1. DISCHARGE OF PARTIES FROM LIABILITY
Prepared by:-
MANISHA
B.com-1 B
2385

2. INTRODUCTION
The term discharge from liability in relation to negotiable instruments has two connotations namely,
(1) the discharge of the instrument and
(2) the discharge of one or more parties liable on the instrument.
The discharge of instrument is to be distinguished from the discharge of one or more parties from liability thereon. When an instrument is discharged it ceases to be negotiable. Therefore, if after its discharge an instrument comes into the hands of a holder in due course, he acquires no right under it. But when only a particular party is discharged, the instrument continues to be negotiable with the liabilities of undischarged parties attaching thereto. The discharge of one or more parties to an instrument does not discharge the instrument.

3. Discharge of instrument
A negotiable instrument may be discharged in any of the following ways.
1.By payment in due course- It is the most usual mode of discharge, Since a negotiable
instrument is ultimately meant for payment, payment of the amount due on the instrument to the holder would result in the discharge of the parties to the instrument. Payment by the maker, drawee or acceptor would result in the discharge of the instrument.
Any person liable to pay and called upon by the holder thereof to pay, the amount due on a promissory note, bill of exchange or cheque is before payment entitled to have it shown and is on payment entitled to have it delivered up to him. If the instrument is lost or cannot be produced the person making the payment is entitled to be indemnified against any further claim thereon against him (Sec. 81).

4. 2.Debtor as holder-If a bill of exchange which has been negotiated is at or after maturity held by the acceptor in his own rights ,all rights of action thereon are extinguished (Sec. 90).
3.By the express waiver- When the holder of an instrument at or after its maturity absolutely and unconditionally renounces or gives up his right against all the parties to the instrument, the instrument is discharged. The renunciation must be in writing unless the instrument is delivered upto the party primarily liable.
4.By cancellation -When a holder cancels the instrument with an intention to release party primarily liable thereon from the liability, the instrument is discharged and ceases to negotiable (Sec. 82).
5.By material alteration or lapse of time- An instrument stands discharged when the party primarily liable is discharged by material alteration in the instrument or by lapse of time making the debit time barred under the Limitation Act.

5. Discharge of a party or parties
The maker, acceptor or endorser of a negotiable instrument may be discharged from liability in the following ways-
1.Discharge by cancellation : If the holder of a negotiable instrument of his agent deliberately cancels the name of any party on the instrument, with an intention to discharge him, such party is discharged from liability to the holder. Cancellation in order to be valid must be intentional and apparent. However, where the cancellation is done under a mistake, or without the authority of the holder is would be inoperative. Cancellation of the name of a party on the instrument discharges not only that person but also subsequent parties who have a right of action against the party whose name is so cancelled. Further, a cancellation of the drawer’s name would discharge all the endorsers, Section82 (a).

6. 2.Discharge by release : If the holder of a negotiable instrument releases any party to the instrument by any method other than cancellation, the party so released is discharged from liability, But the release of one of joint parties will not release all. Section 82 (b). Section 63 of the Indian Contract act also contains a provision to that effect.
3.Discharge by payment : Payment to person in possession of the bearer instrument discharges the party. But payment must be to the holder or his agent. It must also be of the whole amount. Section 82 ©
4.Discharge by allowing drawee more than forty eight hours : If the holder of a bill of exchange allows the drawee more than forty eight hours exclusive of public holidays to consider whether he will accept the same all previous parties not consenting to such allowance are thereby discharged from liability to such holder. But parties consent to such allowance will not be discharged. ( Section 83).

7. 5.Discharge by delay in presentment of cheque : Where a cheque is not presented for payment within a reasonable time of its issue and the drawer suffers actual damage through the delay because of the failure of the bank, he is discharged to the extent of such damage .If at the time the bank fails, the drawer had the full amount of the cheque with the banker for the payment of the cheque, he will be discharged in full. Section 84 (1).
6.Cheque payable to order : A banker who pays in due course a cheque drawn upon him is discharged from liability though the endorsement of the payee may be forged. Suppose a cheque drawn payable to A’s order endorsed to B and C steals the cheque from B and forges B’s endorsement upon it and gets paid in due course. The paying banker will be discharged from liability. (Section 85).Where a drawer issues a bearer cheque, the drawee banker is discharged if the makes the payment to the bearer, notwithstanding any endorsement on the cheque. The banker can safely ignore the endorsement on bearer cheque, whether the endorsement thereon is forged, prohibitive or restrictive. But payment must be in due course.
7.Draft drawn by one branch on another : Where a demand draft is drawn by one office of the bank upon another office of the same bank, for a sum of money payable to order, the banker is discharged from liability if it makes the payment in due course even though the endorsement of the payee may be forged or unauthorized. (Section 85-A).

8. 8.Discharge by taking qualified acceptance : If holder of a bill takes a qualified or limited acceptance, he does so at his own risk and discharges all the parties prior to himself, unless he obtains their consent. However, the parties will be liable if on a notice being given to them they give their assent to such acceptance. (Section 86).
9.Discharge by operation of law : discharge takes place on account of an order of the insolvency Court, by the lapse of time or merger.
10.Discharge by payment of altered instrument : Where a negotiable instrument has been materially altered but does not appear to have been so altered, or where a cheque is presented for payment which does not at the time of presentation appear to be crossed , payment on such an instrument discharges the party liable provided he makes payment according to the apparent tenor of the instrument and in due course. (Section 89). Such a payment cannot be questioned even if it is proved that the instrument has been altered or that the cheque was originally crossed.
11.Discharge by material alteration : Where a negotiable instrument is materially altered without the assent of all the parties on the instrument, the instrument is avoided (Section 87) . Any alteration made by an indorsee discharges his indorser from all liabilities to him in respect of the consideration thereof.

9. MATERIAL ALTERATION
Material alteration of an instrument invalidates the instruments against the person not consenting to such alteration. Section 87 incorporates this principle and is designed to prevent fraud and deter men from tempering with written instrument. It is not every alteration that avoids the instrument, to avoid the instrument the alteration must be a material one.
An alteration which in any way alters the operation of the instrument and the liabilities of the parties thereto or which alters the business effect of the instrument is a material alteration. If the identity or character of the instrument is affected or its liability is extended by the alteration, it will amount to a material alteration. Any alteration which gives a man a cause of action which he would not have had but for such change, is a material alteration. Any alteration in an instrument which causes to speak a different language in legal effect from that which it originally spoke, is a material alternation. It is immaterial whether the alteration is beneficial or prejudicial or whether it is made by a stranger or a party to the instrument.

10. The following are instances of material alteration:
(1) Alteration of date
(2) alteration of name
(3) alteration of time
(4) alteration of place of payment
(5) alteration of amount
(6) alteration or rate of interest
(7) alteration by the addition of a new party
(8) tearing an instrument in a material part.

11. The following are the instances where alteration does not amount to does not amount to material alteration.
1) Alteration made to carry out the original intention of the parties. E. g. the subsequent insertion of the words ‘or order’ where the drawer of a bill forgets to use these words.
2) Correction of a mistake in data or of a clerical error e.g. where a bill was dated 1969 instead of 1996 and subsequently the agent to the drawer corrected the mistake.
3) Alteration made with the consent of parties.
4) Alteration made before the instrument is issued.
5) Alteration which is not apparent and the instrument goes into the hands of holder in due course.
6) The addition of words which could not prejudice any one.

12. Alteration authorized by the Act
The following alterations are permitted by the Act and do not avoid the instrument.
1) Filling blanks in inchoate instruments (Section 20).
2) Conversion of blank endorsement into endorsement in full (Section 49).
3) Making acceptance conditional (Section 86).
4) Crossing of an uncrossed cheque, conversion of general crossing to special crossing, addition of words like ‘not negotiable’ to a crossed cheque (Section 125).

13. Effect of material alteration
Material alteration discharges the parties liable on the instrument at the time of the alteration, and the instrument is rendered void. The person who made the alteration and all subsequent endorsers are bound by the bill as altered. If a person endorses the altered instrument, he becomes liable to the endorsee. Any material alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof. (Section 86).

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