Effect Of Material Alteration

A change which alters the legal identity or business character of the instrument, or which may affect the contract in the instrument is Material Change/Alteration. The main effect of a material alteration is that it makes the instrument void.




Material change arises not only where a certain thing which is already written has been altered or erased, but also a new insertion. In a promissory note, subsequent to its execution, the words, “The proprietor of the Karthika Stores” were inserted above the signature and below the date. It was held that the alteration was a material alteration rendering the instrument unenforceable.

An alteration can be called material alteration it should be such that it alters, or attempts to alter, the character of the instrument, and affects, or is likely to affect, the contract, which the instrument contains or is evidence of. Even as alteration of the one of the clauses of the instrument containing a penal action is a material alteration.

 

Material alteration: Any material alteration of a negotiable instrument renders the same void as against anyone who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties.

 

Alteration by endorsee: Any such alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof.

 

Alteration of date: If the date of a bill or note is changed without the consent of the prior parties, it amounts to a material alteration.

 

Alteration of time of payment: If alteration is made in the time of payment (for example if a bill payable three months after date is changed into a bill payable three months after sight), it is a material alteration, and it discharges all the parties to the bill.

 

Alteration of place of payment: An alteration regarding the place of payment is certainly a material alteration within the meaning of the section.

 

Alteration of sum payable: An alteration in the amount of sum payable (e.g., where a bill for Rs. 100 is altered into a bill for Rs. 200 is a material alteration.

 

Alteration in indorsement: If words are added to a bill of exchange with blank indorsement, so as to convert them into special indorsements, there is said to be a material alteration.

 

Alteration of parties: The addition of a new party to an instrument amount to a material alteration within the meaning of this section.

Converting a non-negotiable instrument into a negotiable instrument, by adding the words “or order” “or bearer” amounts to material alteration. If out of the words “to order or bearer”, the words “or bearer” are struck out, or the word “bearer” is substituted for “order” in an indorsement, it makes the instrument void. But the substitution of the word “order” for “bearer” has been held to be not a material alteration.

An alteration, effected with the consent of the parties does not affect the validity of the instrument. The cancellation or erasing of the name of a maker is a material alteration. Affixing stamps beside the signature and cancelling the same by drawing two parallel lines on it instead of signing on it does not amount to material alteration.


Instances of alterations which are not material:

a) Conversion of instrument payable to order into one payable to bearer.

b) The elimination, of the words “or order” from an indorsement would not be a material alteration.

c) Where an alteration seems only to state explicitly what was already clearly implied in the document and what the law would infer from it, such an alteration is immaterial and does not vitiate the instrument. A maker of promote will not be discharged from his obligation to pay it, because the holder has put in writing on the note what the law would have supplied.

d) The addition of the words “on demand” to a note in which no time or payment is expressed is not a material alteration.

 

Effect of material alteration: A party, who is in custody of an instrument is bound to preserve it in its original state, because any material alteration in the instrument will vitiate it. If it is materially altered, all persons who were parties to it at the time of alteration and did not consent to it will be altogether discharged from liability under that instrument. They will not be liable even to a bonafide purchaser of the instrument having no notice of the alteration. But an instrument, which is materially altered, is not absolutely void. It is only against those who did not consent to the alteration, and can be enforced against those who consented to the alteration or made the alteration, and also against those who, became parties to the instrument subsequent to the alteration.

 

Effect of alteration on liability: According to section 8 an alteration of a negotiable instrument affects the liability of such persons only who were parties to the bill before the alteration was affected and does not affect the persons who became parties subsequent to the alteration. The reason is that an acceptor who accepts an altered bill or an endorser who indorses after alteration cannot be prejudiced by the altered, is not absolutely void. It is void only against those who did not consent to the undertakes to pay the amount of the instrument, according to the tenor of the instrument as it stands at the time when the acceptance or, indorsement is made.

Section 89 gives protection to a person who pays an altered bill or note or cheque which does not appear to have been materially altered and pays so in good faith. Such a paying person is discharged from liability. In order to claim the protection given by this section it is, however, necessary that the alteration should not be apparent and that payment must be made in due course, i.e., according    to the apparent tenor of the instrument in good faith and without negligence to a person in possession of the instrument under the circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment. When these conditions are satisfied, the payer would not only be discharged from all liability on the instrument but can also debit the person on whose account the payment was made with the amount paid. Thus, where a person draws a bill or cheque for Rs. 100, and a holder without the consent of the drawer alters the figure 100 into 1,000 and makes the instrument look like a bill or cheque drawn for Rs. 1,000 and the alteration is not apparent, the drawee or banker who pays the bill or cheque in good faith and without negligence is entitled to debit the drawer with Rs. 1,000.


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