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Case Analysis: Ms Anirudhan v/s The Thomco's Bank Ltd

The Supreme Court appeal arose from a complaint brought in the trial court by one Thomco's Bank in Trivandrum against the appellant N.S. Anirudhan and one V. Sankaran. V. Sankaran was sued for a promissory note he signed in favour of the Bank on February 24, 1947, and the present appellant was sued for a letter of assurance he signed on May 24, 1947. The appellant had agreed to reimburse the Bank the sum due on the overdraft account created in Sankaran, up to a maximum of Rs. 20,000/-, which was also the maximum amount for which the overdraft had been arranged, by signing this letter of guarantee. Two adjustments were made to the letter of guarantee filed to the court, both in terms of figures and the written words specifying the amount of guarantee.

Petitioner: M. S. Anirudhan v/s. Respondent: The Thomco's Bank Ltd.
Citation: 1963 Air 746 - Bench: A.K. Sarkar, J.L. Kapur And M. Hidayatullah, Jj. - Date Of Judgment: 14/02/1962

The number '5' in the guarantee amount of Rs. 25000/- appears to have been changed to '0,' resulting in a payment of Rs. 20000/-. Also, the word 'five' appeared to have been scratched out in the phrase 'Rupees Twenty-Five Thousand,' resulting in the sum being 'Rupees Twenty Thousand' in words.

The appellant Anirudhan claimed in the trial court that he had provided a guarantee of just Rs. 5000/-, which was changed to Rs. 20000/- without his consent by the major debtor Sankaran.

However, the Trial Court rejected Anirudhan's set of facts about the change in the letter of guarantee and the case he built out of them. The suit against the appellant was rejected because the original amount of guarantee was Rs. 25000/- and was changed to Rs. 20000/- without the approval of the surety, and also because no objection regarding the material character of the alteration was presented.

There was no prior oral contract between the surety and the Bank, according to an appeal before the Kerala High Court. The bank claimed that after agreeing to offer a loan of Rs. 20000/-, Sankaran presented the letter of guarantee and requested a second loan of Rs. 5000/-, which the bank declined. Sankaran then took back the letter of guarantee and returned it after making the above-mentioned changes.

Anirudhan did not agree to these revisions, but the Bank preserved the letter and sued Anirudhan over it. The Bank's appeal was granted, and Anirudhan was ordered to pay the sum of the guarantee stated in the letter. Against this decision of the High Court, Anirudhan appealed in the Supreme Court.

Whether document i.e., contract of guarantee is void due to alteration made and does it discharge the surety of his liability?

Laws Involved:
The law involved in this case is Section 133 of Indian Contract Act,1872. The section states that, Any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. i.e , Discharge of surety by variance in terms of contract.

The Kerala High Court based its decision on Section.87 of the Negotiable Instruments Act, 1881, which states: Effect of material alteration. � Any major alteration of a negotiable instrument renders it voids as against anyone who is a party to the instrument at the time of the alteration and does not consent to it, unless it was made to carry out the original parties' shared intention; alteration by endorsee. And any such change, if made by an endorsee, releases his endorser from all duty in relation to the consideration. This section is subject to the provisions of sections 20, 49, 86, and 125.

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.

The Supreme court of India also took into account the Halsbury's laws of England, 3rd Edn., Vol. 8. para 301, p.176 which states that:
An unauthorised material alteration avoids a contract, so that if a promisee materially alters a written contract without the consent of the promisor, whether by adding anything to it or striking out any part of it or otherwise, the contract is avoided as against the person who was otherwise liable under it.

It may also be held as law that if the contract is in the custody of the promisee or his agent, even if the amendment is done by a stranger without the promisee's knowledge, the other party is dismissed. The promisor is not released if the contract is amended by a stranger while the contract is not in the hands of the promisee.

In this instance, M. Hidayatullah and J.L. Kapur JJ held that the change in the letter of guarantee was not material or substantial, and therefore the surety's responsibilities under the letter were not discharged. However, A.K. Sarkar J dissented, holding that the change amounted to the surety being released from his responsibilities. Thus, the court held that the change had not released the appellant from his obligations as a surety, and that he was still liable to the Bank for Rs. 20000/-.

Kapur J reasoned that, since the surety is not discharged from his obligations he entrusts the letter of guarantee to the principal debtor by himself and the principal debtor makes any alteration in such a letter, such a condition squarely applies to this case. In this case, Anirudhan, the appellant, gave his letter of guarantee to the major debtor Sankaran, who then made the aforementioned change. In such a circumstance, according to Kapur J, the major debtor serves as the surety's agent, and the surety is not discharged.

The change in the letter of guarantee, according to Sarkar J., was not made to carry out the parties' desire. He concluded that. the change was made without the appellant's permission and thus without his consent. The surety was not bound by such a change. In addition, he decided that if the change is ignored, no contract exists and the surety cannot be sued on it. Also, if the change was made without his knowledge, the amended document did not create the contract for which the surety was being sued because he never agreed to it. As a result, the surety was released from the contract's obligations to the Bank.

The change made to the letter of guarantee, according to Hidyatullah J., was insignificant and insignificant. He held that if an investigation reveals that the change was insignificant or for the benefit of the surety, the surety would not be released and will remain liable. He also provided the logic of agency as stated by Kapur. He also evaluated the change that would have occurred if the law had not been changed, because the maximum amount that could be lent was only Rs. 20000/-.

According to common law, any variation made in the contract of guarantee without the approval of the surety will result in the surety's discharge. The premise of law governing surety discharge is that, like any other contracting party, the surety cannot be held liable for what he has not agreed to. The Supreme Court is now hearing the case. The trial court initially determined that the sum guaranteed in the letter had been changed without the appellant's agreement from Rs. 25,000 to Rs. 20,000.

The claim against the appellant had to be dismissed because it was not disputed that the alteration was important, and a decree was issued in that regard, presumably because the alteration had avoided the instrument. The respondent Bank then filed an appeal with the Kerala High Court. The High Court concurred with the trial court that the letter of assurance originally stated Rs. 25,000 and was later changed to Rs. 20,000 without the appellant's agreement. It went on to say that the change was most likely made by the main debtor, Mr. Sankaran.

It was held, however, that the appellant had written Rs. 25,000/- in the letter instead of Rs. 20,000/- by mistake, and that the change was made to carry out the common intention of Mr.Sankaran, the appellant, and the Bank that the appellant would give the Bank a letter of guarantee in exchange for the overdraft accommodation of Rs. 20,000/- allowed to Mr.Sankaran. The High Court ruled against the applicant based on the concept set forth in Section 87 of the Negotiable Instruments Act of 1881.

The majority of the bench concluded that. the letter constituted an enforceable contract since it was backed up by consideration that had already flowed from the Bank, notably the advance to Mr. Sankaran prior to the letter's date and the commitment to make additional advances. According to Explanation 2 of S.25 of the Indian Contract Act, 1872, inadequacy of consideration does not prevent a contract from being formed, and so the Bank's promise to advance up to Rs. 20,000/- could support the appellant's offer to guarantee up to Rs. 25,000/-. However, it is not the Bank's case that such a guarantee contract existed. It said that the guarantee contract was for Rs. 20,000/-.

Such a change was not harmful to the surety because the lower value was already contained in the initial amount of guarantee, i.e., if the amount had been Rs. 25000/-, the appellant would have had to cover the amount of Rs. 20000/- while paying off the debt of Rs. 25000/-. As a result, a reduction in an amount already agreed to be paid does not require explicit approval, and such consent might be assumed. As a result, Sankaran's change to the letter of guarantee cannot be considered substantial.

As a result, the argument that the change was insignificant and had no effect on the instrument in the eyes of the appellant is irrelevant in this case. Anirudhan's letter to the Bank was based on a consideration that had already been transferred to Sankaran and that Anirudhan intended to guarantee. Even if the updated offer was viewed as Anirudhan's offer to the Bank, the Bank accepted it, and Sankaran must be deemed to have had the right to cut the amount, but not to increase it.

The document was tampered with while in the custody of the individual who brought it to the Bank on both occasions as Anirudhan's representative. Because the Bank believed Sankaran had the authority, Anirudhan must be regarded to have held forth Sankaran as his agent for this reason, which generates an estoppel against him. The offer remains an offer of Anirudhan to the Bank in its altered form, and the Bank's acceptance changed it into a contract of guarantee supported by the prior consideration on which Anirudhan's offer was originally founded.

In the judgement of the minority, J.L. Kapur had an opinion that the modification to Rs. 20,000/- and any change in figure was considered a material alteration resulting in the avoidance of the contract, even if the change was beneficial to him, the obliger. Insofar as it is material, the non-accepting obliger - in this case, the appellant - cannot be held liable on the obligation in the altered form because he never made or consented to such an obligation, and he cannot be held liable on the obligation in the original form because the obligation was never as it was.

If a guarantor entrusts a letter of guarantee to the principal borrower and the principal borrower makes an alteration without the appellant's consent, the guarantor is liable because the letter of guarantee remains with the principal debtor, in this case defendant No. 1, due to the guarantor's act, and what the principal debtor did will prevent the guarantor from pleading wavier. The appellant agreed to stand surety for Shankaran, the principal debtor, on an overdraft granted by the respondent Bank.

The Bank wanted a guarantee in the form that was given to Shankaran, the major debtor. Shankaran had it filled for Rs. 25,0 by the appellant.The Bank refused to accept the guarantee up to that amount and demanded that the value be rectified, i.e. by adding Rs. 20,000/-.

The document was then returned to the major debtor, who was said to have altered it. At that point, the principle debtor was acting for and on behalf of the appellant because the appellant was standing surety at his request, and the appellant turned over the deed of guarantee to the principal debtor for delivery to the respondent bank.

In these circumstances, the doctrine of contract avoidance by material amendment is inapplicable since the document was revised by the major debtor, who was acting as the guarantor's agent at the time.

The appeal is dismissed in accordance with the majority's opinion. As a last point, it is important to highlight that this decision established the law for interpreting the principle of surety discharge by variation in the terms of the guarantee contract. Despite the criticism, the interpretation of the rule of surety discharge set forth in this judgement is still a good legislation. This ruling is unassailable because it sets a precedent.

In reality, this ruling established an Indian authority on the fact that any changes to the terms of the guarantee that are not material or beneficial to the surety are not considered to relieve the surety of his contractual responsibilities.

  • Avatar Singh, Contract And Specific Relief (EBC, 2017) , 12th edn
  • Ms Anirudhan Vs. The Thomco's Bank Ltd. Available at:
  • Contract of guarantee available at:
  • Judgement of Ms anirudhan vs the thomcos bank available at:

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