An alteration which in any way alters the operational character of the instrument or rights and liabilities of the parties is called material alteration?
It is immaterial whether the alteration is advantageous or disadvantageous. Alteration must be intentional. An accidental alteration is not bad. It need not be made by the holder.
It is sufficient if it was made when the instrument was in the possession of the holder. The holder must take every care to protect it from such alteration, otherwise he will be liable for the consequence of the alteration.
The following alterations are regarded as material:
- The date,
- The sum payable,
- The place of payment,
- The time of payment,
- The rate of interest,
- The place where the instrument is drawn,
- Addition of a party’s name or place of payment.
Any of the above alterations made will discharge the parties liable on the instrument.
Alterations which are not material (Sec. 87):
The following alterations are not regarded as material alterations:
- Alteration made before acceptance or indorsement. An acceptor and indorser are bound by previous alterations (Sec. 88).
- Alteration made to carry out the common intention of the parties.
- Alteration consented to or agreed by the other parties.
1. Filling an inchoate but stamped instrument (Sec. 20):
A holder has the authority to fill in the blanks in such an instrument. Even where the holder fills an amount larger than intended (but is covered by the stamp) the instrument is not void against a holder in due course.
2. Converting blank indorsement into full (Sec. 49):
A holder has the authority to convert an indorsement in blank into an indorsement in full.
3. Conditional or qualified acceptance (Sec. 86):
A holder may take a qualified acceptance.
4. Crossing of cheques (Sec. 125):
A holder and a banker are empowered to cross the cheques.
Effect of Material Alteration (Sec. 87):
When a material alteration has been made a negotiable instrument, as well as all the parties to the instrument are discharged. If the alteration is made by an indorsee, then his indorser is discharged from all liabilities to him.
It should be noted that even if a material alteration is agreed to by all the parties, it becomes a new instrument which requires a new stamp.
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