Discharge of Negotiable Instrument

Effect of renunciation in favor of principal (Sec. 122)

discharges the instrument and all parties thereto provided the renunciation is made absolutely and unconditionally *renunciation may be at or after maturity

Effect of material (physical) alteration by the holder (Sec. 124)

discharges the instrument and all prior parties thereto who didn't give their consent to such alteration

Exceptions to Sec. 124

does not discharge the instrument as to: 1. the party who has made the alteration 2. the party who authorized or assented to the alteration 3. indorsers who indorsed subsequent to the alteration

Tender of payment

the act by which one produces and offers to a person holding a claim or demand against him the amount of money which he considers and admits to be due, in satisfaction of such claim or demand without any stipulation or condition

Methods of discharge of secondary parties (Sec. 120)

1. any act which discharges the instrument 2. the holder intentionally strikes out the signature of a person secondarily liable (subject to the limitation that the indorsement is not necessary to the holder's title) 3. discharge of a prior party by the holder intentional cancellation of his signature 4. valid tender of payment by a prior party 5. release of principal debtor by act of holder (unless holder EXPRESSLY reserves his right of recourse against the secondary parties) 6. any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument (except where the extension of time is consented to by such party and where the holder expressly reserves his right of recourse against such party)

Material alteration (Sec. 124)

1. any change in the instrument which affects the liability of the parties in any way (under Sec. 125) 2. changes the contract of parties in any respect

When cancellation inoperative (Sec. 123)

1. made unintentionally 2. by mistake or through fraud 3. without authority of the holder

Methods for discharge of instrument (Sec. 119)

1. payment must be made by or on behalf of the principal debtor at or after its maturity to the holder thereof in good faith and without notice that the holder's title is defective 2. payment in due course by the accommodated party (since AP is the principal debtor) 3. cancellation must be intentionally done by the holder thereof 4. any act which discharges the contract (payment/performance, loss of the thing due, condonation/remission of the debt, confusion or merger of the rights of creditor and debtor, compensation, novation, annulment, rescission, fulfillment of resolutory condition, prescription) 5. reacquisition must be by the principal debtor in his own right at or after the date of maturity (merger)

Exceptions to Sec. 121

1. where instrument is payable to the order of a third person and has been paid by the drawer 2. where instrument was made or accepted for accommodation and has been paid by the accommodated party

A holder's refusal without any justifiable reason to accept a valid tender of payment made by a prior party should discharge the subsequent parties (Sec. 120)

True

Any other alteration is immaterial and hence, inoperative to affect the liability of any party to the instrument prior to the alteration (Sec. 124)

True

Cancellation can also be done when the instrument is torn up, burned or mutilated (Sec. 119)

True

Effect of reservation by the holder of his right is the implied reservation by the subsequent parties of their right of recourse against the principal debtor (Sec. 120)

True

If an altered instrument is negotiated to a HIC, he may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent (Sec. 124)

True

Presumption is that cancellation is intentional (Sec. 119)

True

Renunciation under #15 and #16 doesn't affect the rights of a HIC without notice (Sec. 122)

True

Where the instrument has been altered innocently, it is discharged but the innocent party can sue upon the original debt for which it has been given (Sec. 124)

True

Discharge of negotiable instrument (Sec. 119)

a release of all parties, whether primary or secondary, from the obligations arising under the instrument rendering it without force and effect and, consequently, no longer negotiable

Agreement binding on the holder (Sec. 120)

agreement binding on the holder made with the principal debtor

What constitutes material alteration (Sec. 125)

any alteration which changes: 1. the date 2. the sum payable (either for principal or interest) 3. the time or place of payment 4. the number or the relations of the parties 5. the medium or currency in which payment is to be made 6. adds a place of payment where no place is specified 7. any other change which alters the effect of the instrument in any respect

Spoliation

material alteration by a stranger

"In his own right"

not in a representative capacity

Payment at or after maturity by a party secondarily liable does not discharge the instrument (Sec. 121)

only cancels his own liability and those of the subsequent parties

Effect of renunciation in favor of secondary party (Sec. 122)

only discharges such secondary party and all subsequent parties *renunciation may be before, at or after maturity

Effect of reacquisition by prior party (Sec. 121)

the party who discharges the instrument may strike out his own and all subsequent indorsements. if he was a HIC, he may recover from prior parties even though at that time he knew of the defects