Negotiable Instruments Act, Section 87

Negotiable Instruments Act, Section 87: Effect of Material Alteration

Section 87 of the Negotiable Instruments Act, 1881 provides that any material alteration made in a negotiable instrument without consent of parties liable thereon renders the instrument void against such parties.

The section protects the integrity and certainty of negotiable instruments by ensuring that no person is bound by altered terms without consent.

1. General Principle of the Section

Negotiable instruments such as promissory notes, bills of exchange, and cheques derive their value from certainty and reliability, and once executed, their terms are expected to remain unchanged unless all concerned parties consent to modifications.

Section 87 therefore provides that any material alteration of a negotiable instrument made without the consent of parties liable at the time of alteration renders the instrument void against such parties.

2. Meaning of Material Alteration

A material alteration is any change that alters the legal character, operation, rights, obligations, or liabilities arising from the instrument.

An alteration is material if it affects an important term or changes the instrument in a manner that may prejudice any party liable thereon.

The law treats such changes seriously because negotiable instruments are intended to circulate based on certainty of terms.

3. Examples of Material Alteration

Material alterations may include changes relating to the amount payable, date of the instrument, time or place of payment, name of the payee, rate of interest, or the nature of liability.

Any alteration involving addition or removal of parties or otherwise affecting the rights and obligations of parties may amount to a material alteration.

4. Effect of Material Alteration

The section states that a material alteration renders the instrument void against any person who was a party to the instrument at the time of alteration and did not consent to such alteration.

Accordingly, a non-consenting party cannot be held liable under the altered instrument, and the instrument becomes unenforceable against him.

5. Requirement of Absence of Consent

Consent is central to the operation of Section 87, and where a party authorizes the alteration or subsequently assents to it, the instrument does not become void against him.

However, where no such consent exists, the law protects the party from liability arising under the altered instrument.

6. Purpose of the Rule

The purpose of Section 87 is to preserve the sanctity and reliability of negotiable instruments by ensuring that no party is subjected to obligations different from those originally undertaken.

The provision also discourages fraudulent or unauthorized alterations and maintains commercial confidence in negotiable instruments.

7. Alteration to Carry Out Common Intention

The section contains an important exception that a material alteration does not render the instrument void where the alteration is made to carry out the common intention of the original parties.

This applies where the alteration merely reflects or corrects the original agreement without introducing any new or unauthorized obligation, and therefore genuine corrections consistent with mutual intention are permitted.

8. Alteration Made by Indorsee

The section further provides that where a material alteration is made by an indorsee, his indorser is discharged from all liability to him in respect of the consideration.

An indorsee who introduces an unauthorized alteration cannot enforce liability against his indorser on the altered instrument, and this rule prevents misuse or tampering by holders or indorsees.