Discharge from liability
Discharge of instrument and discharge of parties from liability is not the same. A party may be discharged from liability but the instrument may be yet in existence as the rights and obligations of the other parties still exist. It is only when the party ultimately liable on the instrument is discharged from liability that the instrument is discharged. Discharge of one or more parties to the instrument does not therefore, discharge the instrument. Parties may be discharged from liability on negotiable instrument in any of the following ways.
By payment: When the maker acceptor or indorser makes payment on an instrument in due course to the person entitled to receive payment in accordance with the apparent tenor of the instrument in good faith and without negligence discharges the parties to the instrument.
By cancellation: when the holder or his agent cancels or strikes out the name of the acceptor or indorser with intention to discharge him, such party is discharged from liability to the holder and to all subsequent parties. Cancellation by mistake does not discharge the party. It must be intentional. Cancellation must be legible and apparent on the face of the instrument.
By release: Where the holder discharges or release the maker, acceptor or indorser such party receiving notice of discharge is discharged to the holder and to all subsequent parties. Holder may therefore discharge any one of the parties by agreement, renunciation or by accord and satisfaction
By default of the holder: The parties to the instrument are discharged when the following defaults are committed by the holder.
1) Allowing drawee more than 48 hours: If the holder of a bill of exchange allows the drawee more than 48 hours (exclusive of public holidays) to consider whether he will accept the same, all pervious parties not consenting to such allowance are thereby discharged from liability to such holder.
2) Parties not consenting to qualified or limited acceptance: If the holder of a bill of exchange accepts qualified acceptance, all previous parties whose consent to such qualified acceptance is not obtained are discharged unless the holder gives notice thereof and the parties give their assent to such qualified acceptance.
3) Delay in presentment of cheque and drawer damaged thereby: When the holder of a cheque does not present the cheque for payment within a reasonable time of its issue and the drawer suffers actual damage the drawer is discharged to the extent of such damage.
1) A draws a cheque for Rs 1000 and when the cheque ought to be presented has funds at the bank to meet it. The bank fails before the cheque is presented. The drawer is discharged but the holder can proceed against the bank for the amount of the cheque.
2) A draws a cheque at Umballa on a bank in Calcutta. The bank fails before the cheque would be presented in ordinary course A is not discharged for he has not suffered actual damage through any delay in presenting the cheque.
4) Delay in presentment for payment: When the instrument is not presented for payment within reasonable time.
5) Failure to give notice of dishonor: when the holder fails to give notice of dishonor to all pervious parties where necessary.
By material alteration: Any material alteration of a negotiable instrument renders the same avoid as against any one 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 common intention of the original parties. Any such alteration if made by indorsee discharges the indorser from all liability to him in respect of the consideration thereof.
Material alteration without consent of the other parties thereto renders the alteration void and discharges the parties to the instruments because by alteration the identity of the instrument is destroyed. Accidental alteration does not render a document invalid.