Discharge from Liability and Material Alteration (Sections 82 to 90)

Liability on an instrument ends in many ways. Some events discharge the instrument itself, so that no one can sue on it; others discharge only particular parties, while the rest remain liable. Chapter VII of the Act deals with discharge by cancellation, release and payment, discharge of parties through the holder's own conduct, the effect of material alteration, and the extinguishment of rights when the acceptor holds his own bill. General contract law adds further modes.

1. Cancellation, Release and Payment (Section 82)

Under Section 82, the maker, acceptor or indorser is discharged:

• (a) By cancellation: as against a holder who cancels the acceptor's or indorser's name with intent to discharge him, and all parties claiming under that holder. Accidental or unauthorised cancellation does not discharge.
• (b) By release: as against a holder who otherwise discharges the maker, acceptor or indorser, for example by a written release or a renunciation, and all parties deriving title under that holder after notice of the discharge.
• (c) By payment: as against all parties, if the instrument is payable to bearer or indorsed in blank and the maker, acceptor or indorser makes payment in due course (Topic 27).

2. Discharge of Parties by the Holder's Conduct

• Extra time to accept (Section 83): if the holder allows the drawee more than 48 hours (excluding public holidays) to decide whether to accept, all previous parties not consenting are discharged as against him.
• Delay in presenting a cheque (Section 84): where a cheque is not presented within a reasonable time and the drawer suffers actual damage through the delay, he is discharged to the extent of that damage; the holder becomes a creditor of the banker in his place (Topic 17).
• Qualified acceptance (Section 86): if the holder acquiesces in a qualified acceptance, previous parties who did not consent are discharged unless they assent on notice (Topic 18).
• Non-presentment and want of notice: failure to present as required (Sections 61, 62 and 64) or to give notice of dishonour (Section 93) discharges the parties entitled to them (Topics 25, 26 and 30).
• Suretyship rules (Sections 39 and 40): a release of, or giving time to, the acceptor may discharge other parties unless rights are reserved; impairing an indorser's remedy discharges him (Topic 19).

3. Protection of Paying Banks (Sections 85 and 85A)

Section 85 provides that a bank paying in due course an order cheque that purports to be indorsed by or on behalf of the payee, or a cheque originally payable to bearer, whatever indorsements appear on it, is discharged. Section 85A gives similar protection for drafts drawn by one office of a bank on another (Topic 35).

4. Material Alteration (Sections 87 to 89)

What is material

An alteration is material if it changes the legal effect or operation of the instrument, or the rights and liabilities of the parties. Typical examples:

• altering the date, the amount, the time or place of payment, or the rate of interest;
• adding or changing the payee, or converting an order instrument into a bearer instrument;
• adding a new party as maker, or removing one of joint makers;
• converting a joint note into a joint and several note.

What is not a material alteration

• Authorised completion of an inchoate instrument (Section 20).
• Conversion of a blank indorsement into a full one (Section 49).
• A qualified acceptance with the holder's acquiescence, which has its own consequences (Section 86).
• Crossing a cheque by the holder or a bank (Section 125).
• Correcting an obvious mistake or carrying out the common intention of the original parties.
• Changes that do not affect legal effect, such as adding a witness's signature or writing the amount in figures where words already state it.

Effect

• Void against non-consenting parties: the instrument is void against every person who was a party when the alteration was made and did not consent, even in the hands of a holder in due course.
• Consenting and later parties: a party who consented, or who accepted or indorsed after the alteration, is bound by the instrument as altered (Section 88).
• Alteration by an indorsee: discharges his own indorser from liability to him in respect of the consideration as well.
• Unapparent alteration (Section 89): a person or bank paying an instrument whose material alteration, or a cheque whose crossing or obliterated crossing, is not apparent, according to its apparent tenor and otherwise in due course, is discharged. For truncated cheques, any difference between the image and the paper cheque is a material alteration, and the truncating bank or clearing house must ensure the image is exact.

5. Acceptor Holding His Own Bill (Section 90)

If a bill that has been negotiated is, at or after maturity, held by the acceptor in his own right, all rights of action on it are extinguished. The debtor and creditor have become the same person, and the obligation merges.

6. Discharge Under the General Law

• Novation or substitution: a new instrument or contract accepted in place of the old (Section 62, Contract Act).
• Renunciation or waiver by the holder.
• Limitation: the remedy, though not the debt, is barred after the period under the Limitation Act, 1963 (Topic 11).
• Insolvency: a discharge in insolvency proceedings releases the debtor as provided by insolvency law (Topic 53).

7. Related Topics and Provisions

• Indorsers, principal and surety (Topic 19)
• Payment in due course (Topic 27)
• Notice of dishonour (Topic 30)
• Paying banker (Topic 35)