Discharge. Richard and Coralea Triplett signed two promissory notes—one for $14,000 and one for $3,500—in favor of FirsTier Bank, N.A. The Tripletts sent the bank a check for $7,200 as payment on the notes. A clerk divided the $7,200 payment to pay

Question

the second note in full and to reduce the amount owed on the first note. The clerk then incorrectly stamped the first note "PAID," signed it, and mailed it to the Tripletts. Later, a different clerk stamped the second note "PAID," signed it, and returned it to the Tripletts. When FirsTier sued the Tripletts in a Nebraska state court for the rest of the money due on the first note, the Tripletts asserted that the bank had stamped "PAID" on the note and returned it. The bank contended that it had not intended to release both notes. In deciding whether the first note was discharged, what factors should the court take into consideration?

Answer 1

Discharge
"Intent" was the principal factor in the eyes of the court. The Supreme Court of Nebraska held that the unintentional cancellation and surrender of a promissory note through a clerical error does not discharge the maker of the note. The court pointed out that under UCC 3-604(a), "[a] person entitled to enforce an instrument * * * may discharge the obligation of a party to pay the instrument (i) by an intentional voluntary act, such as surrender of the instrument to the party * * * or cancellation of the instrument." The court added that "[a]ll jurisdictions that have considered the issue have concluded that clerical error does not have the legal effect of * * * discharging an instrument. This is simply an application of the general rule that cancellation or surrender of an instrument has no effect when done by a person without authority from the holder of the instrument."