Introduction
Contractual obligations and the instruments used to satisfy them are distinct legal concepts. While a contract creates a duty to perform, the method of performance, often involving payment, introduces the role of negotiable instruments like checks. This article explores how different negotiable instruments can impact the underlying obligation they are intended to fulfill.
Taking an Instrument for an Obligation
The mere act of offering an instrument like a check doesn’t automatically discharge the underlying obligation. For the instrument to affect the original obligation, it must be specifically “taken” for that purpose. This means the party owed the obligation (the obligee) must accept the instrument as either conditional or absolute payment.
Let’s consider an example: A buyer agrees to purchase goods for $500 and sends a check for the amount. Simply receiving the check doesn’t constitute “taking” it as payment. However, if the seller deposits the check or endorses it over to another party, this action signifies acceptance of the check as payment, thus fulfilling the “taking” requirement.
The Effect of Different Instruments
The type of negotiable instrument used significantly influences its effect on the underlying obligation.
Certified Checks, Cashier’s Checks, and Teller’s Checks
Instruments like certified checks, cashier’s checks, and teller’s checks carry a higher level of guarantee for payment. When used to satisfy an obligation, their effect is equivalent to paying with cash. The obligation is discharged immediately upon acceptance of the instrument.
This equivalence to cash payment stems from the inherent nature of these instruments. They represent a direct obligation of the issuing bank, guaranteeing the availability of funds. As a result, the obligee is assured of receiving payment. Allowing them to pursue the original debt would lead to double recovery, hence the discharge of the underlying obligation.
Discharge of the Obligor
Once a negotiable instrument is accepted as payment and the underlying obligation is discharged, the obligor (the party who owed the original debt) is released from their responsibility. They are no longer liable for the original debt, as it has been satisfied by the instrument.
Conclusion
Understanding the relationship between negotiable instruments and the underlying obligations they are meant to satisfy is crucial in commercial transactions. The type of instrument used can significantly impact the rights and liabilities of the parties involved.