Discharge of a negotiable instrument under the Philippine Negotiable Instruments

Law (Act No. 2031) is the extinction of the liability of the parties to the instrument,
either wholly or partially. Discharge may be by operation of law or by agreement of
the parties.

Discharge by operation of law occurs in the following cases:

● Payment in due course: Payment to the holder in due course discharges the
instrument.
● Cancellation: Intentional cancellation of the instrument by the holder with the
intent to discharge it.
● Alteration: Material alteration of the instrument without the assent of all parties
liable thereon discharges any party who does not assent to the alteration.
● Accord and satisfaction: An agreement between the holder and the party
liable on the instrument to accept something other than full payment in
discharge of the instrument.
● Novation: An agreement between the holder and the party liable on the
instrument to substitute a new obligation for the old one.
● Merger: When the holder of the instrument becomes the principal debtor
thereon, the instrument is merged in the debt and the instrument is
discharged.
● Lapse of time: A negotiable instrument payable on demand must be
presented for payment within a reasonable time after its issue or the drawer
and indorsers are discharged. A negotiable instrument payable at a fixed time
must be presented for payment on the day it is due or the drawer and
indorsers are discharged.

Discharge by agreement of the parties may take place in any form, but it is generally
advisable to have a written agreement to avoid disputes. Some examples of
discharge by agreement of the parties include:
 ● Release: A written agreement by the holder to discharge a party from liability
on the instrument.
● Waiver: A voluntary surrender by the holder of a known right.
● Extension of time: An agreement between the holder and the party liable on
the instrument to extend the time for payment of the instrument.

It is important to note that the discharge of a negotiable instrument discharges all

subsequent parties to the instrument. For example, if the maker of a promissory note
is discharged, the payee and any indorsers are also discharged.

Here are some additional points to note about the discharge of negotiable
instruments in the Philippines:

● A negotiable instrument can only be discharged by the holder.

● A negotiable instrument that is discharged cannot be negotiated again.
● A negotiable instrument that is discharged can still be used as evidence of a
debt, but the holder cannot enforce payment of the instrument.

If you have any questions about the discharge of negotiable instruments, you should
consult with an attorney.