Welcome to your Chapter 8 activity.

You must copy the content of this page and make a new page on
your Homework folder and name it 'Chapter 8 – Discharge of Negotiable Instruments'.  Your answers to
the following will be on that page. 

____ 

Explain or state briefly the rule or reason for your answers. 

(Note: Your score on this will be based on how you were able to understand the section supporting your
answer. You may elaborate or give specifics to add more substance to your answer in relation to the
instrument being tackled per item. Deadline: October 7, 2020) 

1. W, drawer and X, drawee of a check payable to Y or order, accepted by X, and successively

negotiated to Z, A, and B. Give the effect if payment is made: (a) by Z and (b) by W. 

A. According to section 121, the payment made by Z who is secondarily liable, did not
discharge the instrument but only cancelled his liability and those next to him which is A and
B, to whom Z is personally liable. Z would be remitted to his former rights as regards all prior
parties (W and Y), Z may strike out his own and subsequent indorsement and renegotiate
the instrument.

B. Since W is the drawer of the instrument, the payment of W discharges the instrument and in
accordance with section 121(a), the said instrument cannot be further negotiated. The
instrument can again be negotiated except when it is payable to order of a third person and
has been paid by the drawer.

2. In the same problem, give the effect of the renunciation by B of his right: (a) against Z and
(b) Against W. 

A. The renunciation of B of his right against Z who is secondarily liable, before or after maturity
of the instrument, discharges Z and its subsequent parties to him. Under sec. 122, the effect
of renunciation is to discharge only the secondary party and its subsequent parties but the
instrument itself remains in force. Therefore, the instrument itself remains in force.

B. The renunciation of B of his right against W who is the principal debtor, is effected at or
after maturity of the instrument. Still under sec. 122, the effect is to discharge the
instrument and all parties thereto, provided the renunciation is made in absolutely and
unconditionally.

3. In the same problem, the amount of check for P13,000 was altered to P18,000 by Z in
connivance with Y. Give the effect of the alteration as to the liability of W, Y, Z, and A to B if:
(a) B is a holder in due course and (b) B is not a holder in due course. 
A. B may enforce the instrument to X who is the drawee and primarily liable, for 13,000 since it
is materially altered and according to section 124 par. 2 B can enforce payment thereof
according to its original tenor which is X. However, if X dishonored the instrument, B may
claim from W, Y, Z and A the amount 18,000 with regards to section 124.

B. If B is not a holder in due course, X would be discharged to his liabilities, thus B cannot
enforce against X who is the original tenor. But Z would be liable for 18,000 since he was the
one who made the alteration even though B is not the holder in due course. A may also be
liable since he was the indorser and he warrants the instrument is genuine and, in all
respect, it purports to be. Y would also be liable as he conspires with the alteration in
consideration to section 124.

4. Suppose in the same problem, the instrument is a promissory note with W as maker, and Y
as the payee.  B releases W. Give the general rule and the exception with respect to the
liability of secondary parties. 

120(e) explains that the secondary liable on the said instrument is discharged by the release of
the principal debtor. The release of the principal debtor discharges the instrument, and
therefore, all the secondary parties are also discharged. However, would not be the case if the
holder reserved his right of recourse against the said subsequence.

5. In the preceding problem, B agrees to extend the time of payment by W. Give the general
rule and the exceptions with respect to the liability of secondary parties. 

In section 120(f), a person secondarily liable on the instrument is discharged ; by any agreement
binding upon the holder to extend the time of payment, or to postpone the holder’s right to
enforce the instrument.

The agreement to extend the time of the payment does not discharge a party secondarily liable:

 Where the extension of time is consented to by such party .

 Where the holder expressly reserves his right of recourse against such party.