The Negotiable Instruments Law Sample Cases

CHAPTER VIII
DISCHARGE OF NEGOTIABLE INSTRUMENT

Release of the principal debtor by act of holder

Suppose M is the maker of an instrument payable to the order of P who indorsed it to A, by A to B, and by
B to C, the present holder. If C releases M, the maker P, A, and B, the persons secondarily liable, are
likewise discharged. But if C, iii releasing M, expressly reserved his right against the parties secondarily
liable, then they are not discharged. By such reservation, it is understood that the right of recourse of P,
A, and B against M are also reserved.

Negotiation by prior party

R is the drawer of a bill addressed to W, the drawee, and payable to the order of P. The bill is accepted by
W and indorsed by P, A, B, and C in succession. If A pays the bill, it is not discharged, but it discharges
him and B, and C to whom he is personally liable. But he "is remitted to his former rights as regards all
prior parties" R and P, and he may strike out his indorsement to B as well as the indorsement of C and
renegotiate the instrument. Of course, A's right to sue R and P and to renegotiate may be exercised even
without cancelling intervening indorsements. If the bill is paid by R, the case would come under subsection
(a) and so R cannot further negotiate the bill. If P is an accommodated party and P pays, neither can he
renegotiate the bill as his case would fall under subsection (b).

Effect of renunciation
D is the holder of an instrument made by M and indorsed in succession by P, A, B, and C. If D renounces
his rights against B, then B and C are discharged. If D makes the renunciation in favor of M, the
instrument is discharged as well as all the parties. Now, if D, after he has made the renunciation,
negotiates the instrument to E, a holder in due course without notice, E can still enforce the instrument
because under the law "a renunciation does not affect the rights of a holder in due course without notice."

Alteration of instrument
M makes a promissory note for P3,000.00 payable to P or order. P negotiates the note to A who, with the
consent of P, raises the amount to P8,000.00 and thereafter indorses it to B, B to C, and C to D, under
circumstances which make D not a holder in due course. The note is discharged as against M; hence, D
cannot enforce it as against M even for the original tenor. A, however, would be liable to D for P8,000.00
as he is the party who himself made the alteration although D is not a holder in due course. Moreover, as
indorser, A warrants that the instrument is genuine and in all respects what it purports to be. (Sees. 65
and 66.) P would also be liable to D for P8,000.00 as he authorized or
assented to the alteration. Likewise, B and C would be liable to D for P8,000.00 as they are subsequent
indorsers.

In the example given, if D were a holder in due course, he could enforce the instrument against M for
P3,000.00, its original tenor, (see Sec. 14.) Of course, D can recover from P, A, B, or C P8,000.00 should
M 1dishonour the instrument.

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The Negotiable Instruments Law Sample Cases

TITLE II
BILLS OF EXCHANGE
CHAPTER IX FORM AND INTERPRETATION