Contract Law

M.S. Anirudhan v. Thomco's Bank Ltd.

AIR 1963 SC 746

Facts

Thomco’s Bank had advanced an overdraft of ₹20,000 to Sankaran.
Anirudhan signed a letter of guarantee.
The document originally referred to ₹25,000.
Before it was delivered to and accepted by the Bank, the principal debtor altered the amount to ₹20,000.
The alteration was apparent and was not initialled by Anirudhan.
When the debtor defaulted, the Bank sued Anirudhan under the guarantee.
Anirudhan alleged that the alteration discharged him from liability.
He also claimed that he had originally guaranteed only ₹5,000, but the courts did not accept that factual version.

Whether the reduction of the guarantee amount before acceptance by the Bank invalidated the guarantee.
Whether an alteration made by the principal debtor could bind the surety.

An unauthorised material alteration of an executed contract may discharge the non-consenting party.
However, the court must determine:
when the contract became complete;
who made the alteration;
whether that person had authority to deliver or modify the document;
whether the change materially enlarged the surety’s obligation.
A guarantee delivered through the principal debtor may bind the surety where the debtor acts as the surety’s agent for delivery and the change does not enlarge liability.

The Bank had agreed to an overdraft of ₹20,000 and did not accept the guarantee in the form mentioning ₹25,000.
The document was taken back by Sankaran and returned after the amount was reduced.
Anirudhan had entrusted the guarantee to Sankaran for delivery to the Bank.
The majority regarded Sankaran as acting within the authority connected with obtaining acceptance of the guarantee.
The alteration reduced the maximum liability rather than increasing it.
Anirudhan had already expressed willingness to guarantee at least ₹25,000 on the factual findings accepted by the Court.
Therefore, enforcement for ₹20,000 did not impose a burden beyond what he had signed.
The case contained separate judicial opinions, including disagreement over the effect of the alteration, but the majority dismissed Anirudhan’s appeal and maintained liability.

The Supreme Court majority held that Anirudhan remained liable under the guarantee.
The reduction from ₹25,000 to ₹20,000 did not discharge him on the facts.
Use this case for: not every alteration discharges a surety; its timing, authority and effect on liability must be examined.