Sec. 118. In general. There are three groups of persons whose
liability must be considered when the instrument is discharged : the
primary parties liable on the instrument the maker and the ac-
ceptor; parties secondarily liable indorsers and the drawer; and
sureties, either primarily or secondarily liable. The Uniform Ne-
gotiable Instruments Act enumerates the following methods of dis-
3. Material alteration.
5. Any act which discharges a simple contract for the payment of
6. Acquisition at or after maturity of the instrument by the party
Discharge of Primary Parties Maker and Acceptor
Sec. 119. Discharge by payment. Where the instrument has
been paid in due course for or on behalf of the principal debtor, or
where it has been paid by an accommodated party when the in-
strument is made or accepted for accommodation the instrument
is discharged. 1
An intention to pay is not a payment. The mere fact that a ne-
gotiable instrument is stamped "paid" will not of itself constitute
payment. For example, a check, upon being received by a bank
on which it is drawn, is not paid until the drawer's account is
charged or the actual money is paid out by the bank. 2 If anything
other than money is offered and received as payment a negotiable
note, check, or draft there must be an intention that such instru-
ments, given or received, discharge the former instrument; and in
the absence of an agreement between the parties that the new note
or check is to be received as payment, the former instrument is not
discharged. An old note which is surrendered at the time a new
note is given is generally considered paid, but if the old note is
retained, the second note is considered to be collateral for the first.
1 Nelen v. Smith Bros. Auto Sales, Inc., 1923, 45 R.I. 245, 121 A. 394; p. 630.
"Hunt v. Security State Bank, 1919, 91 Or. 362, 179 Pac. 248; p. 630,
206 NEGOTIABLE INSTRUMENTS
Similarly, a check given in settlement of a note which is surrendered
acts as payment.
Sec. 120. Discharge by cancellation. An intentional cancella-
tion by the holder discharges the instrument. Where a cancel-
lation has been made unintentionally or by mistake, without the
authority of the holder, the instrument is not discharged. The
burden of proof, however, lies with the party who states that the
cancellation was made unintentionally or under a mistake.
Sec. 121. Discharge by material alteration. Where an in-
strument has been materially altered without the consent of all the
parties liable thereon, the liability of such parties is extinguished;
or, if the alteration of a written instrument is made by a holder
with a design and intention to defraud the maker, not only is the
instrument itself discharged, but the debt represented by the instru-
ment is also discharged. 3 However, when an instrument has been
materially altered and is in the hands of a holder in due course not
a party to the alteration, he may enforce payment according to the
Contracts for credit sales of merchandise often conclude with a
negotiable promise to pay a sum equal to the purchase price. Is
the severance of this negotiable promise from the balance of the
contract to be deemed a material alteration? Unless the right to
detach has been expressly or impliedly given, such a separation is
considered to be a material alteration. However, if a perforated
line follows the contract and immediately precedes the negotiable
promise, the right to sever is often implied.
Sec. 122. Discharge by renunciation. The holder of an in-
strument may expressly renounce his rights against any party
thereon before or after maturity. A renunciation, to effect a dis-
charge, must be in writing, unless the instrument is delivered to
the person primarily liable, and it must be absolute and uncondi-
tional. A renunciation does not affect the rights of a holder in due
course who later acquires the instrument.
Sec. 123. Discharge by act which will discharge a simple con-
tract. A negotiable instrument is discharged by any act, such as
novation, accord and satisfaction, the Statute of Limitations, and
bankruptcy, which will discharge a contract for the payment of
money. These various methods of the discharge of a simple con-
tract are discussed in the book on Contracts.
Sec. 124. Discharge by acquisition of title from the holder.
When a primary party or the principal debtor of a negotiable in-
strument' becomes the owner at or after maturity, the instrument is
discharged unless the primary debtor becomes a holder as an agent
Columbia Grocery Co. v. Marshall, 1915, 131 Tenn. 270, 174 S.W. 1108; p. 632.
for another, or unless the instrument is delivered to the primary
party in return for an invalidlnstrument. The mere fact that the
primary party receives possession of the instrument is not sufficient
to evidence a discharge. The primary debtor must become the
owner of the instrument in his own right.
Sec. 125. Discharge of secondary parties, other than sureties.
The Uniform Negotiable Instruments Act, in Section 120, states
that a person secondarily liable on the instrument is discharged :
"1. By an act which discharges the instrument.
2. By the intentional cancellation of his signature by the holder.
3. By the discharge of a prior party.
4. By a valid tender of payment made by a prior party.
5. By the release of the principal debtor, unless the holder 's right
of recourse against the party secondarily liable is expressly reserved.
6. By any agreement binding upon the holder to extend time of
payment, or to postpone the holder's right to enforce the instru-
ment unless made with the assent of the party secondarily liable,
or unless the right of recourse against such party is expressly re-
The conditional liability of a secondary party to a holder at ma-
turity will be discharged if the holder fails to give him notice of
dishonor of the instrument. This failure to give notice, however,
discharges only those secondary parties who were not duly notified.
If the instrument itself is discharged, all secondary parties are dis-
charged. The above sections refer to the discharge of all the
Sec. 126. Discharge of surety. The Uniform Negotiable In-
struments Act provides that where a person's name appears upon
an instrument and it is not clear in what capacity he signed, he will
be liable as an indorser unless words are used to show that he is
to be liable otherwise. Therefore, all accommodation parties are
secondarily liable, and, as such, would be discharged under the rule
controlling the liability of indorsers. If a surety is a maker or an
acceptor, he is not a secondary party but a comaker, and liability
depends upon the rules of suretyship. If the holder extends the
time of payment to a certain time without the knowledge or con-
sent of the surety, such extension operates to discharge the instru-
ment so far as the surety is concerned. For other principles con-
trolling the right of surety, see the chapter on Suretyship.
Review Questions and Problems
1. Name four methods whereby a primary party may be discharged
from liability on negotiable paper. What is the effect of an intentional
208 NEGOTIABLE INSTRUMENTS
2. A received from M a note for $200. In an attempt to recover an
additional amount, A added a clause calling for the payment of 7 per
cent interest. How much, if any, may he recover on the note? Assum-
ing that the note was given for a debt, may he recover the amount of the
3. H is a holder of a negotiable bill of exchange upon which there are
six indorsers. H desires to release the fourth on the list. If he does,
what will be the effect?
4. H holds a negotiable note upon which there are three indorsers.
The maker is unable to pay it at maturity and desires additional time.
H consents to give him an additional thirty days in which to make pay-
ment. At the end of thirty days the note is not paid. Assuming that //
made proper presentment and gave notice of dishonor at the maturity
date, may he recover from the indorsers?
5. A is a comaker, with M, of a negotiable note, although he is merely
acting as surety. This fact is known to the holder. Do the rules of