The discharge of liabilities may be either the discharge of instrument itself or the discharge of one or more parties to the instrument. An instrument is discharged when all rights of action come to an end, with the result that if it subsequently comes into the hands of a person, who takes it bona fide and value he acquires no rights under it. The discharge of one or more parties from liability on an instrument may not affect the liability of the other than is the non-presentment of a bill of exchange on the due to date discharges all parties except the acceptor from liability. The maker, acceptor on endorser respectively of a negotiable instrument is discharged from liability thereon in the following ways.
When the maker, acceptor or drawee makes payment of the instrument to the holder thereof, all the parties are thereby discharged from liability. In the case of an instrument payable to bearer, the discharge takes place of means of a payment in due course made to the possessor, not necessarily the holder.
When the holder cancels the name of the acceptor or any endorser with the intention of discharging him, such party is discharged from liability to the holder and to all parties claiming under such holder.
3. By Release
When the holder releases the maker, acceptor or endorser otherwise than by cancellation, the party so released is discharged from liability to the holder and to all parties’ title under such holder after notice of such release.
4. By defaults
The following defaults on the part of the holder operate as a discharge of a party or parties to an instrument
a. Failure to present
If the holder fails to present the bill for acceptance, no party is liable to such holder.
b. Failure to present for payment
If the holder fails to present the instrument for payment, no party is liable to such holder unless there is a legal excuse for presentment.
c. Time allowed
If the holder of bill allows the drawee more than 48 hours to consider for acceptance (exclusive of Public Holidays) all previous parties not consenting to such allowance are discharged of liabilities to such holder.
d. Qualified acceptance
If the holder agrees to a qualified acceptance, all previous parties whose consent is not obtained to such acceptance are discharged of liabilities as against the holders and those claiming under him.
e. Notice of dishonor
If the holder fails to give notice of dishonor to all previous parties, they are discharged as against the holder and those claiming under him. But the acceptor of a bill or the maker thereof still remains liable to the holder as they are already parties to the bill.
5. Relation with the bank
If a holder of a cheque fails to present it before the relation between the drawer and the banker is altered to the prejudice of the drawer and the drawer suffers damage due to such delay, the drawer is discharged of all liabilities to the holder.
6. By material alteration or charge
Any material charge or alteration of a negotiable instrument while in the possession of the holder discharges the liability of all parties prior to or at the time of such alteration who do not commit to such alteration. Alteration by a stranger will have the same effect as it were made by the party himself.
Alternation can be in such things
ii. Time of payment
iii. Place of payment
iv. The amount payable
v. Mode of payment
vi. Of parties etc
Liability not discharged by alteration
In the following cases of alteration the liability is not discharged
1. Alteration made before the completion of the instrument
2. Alteration made to rectify of error.
3. Alteration made with the consent of parties.
4. Alteration made to change blank endorsement into full endorsement.
5. Alteration made by way of crossing a bearer cheque.
6. Alteration made by an accident and circumstances of such accident should be shown.