that there was any
evidence on which the jury might have found that the words afterwards added had
been originally intended to have have been inserted, and were omitted by
mistake, I 'Should certainly have left it to them so to find; the case of
Kershaw v. Cox(2) being then fresh in my mind;
but. according to my recollection of the
evidence, it was impossible for them to draw that conclusion from it. The
opinion which I delivered in Karshaw v. Cox can only be supported on the ground
that the alteration there made in the bill the day after it was negotiated was
merely the correction of a mistake made by the drawer of it, in having omitted
the words, 'or order', which it was intended at the time should be
inserted." The two cases on which the learned judges of the High Court
relied are also cases where the mistake was in writing the instrument. In
Lachmi Rai v. Srideo Rai(3) it was found that "the omission regarding the
payment of interest was accidental" and in Ananda Mohan Saha v. Ananda
Chandra Naha(4) where (1) (1809) 10 East. 931; 103 E. R. 839.
(2) 3 Esp. N. Cas. 246. (3) A. I. R. 1939
All. 248.
(4) (1916) 1. L. R. 44 Cal. 154.
70 the instrument originally provided for
interest on 'a loan of Rs. 200/at Rs. 1/per mensem and had been altered by the
addition of the words "per cent",' it was said "that it was the
intention of the parties, as' it seems to me to be obvious upon reading the
document, that interest was to be paid at the rate of 'one rupee per cent. per
mensem". It seems to me that if it were not so and the intention
contemplated in the rule could be gathered from a preexisting agreement alone
without caring to find out the intention with which the instrument was
executed, then there would be no justification for the rule. It would then
warrant the alteration of an instrument intentionally written in variance with
the pre-existing agreement which a person was in law free to do, by the other
party to it.
That would amount to making a new contract
out of a written instrument by unilateral action and in disregard of the
intention of the writer. For such a position our laws make no provision. It may
be that a person who writes a document in terms which deliberately depart from
the agreement pursuant to which it is written, may be liable on that agreement
but he cannot be made liable on the document as altered by the other party to
the agreement alone even though such alteration makes the document consonant
with the agreement.
Now there is absolutely no evidence in this
case that in writing the letter of guarantee the appellant had intended to
mention the maximum amount of guarantee as Rs. 20,400/and had by mistake
written Rs. 25,000/instead. In holding that there was such a mistake, the High
Court proceeded purely on the basis of conjecture which is evident from the
language used by it. It said, "probably defendent 2" (the appellant)
"made a mistake in Ext. C" (the letter of guarantee). There was not
the slightest warranty for; this conjecture. In fact the evidence indicates
that Rs.
25,000/-had been mentioned intentionally in
the letter of guarantee. That evidence was given by the 71 Banks agents too.,
He said that the overdraft arrangement commenced on February 24, 1947, when
Sankaran executed a promissory note for Rs. 20,O00/in favour of the Bank. At
that time the appellant was not available to sign the letter of guarantee. The
letter was typed by the Bank with blank spaces left for entries to be made by
the guarantor regarding the maximum limit of the account, the rate of interest,
and the date. Sankaran brought this letter back to the Bank in May 1947. At
that time the space for the amount of the limit was filled up with the figure
Rs.25,000/-. Sankaran said that he required Rs.25,000/-and would renew the
promissory note for that amount. The Bank was not prepared to advance to him
more than Rs. 20,000/and so the letter of guarantee was returned to Sankaran
who then took it away and brought it back some time later with the amount of
the maximum limit corrected to Rs. 20,000/-.
This is all the evidence on the question.
I think it right to point out here that the
Bank's agent did not speak to any oral agreement with the appellant, nor indeed
to any interview with him concerning the overdraft arrangement or the
guarantee. The appellant in his written statement no doubt admitted that he had
agreed to guarantee the due repayment of the overdraft up to Rs. 5,000/-. He
did not however say that the agreement was verbal but mentioned the letter of
guarantee. The appellant's admission can of course be taken against him but it
must be taken as made and not a part of it only. Again, no verbal agreement
concerning the guarantee had been pleaded anywhere by the Bank, not even in the
application that it filed in answer to the. written statement of the appellant
alleging that the letter of guarantee, having been materially altered no suit
lay on it., Lastly, I have to observe that the trial court did not find that
any such oral agreement had been made. If there ' had been any agreement, the
letter of guarantee as typed. out would have contained no blanks.
72 In these circumstances it is impossible to
hold that there was any prior agreement about the guarantee or its limit,
between the appellant and the Bank, and if there was not, the High Court's view
that in the letter of guarantee Rs.
25,000/had been mentioned by mistake, would
lose its foundation. But even assuming a preexisting verbal agreement-and in
this case the agreement, if any, could only be verbal-the fact that Sankaran
made a request that the amount of the overdraft should be increased to Rs.
25,000/would rather indicate that the letter of guarantee had intentionally
stated Rs. 25,000/as the amount of guarantee and this figure had not been
written by any mistake. It would be impossible to hold on this evidence that
there had been any mistake in writing the letter of guarantee. The evidence
does not prove any pre-existing agreement and tends to prove that there ha been
no mistake in writing the letter of guarantee even if there was an agreement.
Therefore it seems to me that the High Court was in error in thinking that the
alteration in this case had been made to carry out the intention of the
parties. The principle underlying s. 87 of the Negotiable Instruments Act has
no application to the facts of this case.
Dr. Seiyid Muhammed, however, put the matter
from another point of view. He said that in order that an alteration in an
instrument made without a party's knowledge might be avoided against him that
alteration had to be material and in support of it he referred us to a passage
in Halsbury's Laws of England 3rd Ed., vol. 11, p. 380. He then said that no
alteration could be material unless it was to the prejudice of a party. He
pointed out that the alteration in the present case had reduced the limit of
the appellant's liability from Rs. 25,000/to Rs. 20,000/and it was not
therefore a material alteration. Hence he contended that the letter of
guarantee had not been avoided by the alteration.
I do not think that this contention assists
the Bank at all.
I will assume that an alteration in an 73
instrument which is not to the prejudice of a party to it is not a material
alteration and does not release him from his liability under the instrument.
This rule however does not make the instrument as altered binding on that
party. If it did, that would amount to changing by unilateral action the terms
of a contract made by common consent or to changing the terms of an offer made
by one without his consent. As I have earlier said, none of these things can be
done under our law. I may add that I have not been able to find any authority
laying down that in such a case the altered instrument would be binding.
All that we would get in this case if Dr.
Seiyid Muhammed is right, is that the alteration might be ignored and, the
instrument in its original form might be considered as existing unaffected by
the alteration. In the present case, therefore, we would have a letter of
guarantee written by the appellant undertaking to repay the balance due by
Sankaran on the overdraft account up to a limit of Rs. 25,000/-. What then ?
The suit is not on a contract to guarantee up to Rs. 25,000/-. Indeed according
to the Bank's pleading and evidence there never was any agreement for such a
guarantee between it and the appellant. The letter, therefore cannot be
considered as evidence of such a contract. Further the evidence to which I have
already referred proves that as an offer, the letter was not accepted by the
Bank. In fact the letter in its original form is of no assistance to the Bank
at all in this case, it neither proves a guarantee for Rs. 25,000/nor for Rs. 20,000/-.
But it is said that the letter contained an
enforceable contract as it was supported by consideration which 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. Then it is said that
inadequacy of consideration does not avoid a contract as stated in Explanation
2 of s. 25 of the Contract Act, 1872, and therefore the Bank's undertaking 74
to advance upto Rs. 20,000/could support the appellant's promise to guarantee
up to Rs. 25,000/-. But it is not the Bank's case that there was such a
contract of guarantee.
Its case was that the contract of guarantee
was for Rs. 20,000/-. That contract is not supported by the letter on which
alone the suit is based. If there was no contract as stated in the letter then.
no question of consideration to support it can possibly arise. Therefore, it
seems to me that the. contention that the alteration was immaterial and did not
affect the instrument so far as the appellant is concerned is to no purpose in
the present case.
The position may then be thus stated. We
have, a suit against the appellant based 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 contract of guarantee. The appellant' wrote a letter
guaranteeing repayment of those dues up to Rs. 251000/-. Sankaran also signed
this letter but that signature is of no consequence to the question of guarantee
which alone arises in this appeal for Sankaran could not guarantee his own
debit and his signature would therefore only be evidence of his liability for
the amount advanced to him by way of overdraft. Such liability, however, he had
already undertaken by executing a promissory note for Rs. 20,000/in favour of
the Bank. His signature on the letter of guarantee therefore made no difference
in the legal relations that have to be considered in this appeal.
Returning now to the letter of guarantee
Written by the appellant, the Bank refused to accept that letter and,
therefore, on the Bank's own case no contract on its terms was ever made. That
letter was altered without the consent of the appellant probably by Sankaran by
substituting Rs. 20,000/for Rs. 25,600/-. If the alteration was without the
appellant's consent, it could not have been authorised by him; if it had been,
consent would be implied. There is further neither evidence, nor pleading nor
75 finding of any such authority. The altered document is not binding on tile
appellant, for the alteration had not been made to carry out the intention of
the: parties in the alteration is ignored, then the document creates no
liability in the appellant, for the Bank refused to accept a guarantee on the
terms Contained in the document before it was altered. Further, the contract
sued upon is different from the contract which might, have been made by the
document as it stood before the alteration. The unaltered document cannot
establish the contract sued upon.
The conclusion to which I arrive then is that
the suit against the appellant as framed must fail. I would, therefore, allow
the appeal with costs here and below and dismiss the-suit against the
appellant.
HIDAYATULLAH,J. I have had the advantage of'
reading the judgment prepared by my brother Sarkar. In my opinion, and I say it
with great respect, this appeal must fail. I shall give my reasons briefly.
The facts of the case are simple. The suit,
out of which this appeal arises, was filed by the Thomco's Bank Ltd,
Trivandrum, (to be called in this judgment the 'Bank') against V. Sankaran (the
principal Debtor) and N. S. Anirudhan (the surety and appellant before us). The
suit was based against V. Sankaran on a promissory note executed by him in
favour of the Bank on February 24, 1947, (Exhibit B) and against the present
appellant on a letter of guarantee dated May 24, 1947. In so far as Sankaran
has not appealed against the decree passed against him we need not mention the
facts leading up to the promissory note which was prior in time. Anirudhan in
defending himself stated that the letter of guarantee was for Rs. 5,000 and
that it had been altered without his knowledge and consent in a sum of Rs.
20,000/-. The letter of guarantee is Exhibit C and the original does show two
corrections in the figures as well as the written words mentioning the amount.Figure
"5" in the amount of Rs. 25,000/in figures appears to have been 76
altered to "O"; and in the words "Rupees twenty five
thousand" the word "five" has been struck out. The appellant's
case that 5,000 in figures was altered to 20,000/by the addition of the figure
"2" and the alteration of the figure "5" into "O"
and the corresponding change in the words by the addition of the words
"twenty" and the scoring out of word "five" has not been
believed.
Thus the case made out by Anirudhan has not
been accepted.
The correction. however, is patent and the
question that has arisen in this case is whether by the alteration of the
letter of guarantee the surety is discharged.
The finding of the High Court is that there
was no prior oral agreement between the Bank and Anirudhan. This letter, as is
obvious from the dates, was give after the loan had already been made. The
contention of the Bank was that when Sankaran brought this letter and asked for
additional loan of Rs. 5,000 the Bank refused to advance any further amount and
declined to accept this letter of guarantee for Rs. 25,000 lest the Bank might
be compelled to loan a further sum of Rs. 5,000. Sankaran then took back the
letter and after some time brought it back with the figure "5"
changed into "O" and the word "five" scored out. These
corrections were not initialled either by Sankaran or by Anirudhan. The Bank,
however, accepted this letter and kept it and sued Anirudhan upon it. The
question is whether Anirudhan's liability is discharged by the alteration in
the document which alteration is not proved to have been made either by him or
with his knowledge or consent.
It is conceded and indeed it is the law that
only a material alteration makes a document void. It is also the law that if
the custodian of the document makes or allows an alteration to be made while
the document is in his custody he cannot sue upon it because it is his duty to
preserve the document in the state in which he got it. In the present case, the
77 document was not altered by, Bank nor with the Bank's consent or connivance
while the document was in. its custody. The document was apparently altered
either by Anirudhan or by Sankaran or by both. If it was altered by Anirudhan,
or by him and Sankaran together, the document still remains the document of
Anirudhan and the suit of the Bank based upon it is competent against him. If
it was altered by Sankaran the question is whether the alteration was a
material alteration to make it void against Anirudhan.
The High Court is of the opinion that it was
not material.
I am inclined to accept the conclusion of the
High Court.
Anirudhan by the letter to the Bank wished to
guarantee an overdraft of Sankaran not exceeding Rs. 25,000/-. His case that it
was Rs. 5,000/and not Rs. 25,000 has been disbelieved. The document was
originally written for an amount of Rs. 25,000/which was reduced to Rs. 20,000/1
will assume, by Sankaran and the letter of guarantee was accepted by the Bank.
The question is whether by the reduction of the amount of the guarantee
Anirudhan can say that the document executed by him has been materially altered
and his liability is at an end. In my judgment, in the present case it cannot
be said. The document still continues to represent what was intended by
Anirudhan. That intention was to guarantee a loan up to Rs. 25,000/-which
includes the sum for Rs. 20,000/for which the guarantee now stands. The
question is whether Anirudhan can say that this guarantee is at an end.
There are really two defences open to
Anirudhan the surety.
The first is that he had offered to stand
surety on certain terms and as those conditions have been altered he is
discharged from any liability. The second also depends on the alteration and it
is that a document executed by him has been materially altered and is therefore
void. This is a plea of non factum. Both the arguments rest upon the alteration
of the contract into which Anirudhan wished to enter. A surety is considered a
"favoured debtor" and his 78 liability is strictissimi juris. Lord
Westbury, L.C., in Blest v. Brown (1) stated this liability in the following
words:"It must always be recollected in what manner a surety is bound. You
bind him to the letter of his engagement. Beyond the proper interpretation of
that engagement you have no hold upon him. He receives no benefit and no
consideration. He is bound, therefore, merely according to the proper meaning
and effect of the written engagement that he has entered into. If that written
engagement is altered in a single line, no matter whether the alteration be
innocently made, he has a right to say, "'The contract is no longer that
for which I engaged to be surety; you have put an end to the contract that I
guaranteed, and my obligation, therefore, is at ail end." It is not
necessary to go into the fact of that case where the surety guaranteed fulfillment
of a contract for the supply of, flour to a banker who in his turn had undertaken
to supply bread to Government. The case turned upon stipulations by the
Government and their breach and the decision cannot be regarded a ,direct
authority, apart from the general observation, in the present case. The
statement of the law in Blest v. Brown (1) Was considered by the Court of
Appeal in Holme v. Brunskill (2) in an appeal from a judgment of Denman, J.
(later Lord Denman). Cotton, L.J., stated the law in these words:-"The
true rule in my opinion is, that if there is any agreement between the
principals with reference to the contract guaranteed, the surety ought to be
consulted, and that, if he has not consented to the alteration, although in
cases where it is without inquiry evident that the alteration is unsubstantial,
or that it cannot be otherwise than beneficial to the surety, the surety may
not be discharged; ), Yet, that if it is not self-evident that (1) (1862) 4 De
G. F. & J. 365 ; 45 E. R. 1225.
(2) (1877) 3 Q.B.D. 495.
79 the alteration is unsubstantial, or one
which cannot be prejudicial to the surety, the Court will not, in an action
against the surety, go into an inquiry as to the effect of the
alteration........" To this statement of the law, must be added the
'dissent of Brett, L.J., who stated that the surety in that case was not
raleased observing that the doctrine of release of sureties was carried far
enough and that lie would not carry it any further. There is noticeable a
difference between the strict rule stated by Lord Westbury and that stated by
Cotton L. J., and the law now accepts that unsubstantial alteration which are
to the benefit of the surety do not discharge the surety from the liability. Of
course, if the alteration is to the disadvantage of the surety, or its
unsubstantial character is not self-evident the surety can claim to be
discharged. The Court will not then inquire whether it in fact harmed the
surety. That dictum of Cotton L. J., was quoted with approval by the Judicial
Committee in ward v. The National Bank of Neu Zealand. Limited (1).
Other cases in which a similar liberal view
is taken are mentioned in these two decisions.
Before I examine the position of Anirudhan
with regard to the law applicable to sureties, I wish to refer to the law
relating to the alteration of documents. These two matters really go together
in this case. Here, again, the strict rule at one time was that the slightest
alteration makes the document void. The leading case for a long time was
Pigot's case (2) where Lord Coke stated the doctrine as follows:"These
points were resolved: 1. When a lawful deed is raised, whereby it becomes void,
the obligor may plead non, est factum, and give the matter in evidence, because
at the time of the plea pleaded, it is not his deed." "Secondly, it
was resolved, that when any deed is altered in a point material, by the
plaintiff himself, or by any stranger, without the privity (1) (1883) 8 App,
Cas. 755, (2) 11 Co.Rep.26 b;77E.R.177.
80 of the obligee, be it by interlineation,
addition, raising, or by drawing of a pen through a line, or through the midst
of any material word, that the deed thereby becomes void ... so if the oblige
himself alters the deed by any of the said ways, although it is in words not
material, yet the deed ,is void:
but if a stranger, without his privities,
alters the deed by any of the said ways in any point material, it shall not
avoid the deed." The passage is also to be found in an article
"Discharge of Contracts by Alteration" by Williston in 18 Harvard Law
Review, p. 105. The strictness of this rule was tempered in subsequent cases
and was departed from in Aldous v. Cornwell (1) where Lush, J. (speaking for
Cockburn, C. J., Blackburn, J., and himself), after referring to numerous
authorities, observed "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 possible prejudice any one, 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." What is said here about an addition or alteration
of a promissory note was prior to the enactment of the rule in Bills of
Exchange Act in England which has altered the law with regard to negotiable
instruments but the observations apply forcefully to a document of the type we
have where there were. two executants (one being the debtor and the other his
surety and the debtor has not increased but reduced the amount of his own
liability as well as that of his (1) (1868) 3 Q. B. 573.
81 surety. That immaterial alterations do not
matter is borne out by the observation of Swinfen Eady, J., in Bishop of
Creditor v. Bishop of Exeter (1) where Pigot's case(2) and the earlier
statement of the law in Sheppard's Touchstone, 7th ed. (Preston's), p. 55.,
were not accepted. During the course of the argument Swinfen Eady, J., referred
to cases in which corrections in the testimonium of documents to accord them
with existing facts were held not to be material alterations. The question
before me is whether a document jointly executed by two persons creating a
liability equal for both is to be regarded as materially altered if the
liability is reduced equally for both but the alteration is made only by one of
them. In my opinion, such an alteration must be regarded as unsubstantial and
not otherwise than beneficial to the surety and it cannot attract the strict
rule stated by Lord Coke or that stated by Lord Westbury in the cited cases.
Let. me give an example: If A places an order
with a trader for supply on credit of ten bags of wheat and B endorsed the
order by writing, "I guarantee payment up to ten bags", can it be
said that 'the guarantee by B is dissolved when A takes the note and finding
that the tradesman has only six bags of wheat in stock, corrects his order as well
as the endorsement by altering "ten' into 'six'? In my opinion, to such a
correction neither the one rule nor the other can apply. The strict rule of law
which was brought to our notice from the well-known Suffell's Case(3), where a
Bank of England note was mutilated and its number destroyed, depended upon its
special facts. The number of the Bank of England note was considered its vital
part and the alteration a material alteration. Suffell's Cage(3) was not
followed by the Privy Council in a case where a bank note issued by bank which
was only a contract and not currency, as in the other case, was destroyed
because the owner had forgotten that the note was in the pocket of a garment
and the garment had been washed. The (1) [1905] 2 Ch. 485. (2) 11 Co. Rep. 26b;
77 E. R. 1177.
(3) (1882) 9 Q. B. D. 555.
82 note was reconstructed and showed the
contract but not the number. The Privy Council held the bank liable even though
the contract had been Altered by eraser (see Hong Kong and Shanghai Banking
Corporation v. Lo Lee Khi(1).
These cases establish that both the limbs of
the argument which Anirudhan can raise are not vali in the circumstances of
this case. In my judgment, the particular document in this, case cannot be said
to have been materially altered, because. it has not been altered in such a
manner as to change its nature. The alteration does not save the surety from
liability arising under it. The alteration was made by a co-executant who
reduced not only his own liability but that of the surety also. indeed, the
surety himself understood the law to be this because he set up the case that
the document originally guaranteed an overdraft of Rs. 5,000/but was altered to
guarantee an overdraft of Rs. 20,000/-. This case has been proved false and he
never setup the case that the document was void because the amount was reduced
from Rs. 25,000/to Rs. 20,000/-. It does not lie in the mouth of Anirudhan. to
say the he meant. to guarantee 25,000/but. not Rs. 20,000/because he never went
to the Bank and made this a condition of the agreement.
Now he cannot say that the document has;
become void against him or that the contract which had emerged by the Bank's
acceptance of the document as altered does not bind him.
There is no need, in my opinion, to consider
whether there was a prior oral agreement or not. I agree there is no proof of
such an agreement. The letter of Anirudhan to the Bank was based on a
consideration which had already moved to Sankaran and which Anirudhan wished to
guarantee. Even if treated as an offer by Anirudhan to the Bank, the Batik
accepted the amended offer and Sankaran must be deemed to have had the
authority to reduce the amount, (1) [1928] A. C. 181.
83 though not to increase it. The document
was altered while in the possession of the very person who, as the agent of
Anirudhan, brought it to the Bank on both the occasions.
Anirudhan must be deemed to have held out
Sarikaran as his agent for this purpose and this creates an estoppel against
Anirudhan, because the Bank believed that Sankaran had the authority. The offer
thus remains in its amended form an offer of Anirudhan to the Bank and the Bank
by accepting it turned it into a contract of guarantee which was backed by the
past consideration on which the offer of Anirudhan was originally based.
In my opinion, the appeal must fail. I would,
therefore, dismiss it.
By COURT : In accordance with the opinion of
the majority, the appeal is dismissed. There would be no order as to costs.
Appeal dismissed.
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