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Sections 86 and 87 of Negotiable Instruments Act 1881: Qualified Acceptance and Material Alteration

Sections 86 and 87 form part of Chapter VII, "Of Discharge from Liability on Notes, Bills and Cheques", of the Negotiable Instruments Act, 1881. Section 86 deals with the effect of a holder accepting a qualified or limited acceptance without obtaining the consent of previous parties. Section 87 deals with the effect of a material alteration made without the consent of a party to the negotiable instrument.

At a glance
  • Section 86: previous parties who do not consent to a qualified acceptance may be discharged as against the holder and persons claiming under the holder.
  • Section 87: an unauthorized material alteration may render the instrument void against a non-consenting party, subject to the statutory exceptions and related provisions.

Section 86 - Parties not consenting discharged by qualified or limited acceptance

Statutory provision:
If the holder of a bill of exchange acquiesces in a qualified acceptance, or one limited to part of the sum mentioned in the bill, or which substitutes a different place or time for payment, or which, where the drawees are not partners, is not signed by all the drawees, all previous parties whose consent is not obtained to such acceptance are discharged as against the holder and those claiming under him, unless on notice given by the holder they assent to such acceptance.

What is a qualified acceptance?

The explanation to Section 86 identifies the following forms of qualified acceptance:

(a) Conditional acceptance: payment is made dependent on the happening of an event stated in the acceptance.
(b) Partial acceptance: the acceptance undertakes payment of only part of the sum ordered to be paid.
(c) Qualified place of payment: where no place was specified, payment is undertaken at a specified place and not otherwise or elsewhere; or where a place was specified, payment is undertaken at another place and not otherwise or elsewhere.
(d) Qualified time of payment: payment is undertaken at a time other than the time at which it would legally be due under the order.

Section 86 therefore protects previous parties from being bound by a materially qualified acceptance to which they did not consent. The section also allows assent after notice from the holder.

Section 87 - Effect of material alteration

Statutory provision:
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 indorsee

Any such alteration, if made by an indorsee, discharges the indorser from all liability to the indorsee in respect of the consideration thereof.

What is a material alteration?

The Act does not place a complete list of every possible material alteration in Section 87. In practical terms, the section addresses an alteration that materially changes the legal character, operation, rights, obligations or effect of the instrument. Whether an alteration is material depends on its nature and the statutory context.

Related statutory provisions: Section 87 expressly states that it is subject to Sections 20, 49, 86 and 125. These provisions address incomplete stamped instruments, conversion of a blank indorsement into an indorsement in full, qualified acceptance, and crossing after issue respectively. They should therefore be considered before treating an alteration as invalid under Section 87.

Difference between Sections 86 and 87

Section 86 concerns a holder's acquiescence in a qualified acceptance of a bill of exchange and the resulting discharge of non-consenting previous parties. Section 87 concerns a material alteration of a negotiable instrument itself. Both provisions protect parties against changes to the legal obligation that they did not consent to, but they operate in different circumstances.