One of the methods to discharge any debt originating from a negotiable instrument is the tender of payment for that instrument. This would seem to be a fairly obvious method of discharging the negotiable instrument, as payment would, essentially, be simply fulfilling the conditions of the negotiable instrument.

But it is possible in some cases for the party to whom tender of payment is made to choose not to accept that payment. In such a case, the Uniform Commercial Code (UCC) provides for specific rules as to exactly what happens to any debt or obligation to pay the negotiable instrument.

Essentially, any payment, no matter what size, paid on a negotiable instrument will always result in some form of discharge of obligation. If, for instance, Alan had given Quinn a promissory note with the agreement that Alan would make a payment of $100 to Quinn by a date 3 months from the note’s issuance, then Alan would have an obligation to make a payment of $100 to Quinn.

If Alan then gave Quinn $50 in an attempt to pay off part of that obligation, then according to the Uniform Commercial Code, $50 of that $100 debt would be discharged. If Quinn refused to accept the tender of payment made by Alan, then legally $50 of the debt would still be discharged regardless of the fact that Quinn refused to accept the payment.

In other words, the obligation of the payer to make tender of payment ends with that tender of payment; it does not extend to ensuring that the payment is accepted. Furthermore, if interest were involved, then the party providing tender of payment would not be required to pay any interest on the payment amount after the due date of the loan.

There is no law requiring acceptance of payment when tender of payment is made; hence the rules in the UCC concerning payment and its discharge of debt. In the end, the main point of the UCC in this matter is that as long as the primarily liable party is ready, willing, and able to make payment of the appropriate amount by or at the appropriate time in the appropriate ways, then it does not matter whether or not that tender of payment is accepted, as the obligation of the primarily liable party will have been discharged.

Tender of payment, when made from the primarily liable party to the holder of the negotiable instrument, will discharge all debt from all parties involved if that payment is made in full, regardless of whether or not the holder accepts payment. This covers situations in which the issuer of a promissory note fully pays the note’s holder, and situations in which the drawee of a draft pays the current holder in good faith.

If, however, any tender of payment is made by a party other than the primarily liable party, or is made to any party other than the current holder, then the rules on exactly which parties will have been discharged will change.

Tender of payment made by any party other than the primarily liable party will discharge the obligations of that party and any subsequent party, and no one else. Thus, such tender of payment would essentially protect the payer without discharging all the obligation surrounding the negotiable instrument.

While payment is the primary method of discharge of obligation for the party holding the obligation, another means of discharge is for the negotiable instrument which is the source of the obligation to be canceled. Under the UCC (Uniform Commercial Code), the holder of a negotiable instrument can cancel the instrument. This holder has to be the party entitled to enforce the instrument according to the UCC. The holder can cancel the instrument in any number of ways, under a myriad of circumstances, because the holder has primary power over the instrument.

Any action that the holder takes with regard to the negotiable instrument designed to show discharge of obligation will generally be enough to discharge that negotiable instrument. The key element here is that those actions must be designed to show discharge of the negotiable instrument. If the holder, for instance, tears up a check with intent to discharge all obligation from the check, then the act will have done so.

If the holder writes “Paid” across the check with the same intent, then the same function will be served, according to the UCC. The holder can cancel the instrument for individual parties by crossing out those parties’ signatures on the check, thus removing their obligation (but notably under the UCC, not removing their status or rights as gained from the endorsement of the instrument). Another way to cancel the instrument would be to give, or surrender, the instrument to the party being discharged of obligation.

Such actions would, unless oriented at a specific party, discharge the obligations of all parties. As long as the holder took these actions knowingly and with intent to cancel the instrument, then they hold legal weight regardless of the fact that they might take a number of different forms. 

If, on the other hand, the holder takes any such action without intent to cancel the instrument or discharge the debt, then the instrument is not canceled. This is enforced outside of the UCC, thanks to such cases as Huntington National Bank v. Mark, which held that an unintentional clerical error leading to the phrase “paid” being written across a check did not actually cancel the instrument.

The only way to cancel the instrument is to genuinely intend to do so; simple mistakes will not have the same effect. Thus, accidentally tearing a check in two would not cancel the instrument. Furthermore, if the holder was not the party to tear the check in two, then the action would similarly not cancel the instrument regardless of the intent of the tearing party. As the UCC states, the only person who can release the obligation from the negotiable instrument and cancel the instrument is the person entitled to enforce that instrument. 

A holder can similarly cancel the instrument by renouncing his or her rights towards the instrument in a written document, according to the UCC. If the holder agrees not to sue a party obligated to the holder through the negotiable instrument, or if the holder renounces his or her rights against that party, then the holder has essentially canceled the instrument for that party.