PRIMARILY LIABLE

A. DISCHARGE
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:
(a) By payment in due course
by or on behalf of the principal debtor;
(b) By payment in due course
by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own
right.
B. by payment in due course
Sec. 51. Right of holder to sue; payment. - The holder of a negotiable instrument may to sue thereon
in his own name; and payment to him in due course discharges the instrument.
Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due
course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a
holder who derives his title through a holder in due course, and who is not himself a party to any
fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all
parties prior to the latter.
notes: PAYMENT - most usual way of discharging a bill or note. Payment should be in money -- "order
is to pay a sum of money"
- if the parties should agree to discharge the instrument by a renewal note , it would be
DISCHARGED NOT BY PAYMENT STRICTLY but by novation or agreement, which modes expressly
recognized in 119 (d).
- payment made by / on behalf of the principal, otherwise it would constitute a purchase or
negotiation and the instrumetn would remain outstanding.
- principal debtor - maker and acceptor
- although a feawee is not a party until he accepts te instrument and payment by him is literally not
a discharge under sec 119, he fulfills the representation made by the drawer aand by the indorsers
and therefore PAYMENT BU HIM WILL ALSO DISCHARGE the instrument.
- payment by the accommodated party if the instruent is made or accepted for his accommodation
is actually payment by the principal debtor.
- payment by an indorser at maturity not on behaf of the principal debtor but in discharge of his own
liability, does not discharge the instrument but constitutes the indorsee a HOLDER of the instrument
, which still remains to be a continuing obligation against the primary party.
- neither does payment by the drawer discharge the instrument.
Principal debtor: primary party- for example - if an accommodation party like a guaranty or surety,
since he is not the principaldebtor, payment by him DOES NOT discharge the instrument.
WHEN CHECK DEEMED PAID BY DRAWEE BANK:
- if the holder presents check over the counter of the drawee bank, it is clear that the check is paid
or discharged as soon as the older receives the amount in his own account in the drawee bank
- in such a case, in the absence of any other agreement between the parties, if the bank credits the
amount of the check to the depositor's account, it is equivalent to paying the money to the
depositor. Check discharged.
- also when the drawee bank charges the check to the account of the drawer, it shows its intention
to honor the check and it will be deemed paid whether or not a credit entry has been made to the
holder.
- however entry of a credit by the clearing house does not constitute payment and the drawee bank
still has the right to reject the check when it reaches it from the clearing house.
TO WHOM MADE: to be in "due course", payment must be made to the holder whether he is the
beneficial owner or merely a non-beneficial owner or merely a non beneficial owner under a
restrictive indorsement.
- Payment to one of several payees or indorsees in the alternative discharges the instrument
- but payment to one of several joint payees or joint indorsers is not a discharge unless the party
receiving payment has authority from the others t receive payment on their behalf.
- payment to a prior holder will NOT discharge the instrument unless he is authorized by the present
holder either expressly, impliedly, or by estoppel, to receive payment in his behalf.

AT OR AFTER MATURITY: payment must be made to holder A/AM --> if paid before, and the
instrument is negotiated to a HDC, the latter may recover on the instrument.
IN GOOD FAITH AND WITHOUT NOTICE: if the payer at the time he pays knows that the holder's title
is defective, payment by him even at or after maturity will not be payment in due course under sec
88
- he can still BE MADE LIABLE BY THE TRUE OWNER of the instrument
- however, if the payor did not know or did not have notice of the defective title, his payment will
operate as a discharge.
- thus if the instrument is payable to bearer and was stolen from the payee, the maker or acceptor
who pays without knowledge of such loss pays in due course
the original holder from whom it was stolen cannot subsequently claim payment against the maker
or acceptor, on the ground that he is the real owner of the instrument.
- as far as the maker is concerned the instrument was discharged upon his payment. The remedy of
the original holder is against the thief.
- IF THE PARTY DEMANDING PAYMENT is a HDC and the defct in the instrument or in title does not
give rise to a real defense, the maker or acceptor is liable to pay and if he does pay, it is still
payment in due course, although the latter may have known of the infirmity.
- any party prejudiced by such payment will have a remedy against the guillty party.
- the maker or acceptor must satisfy himself when the instrument is presented to him for payment,
that the holder traces his title through genuine indorsemens; no right can pass by it and payment by
him will not effect a discharge of the instrument.
C. BY INTENTIONAL CANCELLATION
119 (C)
Sec. 123. Cancellation; unintentional; burden of proof. - 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.
- Where the holder of a note intentionally tears it up and throws it in the waste basket; intentionally
stamping "paid" is presumptively evidence of discharge, which however may be rebutted by
contrary proof.
- if the cancellation is made without authority, or madde unintentionally or by mistake or thru fraud,
it is inoperative.
- the burden of proving this however is on the person claiming its effectiveness, because
cancellation is presumed intentional.
- cancellation need not be supported by consideration in order to operate as a discharge of the
instrument. And it is effective even without notice to the primary party
D. ANY OTHER ACT WHICH WILL DISCHARGE INST
E. BY REACQUISITION OF PRINCIPAL DEBTOR IN HIS OWN RIGHT
SEC 119 (e) When the principal debtor becomes the holder of the instrument at or after maturity in
his own right.
- reacq must be at or after maturity, otherwise no discharge will be effected and the instrument may
be further negotiated. This par deals with reacq by principal debtor of a kind which should result in a
discharge BUT which is not discharged by payment, or by renunciation governed by NIL 119 (a) p. in
DC by principal debtor, and 122 (express renunciation by holder)
- ex: if he reacq it as an agent of another, he does not do so in his own right; nor is it if he reacquires
it as a pledge from the holder
F. BY RENUNCIATION OF HOLDER
Sec. 122. Renunciation by holder. - 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.

- two forms of renunciation in this case:

1) written declaration to that effect
2) by surrender of the instrument to the primary party
---> if made at or after maturity in favor of the principal debtor, the instrument is discharged
provided renunciation is ABSOLUTE AND UNCONDITIONAL.
---> if made in favor of any party, it will discharge ONLY such party and parties SUBSEQUENT TO
HIM, BUT NO THE INSTRUMENT.
---> in either case, a HDC is protected in case he takes without notice of the renunciation.
- as in intentional cancellation, renunciation need not be supported by a consideration.
- Renunciation here should not be confused with INTENTIONAL CANCELLATION and DISCHARGE by
accord, an satisfaction by novation, although they produce the same result.
- Renunciation will effect discharge of the instrumetn ONLY IF MADE "AT OR AFTER MATURITY".
- Novation requires consent of both parties; renunciation is a unilateral act of holder.
> DISCHARGE OF PRIMARY PARTY also includes MATERIAL ALTERATION, sec 124 and125.
- As in cancellation, material alteration in order to operate as a discharge NEED not take place at or
after maturity.
DISCHARGE OF SECONDARY PARTIES
A. IN GENERAL
> discharge of secondary parties should not be confused with discharge of the instrument.
> although discharge of instrument carries with it the discharge of teh secondary parties, if its the
other way around, there is no effect on the discharge of th instrument.
Sec. 120. When persons secondarily liable on the instrument are discharged. - A person secondarily
liable on the instrument is discharged:
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the holder's right of recourse against the party
secondarily liable is expressly reserved;
(f) 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.
A. BY DISCHARGE OF INSTRUMENT: Sec 120 incorporates the ff:
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
Sec. 122. Renunciation by holder. - 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.
Sec. 124. Alteration of instrument; effect of. - 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.
Sec. 125. What constitutes a material alteration. - Any alteration which
changes:chanroblesvirtuallawlibrary
(a) The date;

(b) The sum payable, either for principal or interest;

(c) The time or place of payment:chanroblesvirtuallawlibrary
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) 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.
Sec. 88. What constitutes payment in due course. - 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.
Thus, discharge of secondary parties by discharge of the instrument may be effected by any of the
following:
1) payment in due course
2) intentional cancellation of the instrument
3) any act which will discharge a contract
4) reacq by principal debtor
5) renunciation by holder
6) material alteration
B. TENDER OF PAYMENT
- (valid tender of payment by prior party) where inst is payable at a bank, the 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.
- there must be evidence not only of ability but also willingess to apply such deposit to the payment
of the instrument.
C. RENUNCIATION BY HOLDER - SEC 122
Sec. 122. Renunciation by holder. - 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.
- renunciation in order to DISCHARGE the SECONDARY parties in whose favor it is made may take
place EVEN BEFORE maturity,
- unlike in case of the discharge of the INSTRUMENT where renunciation must take place AT or
AFTER maturity
D. CANCELLATION; UNINTENTIONAL Sec. 123. Cancellation; unintentional; burden of proof. - 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.
Sec. 48. Striking out indorsement. - 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.
- a holder must ba able to trace his title to the indorsement back to the original owner, the payee.
- if the iinstrument is payable to bearer on its face , then whether or not there are indorsements on
the back of the instrument would be immaterial to the title of the bearer, who is presumptively the
owner and holder by his mere possession of such instrument.
- none of he indorsements would then be necessary to his title since mere delivery would have been
sufficient to transfer title from one holder to another.
- the holder would thus have a right to cancel any or all indorsements.
- should he do so then any indorser whose signature is cancelled and all indorsers subsequent to
him would be discharged from liability on the instrument.
- where the instrument is payable to order on its face, and all indorsements appearing on the back
of the instrument are special, then all of them would be necessary to the holder's title.

E. ALTERATION - SEC 124, 125

OTHERS:
release of principal debtor
- 120 (e) refers to release of principal debtor --> by the creditor and not by operation of law, like a
judgement for the maker in an unsuccessful suit by the indorsee against him
- reservations of the right of recourse cannot be implied from acts and conduct of the holder but
should be express --> previous rulings
- a strictly literal interpretation of the law may result in inequity.
- Under such interpretation knowledge or consent f the indorsee is immaterial. ALthough the
indorser consents to the release of the principal debtor, if the holder does not expressly reserve his
rights against such inodrser, the latter will also be released.
- obviously the holder will seek the consent of the indorser to the release because he wants to retain
his rights against the indorser in spite of such release.
- but if after obtaining such consent , the holder fails to make an express reservation of his rights
against the consenting indorser, the indorser will be released contrary to holder's intention and
expectation.
- it is for this reason that literal interpretation should be avoided and hold that consent to a release
preserves the liability of the party giving it.
extension of time of payment
120 (f) 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.xxx
- the agreement is one between holder and the principal debtor! NOT OTHER PARTIES LIKE
INDORSERS
- this is in harmony with the rule that an extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty. The drawer and indorsers are indeed
gurarantors of the maker and the acceptor.
- the agreement to extend the time of payment must be binding on the holder in order to operate as
a discharge of secondary parties
- thus if it is not supported by a consideration, secondary parties remain liable.
- this req more properly applies to an extension given BEFORE due date of the instrument
- if the extension is given at or after maturity, there is a DISHONOR of the instrument and unless
notice is given to the secondary parties within thte time presrcibed by law, they will be discharged!!
- this would be true whether or not the agreement to extend is binding on the holder because in
EITHER CASE, there will be a FAILURE to pay the instrument on its DUE date, entitling the secondary
parties to notice of such dishonor -- by non payment.
- however, where presentment and notice have been WAIVED by an indorser, a binding EXTENSION
given by the holder at or after maturity woud DISCHARGE such indorser,
unless he assents to the extension, or the holder's right of recourse against him is expressly
reserved. (waiver of right to notice)
- and if despite the waiver, notice of dishonor is given to him, this should be considered as an
express reservation of the holder's right of recourse against him.
- the use of RENEWAL NOTES - to effect an extension is common. However this does not always
operate to discharge the indorser -->
if the old note is RETAINED and the renewal note is taken merely as COLLATERAL security, then the
indorser IS NOT DISCHARGED
if the old note is surrendered and the renewal note bears a future date of payment , there is in effect
an extension of time of payment and the indorsers will be discharged.
- the consent to an extension may be given either before or after the time of extension.
By taking a qualified acceptance

Sec. 142. Rights of parties as to qualified acceptance. - The holder may refuse to take a qualified
acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored
by non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged
from liability on the bill unless they have expressly or impliedly authorized the holder to take a
qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives
notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder
or he will be deemed to have assented thereto.

By failure to make due presentment

Sec. 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in
order to charge the person primarily liable on the instrument; but if the instrument is, by its terms,
payable at a special place, and he is able and willing to pay it there at maturity, such ability and
willingness are equivalent to a tender of payment upon his part. But except as herein otherwise
provided, presentment for payment is necessary in order to charge the drawer and indorsers.
Sec. 144. When failure to present releases drawer and indorser. - Except as herein otherwise
provided, the holder of a bill which is required by the next preceding section to be presented for
acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails
to do so, the drawer and all indorsers are discharged.
failure to given notice of dishonor
Sec. 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a
negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice
is not given is discharged.
Certification of a check at instance of holder
Sec. 188. Effect where the holder of check procures it to be certified. - Where the holder of a check
procures it to be accepted or certified, the drawer and all indorsers are discharged from liability
thereon.
Effect of reacquisition by prior party
Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by a party
secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former
rights as regard all prior parties, and he may strike out his own and all subsequent indorsements
and against negotiate the instrument, except:
(a) Where it is payable to the order of a third person and has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and has been paid by the party
accommodated.
Sec. 50. When prior party may negotiate instrument. - Where an instrument is negotiated back to a
prior party, such party may, subject to the provisions of this Act, reissue and further negotiable the
same. But he is not entitled to enforce payment thereof against any intervening party to whom he
was personally liable.
- sec 121 refers to payment at or after maturity, because if mae before maturity it is not payment
but NEGOTIATION, or PURCHASE covered by sec 50
- the latter section also covers all modes of reacquisition such as by gift.
- in both cases the instrument is not discharged and the reacquirer may negotiate the instrument
- thus a regular indorser who has paid a note to the holder may sue the maker and piror parties
- but the reacquirer MAY NOT GO AGAINST PARTIES TO WHOM HE WAS LIABLE prior to his reacq,
because sec 121 provides that he is "remitted to his former rights" and sec 50 expressly denies him
such right.
- however, unless their indorsements are cancelled, such intervening parties are not discharged as
to parties other than the reacquirer
- the denial of a right of recourse accorded to reacquirer is PERSONAL to him and that such
intervening parties remain liable on the instrument to parties SUBSEQUENT to the reacquirer
- the continuance of liability of secondary parties auunder Sec 121 is conditioned on the instrument
HAVING BEEN DULY presented, dishonored, and due notice given them.

- the rule of reacq by a secondary party : reacq does NOT discharge THE INSTRUMENT! and that the
reacquirer may renegotiate the same ---THIS RULE DOES NOT APPLY where the instrument is payable
to the order of a THIRD person and the drawer has paid it
> this exception may operate unjustly because it would deny the drawer who pays the instrument
the right to sue the acceptor. It has then been suggested that this excepton should refer only to the
reacquirer's RIGHT TO RENEGOTIATE (cannot renegotiate if reacquired by 2ndry party) and not apply
to the rule that the instrument is not discharged
> thus the rule is payment by the drawer will not discharge the instrument but he may NOT
RENEGOTIATE the same.
- Another exception recognized by Sec 121 is that where payment is made by a secondary party
who is the principal debtor , the instrument is discharged.
> this rule is similar to 119 a and b. Thus the principal debtor has not right to sue the
accommodation maker or acceptor.
- if the one who pays and reacquires the instrument is an accommodation indorser, the clause
"remitted to his fromer rights" SHOULD NOT APPLY TO HIM..
> if he is remiited to his former rights, he would not have the right of recourse except from the
accommodated party, since he gave no value for the instrument; but if he gave value for the
instrument at the time of his reacq, he should be allowed to recover! and teh application of
remittane to former rights would be unjust.
> all that this clause was intended to accomplish was to prevent any reacquiring paryt from holding
any liable party to whom the reacquiring party himself was liable.
> the clause has the same meaning as the rule expressed in Sec 50.

CIVIL CODE : EXTINGUISHMENT OF OBLIGATIONS

Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)