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CS Professional · Banking and Insurance - Laws and Practice · Payment and Collection of Cheques and Other Negotiable Instruments

Mehta & Sons holds a promissory note made by Rao Ltd and indorsed to it by Sharma. Mehta & Sons strikes out Sharma's name from the note, intending to release him from liability. Which is correct?

Sharma is discharged by cancellation. When a holder cancels an indorser's name with intent to discharge him, the indorser is released as against that holder and all parties claiming under that holder; no consent from the maker is needed.

  1. ASharma is discharged by cancellation to Mehta & Sons and to parties claiming under itCorrect
  2. BSharma is discharged only if Rao Ltd consents
  3. CSharma remains liable because only payment can discharge an indorser
  4. DSharma is discharged only to Mehta & Sons, not to later holders under it

Explanation

Section 82(a) discharges an indorser by cancellation, to a holder who cancels the indorser's name with intent to discharge him, and to all parties claiming under such holder. Mehta & Sons cancelled with that intent, so Sharma is discharged against it and its successors. The last option ignores the 'parties claiming under such holder' wording.

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