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Bills Ch. VI - Discharge - Coggle Diagram

- - - - What constitutes payment in due course (NIL 88) - Payment is made in due course when it is made at or after the maturity of the payment to the holder thereof in good faith and without notice that his title is defective.
        
        (1) Medium of payment - Should be in money or legal tender. If agreed upon by the parties to be paid otherwise, it would constitute novation.
        
        (2) By whom made - Payment must be made by or on behalf of the principal debtor. “Principal debtor” does not necessarily mean “primary party.”
        
        (4) To whom made -
        
        Payment must be made in due course, meaning to the holder, whether a beneficial owner or one holding under a restrictive indorsement.
        
        Payment to one of several payees/indorsees in the alternative discharges instrument
        
        Payment to one of several joint payees is not a discharge, unless the one who received the payment had authority from the others to receive payment on their behalf.
        
        (5) At or after maturity - Payment must be made AT or AFTER maturity in order to operate as a discharge of the instrument.
        
        (6) In good faith and without notice -
        
        With Knowledge - If the payor pays with knowledge that holder’s title is defective, payment by him will not operate as a discharge of the instrument.
        
        Without Knowledge - Operates as a discharge (Here remedy is to sue for tort/quasi-delict but not inder the NIL)
        
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        Effect of Prior Payment - If paid before, then negotiated to a HIDC, the latter may recover on the instrument.
        
        Remember present actual instrument and person primarily libale must actually take possession of instrument --> Delivery back is to prevent negotiation. IF later negotiated, person primarily liable cannot use prior payment to avoid liability to new HIDC
        
        XCPN - Holder employed indorsee as agent, if circumstances show that money actually reached hands of holder
        
        May be made by the drawer?
        
        Distinction between principal debtor and primary party. Accommodation party is the primarily liable party, with the accommodated party that is the principal debtor.
        
        Sir emphasized this.
        
        Delivery to primarily liable party - To prevent further negotiation. If further negotiated, then person primarily liable can still be liable again (In re: Harbaugh's Estate)
        
        XCPN - If the holder employed the indorsee as an agent or, if the circumstances show that money actually reached the hands of the holder.
        
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        (3) When check deemed paid by drawee bank -
        
        If the holder presents a check over the counter of the drawee bank, the check is discharged.
        
        If done via direct deposit to the holder’s account, the act the bank in crediting the amount to such account is equivalent to paying the money to the depositor – which will then discharge the instrument.
        2a. However, entry of a credit by the clearing house does not constitute payment. Drawee bank may still have the right to reject the check
      - Giving Another Note - Considered as noviation, but not payment. Sir agrees with majority view of novation.
    - - c. By any other act which will discharge a contract - Catchall mode of discharge
        
        Novation,
        
        issuance of a renewal note when exchanged with the old note (unless old note is retained by holder),
        
        transfer of property,
        
        foreclosure,
        
        rendition of services, etc.
        
        Release of one joint make rby the holder will discharge all joint parties (Crawford v. Roberts)
        
        d. By reacquisition of principal debtor in his own right [119 (e)] - In his own right means in his own beneficial right. Thus, re-acquisition as an agent is insufficient.
        
        e. By renunciation of holder (122) - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.
        
        f. Material alteration (124, 125) - Need not take place at, or after maturity.
        
        Effect of Alteration of instrument - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But 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 thereof according to its original tenor.
        
        What Constitutes Material Alteration (125) - Any alteration which alters:
        
        The date;
        
        The sum payable, either for principal or interest;
        
        The time or place of payment;
        
        The number or the relations of the parties;
        
        The medium or currency in which payment is to be made;
        
        Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.
        
        Remember distinction between HIDC and non HIDC re: altered amount and spoliation
        
        Forms of Renunciation -
        
        Written declaration to that effect;
        
        By surrender of instrument to primary party (need not be in writing).
        
        To Whom made -
        
        If made in favor of the principal debtor after or on maturity, instrument is discharged if the renunciation is absolute and unconditional.
        
        Any Other Party - The persons discharged are only the persons to whom the renunciation is made and parties subsequent to them.
        
        Effect on HIDC - In either case, a HDC is protected in case he takes it without notice of the renunciation.
        
        Thus, effective only as against person who renounced and holders subsequent who are not HIDC
        
        Characteristics -
        
        Renunciation need not be supported by any consideration.
        
        It is a unilateral act of the holder (vs. novation, which requires consent of both parties)
        
        Requisites
        
        At or aftermaturity
        
        Absolute and ucnonditional
        
        Involves principal debtor
        
        Requisites -
        
        Reacquisition must be by the principal debtor;
        
        Must be in his own right;
        
        Must be at or after maturity
        
        Reacquisition -Basically confusion or merger of rights. After negotiation it to another person, he possesses it once again.
        
        Prior to Maturity - Principal debtor may negotiate it further, as it is not discharged yet.
        
        Schwartzman v. Post - Holder precluded from maintaining an action against the maker to recover the balance after the holder presented the note for payment at maturity and gave the instrument to the maker.
        
        In His Own Right (Nash v. De Freville) - Having a right not subject to that of anyone else, good against all the world. Thus, if acquired the instrument through fraud, then no valid re-acquisition if acquired from person who obtained it fraudulently.
        
        Not just oblicon, but also under other civil law stuff, such as FRIA or insolvency. Any other law which governs the extinguishment of a simpl obligaitno.
      - Unintentional Cancellation (123 NIL) - 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.
  - - - b. By intentional cancellation of signature (123, 48) -
        
        c. By discharge of prior party - The act of discharging prior parties removes from the subsequent parties a possible source of reimbursement from the party discharged (should they be made to pay).
        
        d. By valid tender of payment by prior party (120)
        
        e. By release of principal debtor
        
        f. By extension of time of payment [120 (f)] -
        
        GR - By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved.
        
        XCPN - Consent of the party secondarily liable may be given either before or at the time of extension.
        
        g. By renunciation (122) - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.
        
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        Requirements - The agreement to extend time must be binding on the holder to operate as a discharge of secondary parties.
        
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        Requirements -
        
        Release of the debtor must be by the creditor/holder, and not by operation of law (e.g. judgement for the maker in an unsuccessful suit by the indorsee against him).
        
        Release of the Principal debtor must be express and not implied.
        
        Consent of the Indorser - Knowledge or consent of the indorser to the release of the principal debtor is immaterial, hence, even if the indorser did not consent to the release of the principal debtor, such indorser is still released
        
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        Rationale - Release principal debtor, you also release all parties that has a right tor eecovery against principal debtor. If there is reservaiton, party seconadrily liable will still be liable.
        
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        Where Instrument Payable at a Bank - the mere fact that the maker had money on deposit in the bank at maturity is not sufficient tender of payment to discharge an indorser, if no evidence of the fact was given to the holder.
        
        How Proven - There must be evidence not only of ability, but also of willingness to apply such deposit to the payment of the instrument.
        
        Consignation - Q. of reconciliation with consignation v mere tender. Unresolved.
        
        Form of Discharge (ROBERTS VS. CHAPPELL) - only applies to discharge by act of the holder and not by operation of law. Thus, discharge by insolvency of a prior party or by prescription does not discharge other indorsers
        
        Example - Holder presents note to indorser for payment, then the indorser writes after his indorsement the words "without recourse" which the holder by silence acquiesced thereto and takes back the note unpaid. The following are discharged:
        
        Indorser;
        
        All subsequent indorsers
        
        A - B - C - D - E
        
        GR - Discharge of B applies to C/D
        
        XCPN - If reason for discharge is failure to send notice of dishonor, not affect C/D.
        
        Unintentional Cancellation (123) - 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
        
        Striking out of Indorsement (48) - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.
        
        Sir disagrees with Campos here, can cancel anyone.