Chapter 9 Discharge
By Whom Made (payment may operate as discharge of
Outline
1. Concept
2. How Discharged
2.01 Payment in Due Course
Sec 88.
a. By Whom Made
(1) Payment by Person Secondarily Liable
b. To Whom
(1) Good Faith of Payor
2.02 Renunciation
2.03 Cancellation
2.04 Acts that Discharge Simple Contracts
a. Novation
2.05 Principal Debtor Becomes the Holder
3. Surrender of the Instrument
4. Discharge of Persons Secondarily Liable
Sec 120.
4.01 Discharge of Prior Party (Parts b and c)
4.02 Tender of Payment (Part d)
4.03 Release of Principal Debtor (par. e)
4.04 Extension of Term (par. f)
a. Accommodation Party
Chapter 9 Discharge
1. Concept
 Meaning: release from further liability, obligation or
from the binding effect of the negotiable instrument.
 As to the paper – puts an end to its contractual
obligation
 As to the parties – operates as a release of some or all
of them from further obligation and liability under the
instrument although the instrument may not be
charged as where only part of the obligors are released.
2. How Discharged
Sec 119. Instrument; how discharged:
a. By payment in due course by or on behalf of the
principal debtor
b. By payment in due course the by the party
accommodated where the instrument is made or
accepted from his accommodation
c. By the intentional cancellation thereof of the holder
d. By any other act which will discharge a simple contract
for payment of money;
e. When the principal debtor becomes the holder of the
instrument at or after maturity in his own right.
2.01 Payment in Due Course
 First par. – reiterated in Sec. 51 stating that the holder
of a NI may sue thereon in his own name and payment
to him in due course discharges the instrument.
 Sec 88. What constitutes Payment in Due Course –
Payment in due course when it is made after maturity
date of the instrument to the holder thereof in good
faith and without notice that his title is defective.
 Requisites:
o Must be made by or in behalf of the principal
debtor or accommodated party when the
instrument is made or accepted for his
accommodation
o Payment must be made to holder
o Payor must be in good faith without notice
that his title is defective
o Payment must be made at or after maturity
date of the instrument
a.
liability if paid by the following):
 By the primary party (i.e, a maker or acceptor if he
is not a surety for a principal debtor who signed
as a secondary party
 If the primary party is a surety for a principal
debtor who signed as secondary party then a
payment by the secondary party is also the
principal debtor will discharge the instrument
 A payment on behalf of the principal debtor
discharges the instrument under the principle of
agency
(1) Payment by Person Secondarily Liable. – Payment
b the secondary party who is not an
accommodated party will not discharge the
instrument.
 Sec 121. Right of party who discharges
instrument
(2) Striking Out Indorsement
 Allowed under Sec 122
 Reason: indorsement of the party as
well as the indorsements after his first
indorsement are not necessary for his
title.
 Subsequent indorsers can enfoce
payment against him as prior indorser.
(3) Accommodated Party
 Payment by accommodated party
discharges the instrument because the
accommodated party is the principal in
cases contemplated by Sec 122 par 2..
 Person who made or accepted the
instrument – only surety of the
accomomodated party.
(4) Drawer
 Payment to drawer discharges the
instrument under Sec 121.
 If he instrument is payable to the order
of a third person, the drawer is the
person who is ultimately liable on the
instrument even if the acceptor will pay
the payee.
 Acceptor will have no right of recourse
against the drawer only if he already
received the amount of the bull from
the drawer or if he is in possession of
an amount due to the drawer or if he is
otherwise obligated to the drawer.
 Reimbursement
(5) Payment by Third Persons
 Third person – one who will pay for or
in behalf of the maker and not one who
intends to have the right in the
instrument.
 Not a third person (but an ASSIGNEE
or HOLDER)– person who paid the
instrument with the intention of
acquiring title over the instrument
 Art. 1236 of the Civil Code – whoever
pays for another may demand from the
debtor what he has paid except if he
paid without the knowledge or against
the will of the debtor, he can recover
only insofar as the payment has been
beneficial to the debtor.
 b. To Whom
 Should be made to the holder.
 No payment and will not discharge instrument:
o Payment to the payee who already
negotiated the instrument
 Presented to a stranger without legal transfer –
presumption is it is lost, stolen, or improperly
circulated.
 Authority to receive payment of a bill or note
payable to order of the principal and not indorsed
by hum, cannot be presumed from the mere
possession by the assumed agent.
 Possession, when coupled with the securities, may
be very potent evidence of authority to receive
payments.
(1) Good Faith of Payor
 Sec 88 – payor must be in good faith and without
notice that the payor’s title is defective.
o Rightful holder who may have been
unlawfully deprived of the instrument may
still enforce payment against the payor
who paid the notice of the defect in the
holder’s title.
2.02 Renunciation
 SEC 122 – the holder may expressly renounce his rights
against any party to the instrument before, at, or after
its maturity.
 Must be with notice. – must be in writing unless the
instrument is delivered up to the person primarily
liable thereon.
 Requirements: 1. Unless the instrument is delivered, it
must be expressly provided for in writing. 2. It must be
absolute and unconditional
a. Novation – extinguishes an obligation in proper cases.
 Replacement of a check by another check will not
necessarily extinguish the obligation covered by the
first check.
 2 ways which indicate the presence of novation and
thereby produce the effect of extinguishing an
obligation by another which substitutes the same.
o Novation must be explicitly stated and
declare in unequivocal terms as novation is
never presumed
o The old and new obligations must be
incompatible on every point
 Test: Whether or not the 2
obligations can stand together,
each one having its independent
existence.
2.05 Principal Debtor Becomes the Holder
c. Surrender of the Instrument
d. Discharge of Persons Secondarily Liable
Sec 120.
4.01 Discharge of Prior Party (Parts b and c)
4.02 Tender of Payment (Part d)
4.03 Release of Principal Debtor (par. e)
4.04 Extension of Term (par. f)
a. Accommodation Party

2.03 Cancellation
 Intentional cancellation of the instrument discharges it.
 Effected by destroying the instrument either by tearing
it up, burning it, or writing the word cancelled on the
instrument.
 Does not require cancellation to be in writing.
 Destruction of the physical res itself by the owner
destroys the legal relations which it imbues.
 Unintentional cancellation does not discharge the
instrument.
 Sec. 123. Cancellation; unintentional; burned f proof. –
a cancellation made unintentionally or under a mistake
or without the authority of the holder, is inoperative
but where an instrument or any signature thereon
appears to have been cancelled, the burden of proof lies
on the party who alleges that the cancellation was
made unintentionally or under a mistake or without
authority.

2.04 Acts that Discharge Simple Contracts

 Art. 1231. An obligation is extinguished through:
o Payment or performance;
o Loss of the the thing due;
o Condonation or remission of the debt
o Confusion of merger of the rights of the
creditor and debtor
o Compensation
o Novation
o Annulment or recission
o Fulfillment of a resolutory condition
o Prescription
Chapter 10 Checks