This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The question of the effect of a renunciation of damages which have arisen out of a breach of a contract, without release under seal, or an accord and satisfaction, or other valuable consideration, and without any element of estoppel, is analogous to the general question of the effect of a gratuitous unsealed release of an existing right of action; if it is not, indeed, merely another form of the same question, since on principle there would seem to be no difference between an unsealed gratuitous release of a right of action for the contract price, given by one who has himself performed in full, and an unsealed gratuitous release of a right of action for damages, given by one who has himself been excused from performance of the covenants on his part to be performed.
It has generally been held that if the holder of a negotiable instrument surrenders it for cancellation to a party who is liable thereon, with the intention of renouncing his rights upon such instrument, full effect will be given to such transaction, and no action can be maintained upon such instrument by the party who has thus surrendered it.1 In some jurisdictions, a gift of a debt by a creditor to a debtor is treated as a discharge, although such debt is not evidenced by a negotiable instrument.2 Under some statutes, a written acknowledgment of satisfaction operates as a discharge, although without consideration.3
In England it was apparently assumed without discussion that a gratuitous waiver by the holder of a bill of exchange would discharge his rights thereon.4 This rule was laid down as a charge by Lord Ellenborough in a case in which the holder recovered;5 and, accordingly, the correctness of such charge was not carried beyond the trial-court. The same rule was also assumed in a case in which the real question decided was that if the first bill were cancelled with the consent of the drawer, and he took an unstamped bill in place of the original bill, it was error to submit the unstamped and invalid bill to the jury as evidence of the assent of the drawer to the cancellation of the first bill.6 This rule was also laid down in a case in which the real holding was that the gratuitous discharge must be express and that no effect could be given to an implied discharge.7 In a case in which the drawer had paid the holder a part of the amount of the bill and had promised to pay the balance in three months, the court held at the trial that such facts amounted to a discharge, as a matter of law, and non-suited the holder; and a new trial was denied, apparently on the theory that the amount involved was small, although the action of the trial-court was probably erroneous.8 It was assumed in a case in which the party who attempted to waive rights under the instrument was not shown to be the holder at that time; 9 in cases in which there was an attempt, at least, to make a new contract;10 and in a case in which there was a technical consideration for the waiver.11 As a result of the earlier cases which have already been cited,12 it was said in a English text-book of great authority:13 "It is a general rule of law, that a simple contract may before breach be waived or discharged without a deed or consideration; but, after breach, there can be no discharge except by deed or upon sufficient consideration. To this rule it is said that contracts on bills, which are regulated by the custom of merchants, form an exception, and the liability of the acceptor, though complete, may be discharged by an express renunciation of his claim on the part of the holder." 14 Relying on this quotation from Byles on Bills, in spite of the fact that the author qualified his statement by the words "it is said," it was finally held in the exchequer in a case in which the point was presented squarely for adjudication, that a promissory note could be discharged by an oral gratuitous renunciation thereof by the holder.15 At about the same time, the cancellation of an acceptance by the mutual assent of the parties was held to be binding.16 In a subsequent case, however, it was said that ordinarily the holder of a bill could give up his rights thereunder, only by a sealed release or by accord and satisfaction; but that if the bill were accepted as an accommodation for the drawer, and the holder knew of such fact when he received the bill, payment by the drawer would operate as a discbarge thereof.17
24 New York, New Haven & Hartford Ry. v. United States, 251 U. 8. 123, - L. ed. -. (In this case, however, it is possible that the United States had performed in full the contract between itself and the railway company. It also appears that the railway company had protested against the amount thus specified.)
1 See Sec. 601.
2 See Sec. 603.
3 This is the effect of Compiled Laws of North Dakota, Sec. 5827, 5828 and
5833. Strobeck v. Blackmore, 38 N. D. 593, 165 N. W. 080.
Section 1177 of the Civil Code of South Dakota (Compiled Laws of South Dakota, 1013) has been amended by eliminating the words "or less than" the amount actually due, so that as it now stands a consideration is necessary for a promise to accept less than the amount due in full satisfaction. Eggland v. South, 22 S. D. 467, 118 N. W. 710.
4 Whatley v. Tricker, 1 Campb. 35; Sweeting v. Halse, 0 Barn. & C. 365; Dingwall v. Dunster, 1 Dougl. 247.
5 Whatley v. Tricker, 1 Campb. 35. 6 Sweeting v. Halse, 9 Barn. & C.
365. (This case was brought by the drawer.)
7 Dingwall v. Dunster, 1 Dougl. 247.
See to the same effect, Farquhar v. Southey, Moody & M. 14, 2 Car. & P. 497; Adams v Gregg, 2 Stark. 531.
8 Ellis v. Galindo, 1 Dougl. 250.
9 Steele v. Benham, 14 M. & W. 831, 3 Dowl. & L. 506.
10 Delatorre v. Barclay, 1 Stark. 7; Cartwright v. William*, 2 Stark. 340.
11 Stevens v. Thacker, Peake, 187 (an affidavit that the signature was forged).
12 Whatley v. Tricker, 1 Camp. 35; Dingwall v. Dunster, 1 Dougl. 235.
13 Byles on Bills (5th edition) 145.
See also, 6th edition, 153.
While this rule has been disapproved by American writers, as well as by American decisions,18 it has been carried into the Negotiable Instruments Law.19 The writing must, however, be the record of the renunciation and not merely the memorandum thereof.20
The result of these inconsistent decisions is that we have two lines of authority in this country: the one holding that the rights arising out of a contract, whether for the contract price, or rights of action for damages, may be discharged by an oral gratuitous renunciation; and the other line of authority holding that a consideration or a sealed release is necessary. The courts which give effect to an oral gratuitous renunciation are not always consistent. In many of the courts in which this view is taken, it is necessary to establish a consideration which is sufficient in law, if the parties attempt to make a compromise,21 or if they attempt to enter into an accord and satisfaction.22
14 The earlier as well as the later editions of Byles on Bills state this rule more positively by omitting the words, "it is said"; and in the later editions "it has been held repeatedly" is substituted for "it is said."
The later editions do not limit the rule to the discharge of the acceptor, but apply to all parties; and give, as a reason for the rule, the necessity of making English law conform, on questions of negotiability, to the civil law, which does not recognize consideration.
15 Foster v. Dauber, 6 Exch. 839.
16 Ralli v. Denistown, 6 Exch. 483.
17Cook v. Lister, 13 C. B. (N.S.) 543.
18 Bragg v. Danielson, 141 Mass. 195, 4 N. E. 622; Seymour v. Minturn, 17 Johns. (N. Y.) 169, 8 Am. Dec. 380.
19 See Sec. 122, Negotiable Instruments Law.
For a discussion of the effect of this section of the Negotiable Instruments Law on the necessity of consideration, see Sec. 541.
20 In re George, 44 Ch. D. 627.
As in other cases in which the same general question is presented,23 it may well be that our law would have made a wiser choice if it had recognized and enforced all deliberate promises intended to induce the other party to act thereon, whether supported by a consideration or not. As long, however, as our law insists on consideration as a requisite of a simple contract, it seems unfortunate that a plain requirement should be evaded by the device of calling the transaction a renunciation or a waiver.
21 See Sec. 612 et seq.
22 See Sec. 2506 et seq.
23 See Sec. 656.