TEORÍA DE LAS RELACIONES HUMANAS DE ELTÓN MAYO

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.

By Principal Debtor

Agbayani: In order to discharge the instrument, the payment must be (1) a

payment in due course; (2) a payment made by the principal debtor.

If payment is made before the date of maturity, the instrument is not discharged as the payment is not in due course. It will merely constitute a negotiation back to the principal debtor who can renegotiate the instrument.

Where the payment is made by a party who is not the primary obligor or an accommodation party, his payment only conceals his own liability and those obligated after him. All prior parties primarily liable or secondarily liable to the bill, are liable to such payer, and the payer may cancel indorsements subsequent to his own and re-issue the paper, and it will be valid against the prior parties.

LEXSOCIETAS 94 The term “principal debtor” refers to the person ultimately bound to pay the debt.

This is true whether he is a party to the instrument or not, or whether he appears to be liable primarily or secondarily in the instrument.

Campos: Payment is the most usual way of discharging a bill or note. Since a

negotiable instrument must contain an unconditional promise or order to pay a sum certain in money, payment should be in money in order to effect its discharge. If the parties agree to discharge the instrument by a renewal note, it would be discharged not by payment strictly speaking, but by novation or by agreement, which modes are expressly recognized under Section 119 (d).

Payment must be made by or on behalf of the principal debtor, otherwise it would constitute a purchase or negotiation, and the instrument would remain outstanding. “Principal debtor” would include the maker and the acceptor. Although the drawee is not a party until he accepts and payment by him is literally not a discharge under Section 119, he fulfills the representation made by the drawer and by the indorsers and therefore payment by him will also discharge the instrument.

Sebastian: As a rule, there must be payment in due course by on or behalf of a

principal debtor. It may also be made by a accommodation party.

In civil law, a creditor is not compelled to accept a third party payment. But in Negotiable Instruments Law, it is possible. If a holder refuses to accept payment from a person who could be made to pay, that person and all subsequent parties are discharged. A third party payment can be made by a total stranger (i.e. payment for honor).

Performance of the obligation has to be plain and simply the payment of money. As a rule, a negotiable isntrument is discharged by payment. However, not all payments discharges an instrument. There are people who can make payment that will not discharge the instrument.

Not all types of payment will discharge the instrument. It must be payment in due course. Under Section 88 payment must be made at or after maturity. If not at or after maturity, it will be considered a negotiation of the instrument. This is because the instrument can still be renegotiated. When the person primarily liable on the instrument pays it before due date, it is not payment in due course, but it can still still extinguished because of confusion or merger of the rights of the debtor and creditor.

Payment must be made to the holder, otherwise, the instrument is not discharged.

Payment must be made in good faith and without notice of the defect of the title of the holder.

By Third Person

The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (Art. 1236, Civil Code)

Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (Art. 1237, Civil Code)

Agabayani: If payment is made by a third person, the instrument is not

discharged because payment is not made by the person principally liable. When one who is not a party to a negotiable paper pays his money for it and takes up the paper, the presumption is that he has bought it and not paid it off. It must be understood that not any one who desires may pay the instrument and then recover of the maker. He must be a person who has in some way made himself liable for the payment of the instrument. There is however one exception to this, and that is where an instrument has been protested and some one voluntarily makes ‘payment supra protest’ or ‘for honor’. And if the intention was to give the money in payment, the instrument is discharged. Under the New Civil Code, a third person can make payment for an obligor.

Sebastian: When the instrument is paid by a third party, not a party to the

instrument or a virtual stranger, the instrument cannot be presumed to have been paid.When a person makes a payment and he is not the party obligated to pay, there is a presumption that the instrument was negotiated to him. This presumption can be overturned when there is expressed that the payment is to discharge the instrument.

By Accommodated Party

Agbayani: As between the accommodation party and the accommodated party,

the latter is the one ultimately liable on the accommodation instrument. Hence, his payment in due course discharges the instrument as if payment was made by the principal debtor.

LEXSOCIETAS 95 Campos: Payment by the accommodated party if the instrument is made or

accepted for his accommodation is actually payment by the principal debtor, whether or not he appears to be a party to the instrument.

Cancellation by Holder

Agbayani: The cancellation must be intentional and made by the holder.

Cancellation may be done by tearing the instrument, burning it or writing across it the word “cancelled.”

There must be an intention to cancel the negotiable instrument by the holder thereof as such intention is an essential element of discharge on a negotiable instrument and a negotiable note in a torn condition is presumed cancelled by the holder thereof. Thus, the instrument is not discharged where the cancellation is made under a mistaken belief that it has been fully paid when as a matter of fact there is a failure of such payment, or where cancellation is induced by fraud.

Sebastian: What is important here is that cancellation must be intentional.

Only the holder can do this. In this case, the presumption is that he does not intend to recover from the party primarily liable on the instrument. This presupposes that the holder gave consent to the cancellation. It is not enough to say that the cancellation was intentional. It is equally important to say that cancellation was not only intentional, but it must be a cancellation that is free from any vice of consent. When you cancel an instrument, the presumption is that it is intentional. To enforce the instrument, you must prove that the cancellation was unintentional.

By Acts that Discharge a Money Debt

Agbayani: Novation would discharge the instrument.

However, it has been opined that paragraph (d) of Section 119 is meaningless and inoperative in light of the other provisions of Section 119, and that consequently the provision has not altered the unwritten rule as to discharge of negotiable instruments, either as between the parties or with respect to holders in due course.

By Merger or Legal Compensation

The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (Art. 1275, Civil Code)

In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due; 


(4) That they be liquidated and demandable; 


(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Art. 1279, Civil Code)

Extension of Time of Payment

Agbayani: An extension of time granted by the holder to the debtor will not

discharge the instrument because this ground is not omitted in Section 120 and it is omitted in Section 119.

Sebastian: Extension of time without consent of parties secondarily liable will

discharge them. This makes the obligation of the parties secondarily liable more onerous. In altering the tenor of the instrument, there must be consent of the person primarily liable and all parties secondarily liable.

Principal Debtor Acquires Instrument

Agbayani: In order to discharge an instrument under paragraph (e),

reacquisition mmust be (1) by the principal debtor, (2) in his own right, and (3) at or after the date of maturity.

In his own right means not in a representative capacity.

Reacquisition by the principal debtor in his own right but before maturity will not discharge the instrument. It will merely constitute a negotiation back to the principal debtor who, under authority of Section 50, may renegotiate the instrument.

Discharge by Operation of Law

Agbayani: An instrument may be discharged by operation of law. If a judgment

is obtained on a bill or a note, the bill or note is thereby extinguished and merged in the judgment. But the judgment alone, without actual satisfaction, is not extinguishment as between the plaintiff and other parties not jointly liable with the original defendant, whether those parties be prior or subsequent to the defendant.

A discharge in bankruptcy, unless otherwise provided by statute, releases a bankrupt from all his provable debts, and therefore will discharge the bankrupt on all bills accepted, or notes made by him but will not discharge the other parties.

LEXSOCIETAS 96 A discharge (1) of a party not given due notice of dishonor or (2) by the Statute of

Limitation is a discharge by operation of law.

Sebastian: Discharge of the person by operation of law does not discharge the

instrument. When a person primarily liable is excused by the law from payment of the instrument, there is a discharge by operation of law. Take note, the instrument is not yet discharged.; only the person. Persons secondarily liable will remain liable as indorsers. Thus, when the party primarily liable is discharged by operation of law, the instrument is not discharged because parties secondarily liable are still required to pay.

In execution of judgment, the instrument is not discharged because it is not the instrument that you are paying; it is the judgment of the court that is being executed.