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negotiable-instruments:note:discharge-from-liability

Discharge from liability

Section 82 of the Negotiable Instruments Act,1881.

The maker, acceptor or indorser respectively of a negotiable instrument is discharged from liability thereon:

(a) By cancellation: to a holder thereof who cancels such acceptor’s or indorser’s name with intent to discharge him, and to all parties claiming under such holder;

(b) By release: to a holder thereof who otherwise discharges such maker, acceptor or indorser, and to all parties deriving title under such holder after notice of such discharge;

(c) By payment: to all parties thereto, if the instrument is payable to bearer, or has been indorsed in blank, and such maker, acceptor or indorser makes payment in due course of the amount due thereon.

Chapter VII deals with the discharge of parties from liability on notes, bills and cheques as distinct from the discharge of the instruments themselves. The discharge of the instrument itself extinguishes all rights of action under it and puts an end to its negotiability so that, if, after such discharge, the instrument reaches a holder in due course he acquires no right under it. But the discharge of a particular party or parties does not discharge the instrument itself. Nor does it affect its negotiability. It only releases the party or parties from liability to one party or another and the liability of the parties, not discharged, continues as before. This section lays down three modes of discharge of parties and does not touch any discharge under the general law or under any contract. The section applies to the drawer as well.

By Cancellation

A party whose name is cancelled with the intention of discharging him is discharged from liability to the holder who has cancelled his name and to all other persons who have derived their title from such holder.1) To operate as a discharge such cancellation must be intentional and not through mistake or without the authority of the holder.2) When the cancellation of a party’s name appears on the face of the bill the onus of proof that such cancellation has been done through mistake or without authority lies on the party who seeks to charge him with liability.3) Therefore, where such a mistake occurs it is always safe to note it immediately on the instrument.

A bill is not cancelled merely because the time of payment is extended by consent of parties as extension of the time is not one of the modes of discharging the liability of the acceptor under this section.

If there is no material alteration on the face of the bill it is not cancelled, as, where a due date was noted in a corner of the bill and it was struck off after extension of time.

Not only should effective cancellation be intentional but it should distinctly appear on the instrument. The best way of cancelling a name is to score it through making it perfectly illegible. The position of the maker of a note being similar to that of the acceptor of a bill, the present rule would apply to the maker as well although the term, maker, does not occur in this clause. It is not only the person whose name is cancelled that is discharged but all parties subsequent to him are also discharged. Every prior party is liable to the subsequent parties so that by the discharge of a prior party the right of the subsequent parties against him is barred. Hence the discharge of a prior party means as well the discharge of all parties subsequent to him. It, therefore, follows that cancellation of the name of the maker of a note and of the acceptor of a bill who are the principal debtors, other parties being sureties, means the discharge of all parties to the note or the bill..It is virtually the discharge of the instrument itself.

This principle does not apply to accommodation bills or notes as cancellation of the name of the acceptor or the maker will not discharge the drawer or payee for whose accommodation the bill or the note was made because the latter have no right of recourse against the former. The holder can, however, cancel the name of a party expressly reserving his right against a subsequent party. Cancellation does not necessarily affect the rights of the holder arising with reference to a collateral security.

By Release

The clause is wide enough to cover cases of discharge, not only by release, but by agreement of parties as well. Every promisee may dispense with or remit, wholly or in part, the performance, of the promise made to him or may extend the time for such performance, or may accept, instead of it, any satisfaction which he thinks fit. The holder of a negotiable instrument who is the promisee can, therefore, waive or renounce his claim wholly or in part, as he chooses, against the person or persons under it. A party to the instrument may be expressly released from liability by the holder or the holder may accept a smaller amount in satisfaction of the entire claim, or may accept a promise to do some thing in future for full or partial discharge4), but in order to discharge the party he must do so absolutely and without any condition. The matter wholly rests with the holder. The transaction is unilateral.

Waiver may be evidenced by conduct inconsistent with the continuance of the rights waived. There is nothing m law to prevent a discharge by acceptance of something in lieu of the performance of the contract. A promisee may remit the whole or part of the amount due even though the remission is in pursuance of an oral agreement which is inadmissible under sec 92 (4) of the Evidence Act.

When a creditor makes a remission and communicates it to the debtor, that is enough and no suit will he to recover the amount remitted. No consideration is necessary for such discharge. Renunciation by the holder to discharge the acceptor or the maker must be unmistakably distinct and direct and not mere inferences from delay or silence on the part of the holder. When one of two or more joint holders gives release, it operates as a discharge against the other holders as well but the release of one of the joint parties will not discharge the others. If the principal debtor is released at or after maturity, the instrument is discharged, but if such release is not given at or after maturity, it will bind the parties but will not discharge the instrument.5) A fresh agreement between the drawer and the holder for value of a bill does not release the acceptor of the first bill from liability but gives it a conditional satisfaction, so that if the new instrument is duly paid at maturity, the first instrument is discharged, and if it is not so paid the dormant right on the first instrument is revived. But the execution of a fresh note or the substitution of another debtor may discharge the old one if the parties clearly mean, without any condition whatever, to merge the original contract into the new.

If, on the due date, the acceptor asks for further time, and the holder gives him further time, the bill is not cancelled, nor is the liability of the acceptor discharged.

By payment

This clause refers to payment of the note according to its tenor and does not contemplate payment of part of the principal sum by one of the executants.6) For discharge by payment see notes under section 78.

Discharged by operation of law

The principles of general law are applicable to negotiable instruments as well and therefore, besides the modes of discharge specified in this section, there are various other modes of discharge by operation of law as, when, a debtor is adjudicated an insolvent, or the remedy of the holder is barred by the law of limitation on account of the lapse of time or when one debt merges into another. Thus, when the holder of a note brings an action against the maker and the endorser the debt under the note is merged into the judgment debt and the original debt on the note is discharged. But if the action is brought only against the maker and a judgment is obtained against him and the judgment debt remains unpaid, the indorsers are not discharged.

1)
Ralli V Dennistoun
2)
Prince v Oriental Bank Corporation
3)
Bill of Exchange Act, Sec 63
4)
Ellappa V Sesha, 1938 Mad 897
5)
Foster v Dawber
6)
Muthur V Venkata, 1937 Rang 522

Created on 2021/02/22 08:25 by LawPage • Last modified on 2021/02/22 09:50 by LawPage