Material Alteration under Negotiable Instruments Act: Sec 87

The General Rule: Material Alteration Renders the Instrument Void

Section 87 of the Negotiable Instruments Act, 1881 lays down the foundational rule in language that admits of no ambiguity: any material alteration of a negotiable instrument renders it void as against every person who was a party thereto at the time of making the alteration, provided that party did not consent to it.

The term "material alteration" has not been defined in the Act, but the courts have explained it with considerable precision. As the Calcutta High Court articulated in the celebrated case of Gour Chandra Das v Prasanna Kumar Chandra (1906 ILR 33 Cal 812), any change in an instrument which causes it to speak a different language in legal effect from that which it originally spoke — which changes the legal identity or character of the instrument, either in its terms or in the relation of the parties — is a material alteration, and such a change will invalidate the instrument against all parties not consenting to it. The Supreme Court affirmed this understanding in Seth Loonkaran Sethia v Ivan E John (AIR 1977 SC 336), holding that a material alteration is one which varies the rights, liabilities, or legal position of the parties as ascertained by the deed in its original state.

Crucially, it is not necessary that the alteration should be prejudicial to the party who raises the plea — whether the change be beneficial or detrimental to the maker is beside the point. As Brett LJ observed in the English case of Suffell v Bank of England (1882 9 QBD 555), any alteration is material which would alter the business effect of the instrument if used for any ordinary business purpose. This test has been consistently applied by Indian courts.

The law behind this rule rests on two sound policy grounds: first, no man should be permitted to take the chance of committing a fraud without running any risk of loss when it is detected; and second, by the alteration, the identity of the instrument is destroyed, and holding a party liable under an altered instrument would be to saddle that party with a contract to which he never agreed.

The Exceptions: When Alteration Does Not Avoid the Instrument

Section 87 itself carves out important exceptions, and the last paragraph of the section makes the entire provision subject to Sections 20, 49, 86, and 125 of the Act. These constitute the statutory exceptions.

Beyond the statutory exceptions, the courts have recognised several situations where even a material alteration will not avoid the instrument:

First, an alteration made before the instrument is issued or before it has become available against any party does not vitiate it — it is as though the alteration were part of the original. The law concerns itself only with tampering after the instrument has come into force.

Second, and most importantly, an alteration made to carry out the common intention of the original parties does not render the instrument void. This is expressly stated in Section 87. For instance, where the drawer forgets to add the words "or order" to a bill, and they are subsequently inserted to make the instrument negotiable in accordance with what both parties clearly intended, the instrument remains valid.

Third, an alteration made with the consent of all the parties liable does not affect the instrument's validity. The section is directed against unconsented alterations; consent removes the mischief entirely. As held in Veera Exports v T Kalavathy (AIR 2002 SC 38), whether the alteration was made with consent is always a question of fact to be proved in evidence.

Fourth, alteration made for the purpose of correcting a clear mistake will not void the instrument — as in the English case of Brutt v Pickard (1824 Ry M 37), where a bill dated 1832 instead of 1823 was corrected by the drawer's agent.

Fifth, the four alterations expressly permitted by the Act — completing an inchoate instrument under Section 20, converting a blank indorsement into a full one under Section 49, qualifying an acceptance under Section 86, and crossing a cheque under Section 125 — do not avoid the instrument even though they may technically be material changes.

The Two Specific Alterations: Analysis

(i) Altering the Date to Accelerate the Time of Payment

When the holder of a bill or note alters the date of the instrument to accelerate — or, for that matter, to postpone — the time of payment, this constitutes a classic instance of material alteration. The date of a negotiable instrument is never a mere formality; it is the very foundation upon which the time of payment, the period of limitation, and the rights of the parties are calculated. As the Andhra Pradesh High Court observed in A Subba Reddy v Neelapa Reddy Ramana Reddy (AIR 1966 AP 267), the date is very material in calculating the date of performance of the contract and, more often, in fixing the period of limitation within which a suit must be instituted on the instrument. The court added that it is wrong to assume the date is merely a description — it is fundamental.

By pushing the date forward to accelerate payment, the holder deprives the acceptor or maker of the time they bargained for. The acceptor who agreed to pay three months after a particular date has made commercial arrangements accordingly, and by accelerating that date, the holder unilaterally changes the terms of a concluded contract. This is precisely the evil that Section 87 was enacted to prevent — that a holder should tamper with the instrument and put the other party in a worse position than originally agreed. The instrument, once so altered without consent, becomes void as against all parties who were parties at the time of the alteration. The English case of Outhwaite v Luntly (1815 4 Camp 179) is directly on point — alteration of date to accelerate the time of payment was held to be a material alteration.

(ii) Converting a Bill "Payable Three Months After Date" into "Three Months After Sight"

This too is an acknowledged and settled instance of material alteration. The distinction between a bill payable "after date" and one payable "after sight" is not merely verbal — it has a profound practical effect on when the instrument matures and becomes payable.

A bill payable three months after date is payable three months from the date it was drawn, regardless of when it is presented for acceptance. A bill payable three months after sight, on the other hand, does not begin to run until the drawee has sighted the bill and accepted it. In mercantile practice, this difference can mean weeks or months in the actual date of payment, depending on when the bill is presented. The acceptor who contracts to pay three months after the date of drawing has undertaken a very different obligation from one who contracts to pay three months after he has seen and accepted the bill. By altering this term, the holder changes the legal identity of the instrument and alters the obligation of the acceptor without his knowledge or consent.

The case of Long v Moore (1790 3 Esp 155) — cited with approval in Khergamvala — holds squarely that altering a bill payable three months after date into a bill payable three months after sight is a material alteration. The instrument, once so altered without the consent of all prior parties, becomes void as against them by operation of Section 87.

The Significance of Voidness "As Against" Prior Parties

A point worth noting carefully is that the voidness is not absolute. Section 88 of the Act provides that an acceptor or indorser who accepts or indorses the instrument after the alteration is bound by his acceptance or indorsement, notwithstanding any previous alteration. A party who puts his signature on the instrument knowing it in its altered state has adopted the instrument as it stands and cannot later use the prior alteration as a shield against liability.

Section 89 provides a further nuance — where a materially altered instrument is paid by a person liable to pay, according to its apparent tenor at the time of payment and in due course, that person is discharged even though the instrument was in fact altered, provided the alteration was not apparent. This protects innocent payers and preserves the smooth functioning of commercial payments.

The cumulative picture, therefore, is this: a material alteration in the date — whether to accelerate payment or to change its character from "after date" to "after sight" — strikes the instrument dead as against parties prior to the alteration who did not consent. The person who made the alteration and those who came in subsequent to it stand bound. But the innocent prior parties are released, and that release is final and complete unless and until they are shown to have consented to the change. The law protects the written word of a concluded commercial contract with exacting care.