1962 (2) TMI 95 - SC - Indian Laws

Court rules alteration in guarantee letter not material, surety remains liable. Principal debtor's change valid.

The court dismissed the appeal without costs, ruling that the alteration in the letter of guarantee from Rs. 25,000/- to Rs. 20,000/- was not a material ... - Issues Involved:1. Material Alteration of Contract2. Surety's Liability3. Unauthorized Alteration by Principal Debtor4. Application of Section 87 of the Negotiable Instruments ActIssue-Wise Detailed Analysis:1. Material Alteration of ContractThe primary issue in this case revolves around whether an alteration in the letter of guarantee, specifically changing the amount from Rs. 25,000/- to Rs. 20,000/-, constitutes a 'material alteration' that would void the contract. The appellant argued that any change in the figure, even if advantageous, is a material alteration that avoids the contract. The judgment references Halsbury's Laws of England, which states that an unauthorized material alteration avoids a contract. However, the court concluded that because the alteration was made by the principal debtor (acting as the agent of the guarantor) and not while the document was in the possession of the promisee, the alteration did not void the contract.2. Surety's LiabilityThe appellant contended that he agreed to guarantee an overdraft of Rs. 25,000/-, which was later altered to Rs. 20,000/- without his consent. The trial court and the High Court found that the original amount mentioned was Rs. 25,000/-, altered to Rs. 20,000/-. The court held that the surety is bound by the letter of guarantee as altered because the alteration was made to reflect the common intention of the parties and was not a material alteration that would discharge the surety.3. Unauthorized Alteration by Principal DebtorThe alteration was made by the principal debtor, Sankaran, without the appellant's consent. The court considered whether this unauthorized alteration by the principal debtor, while the document was not in the custody of the promisee, would discharge the surety. It was concluded that since the alteration was made by the principal debtor, who was acting as the agent of the guarantor, the appellant is estopped from claiming that the alteration voided the contract.4. Application of Section 87 of the Negotiable Instruments ActThe High Court relied on Section 87 of the Negotiable Instruments Act, which states that an alteration that carries out the intention of the parties does not void the instrument. The Supreme Court, however, noted that this provision applies to negotiable instruments and not to letters of guarantee. Despite this, the principle was considered applicable. The court found no evidence that the appellant intended to guarantee only Rs. 20,000/- and not Rs. 25,000/-. The alteration was made to reflect the common intention of the parties, and thus the letter of guarantee as altered was enforceable.Conclusion:The appeal was dismissed with no order as to costs. The court concluded that the alteration in the letter of guarantee, reducing the amount from Rs. 25,000/- to Rs. 20,000/-, did not constitute a material alteration that would void the contract. The surety, the appellant, was held liable under the altered letter of guarantee because the alteration was made by the principal debtor, who was acting as the agent of the guarantor. The judgment emphasized that the alteration was made to reflect the common intention of the parties and was not prejudicial to the surety.