Case: M. S. Anirudhan Vs. The Thomco'S Bank Ltd

5. 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 appellant6. 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. 20,000/which was also the maximum amount for which the overdraft had been arranged. The appellants 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/. The appellant contended in the courts below that as this was a material alteration of the instrument of guarantee, he was absolved of all liability on it7. 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.. 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 instrument8. The respondent Bank then appealed to the High Court of Kerala. The High Court agreed with the trial 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 the 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 appellant9. 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.

Court's reasoning:
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 view12. 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 Halsburys Laws of England that the intention has to be already apparent on the face of the deed14. 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. 20,000/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 defendant 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 Banks agents too. He said that the overdraft arrangement commenced on February 24, 1947, when Sankaran executed a promissory note for Rs. 20,000/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.. 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 the took it away and brought it back some time later with the amount of the maximum limit corrected to Rs.. This is all the evidence on the question15. I think it right to point out here that the Banks 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.. He did not however say that the agreement was verbal but mentioned the letter of guarantee. The appellants 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 blanks16. 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 Courts view that in the letter of guarantee Rs. 25,000/had been mentioned by mistake, would lose its foundation. But even assuming aand in this case the agreement, if any, could only be verbalthe 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 anyg agreement and tends to prove that there had 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 case18. I do not think that this contention assists the Bank at all. I will assume that an alteration in an 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 binding19. 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 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.. When then ? The suit is not on a contract to guarantee up to Rs.. Indeed according to the Banks 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 that 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. 20,000/20. 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 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 Banks undertaking to advance upto Rs. 20,000/could support the appellants promise to guarantee up to Rs.. But it is not the Banks case that there was such a contract of guarantee. Its case was that the contract of guarantee was for Rs.. That contract is not supported by the letter of 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 case21. The position may then be thus stated. We have a suit against the appellant based on a written contract to guarantee repayment of Sankarans dues to the Bank up to Rs.. There is no evidence of any verbal contract of guarantee. The appellant wrote a letter guaranteeing repayment of those dues up to Rs.. 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 debt 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 Banks 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/. If the alteration was without the appellants 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 finding of any such authority. The altered document is 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, 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 upon22. 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 appellant23. 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 brieflyIn 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 stands27. 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 est 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 liability is strictissimi jurisIn 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 cases33. 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 then Suffells Case (1882) 9 Q.B.D. 555, where a Bank of England note was mutilated and its number destroyed, dependend upon its special facts. The number of the Bank of England note was considered its vital part and the alteration a material alteration. Suffells Case (1882) 9 Q.B.D. 555 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 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 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 [1928] A.C. 18134. These cases establish that both the limbs of the argument which Anirudhan can raise are not valid 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 at 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.. This case has been proved false and he neverp the case that the document was void because the amount was reduced from Rs. 25,000/. It does not lie in the mouth of Aniruthan to say that he meant to guarantee Rs. 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 Banks acceptance of the document as altered does not bind him35. 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 Bank accepted the amended offer and Sankaran must be deemed to have had, the authority to reduce the amount, 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 Sankaran 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 based36. In my opinion, the appeal must fail. I would, therefore, dismiss it.