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Learn about the obligations and liabilities of indorsers when endorsing notes or checks, including secondary liability, conditions for suing, disclaiming liability, and the order of liability. Understand the role of indorsers in the payment chain and their rights for recovering payments.
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How does liability arise? • Payee or later holder indorses a note or check. • Happens automatically regardless of indorser’s intent.
Liability of Indorser -- Generally • Secondary Liability Three conditions precedent must occur before the holder can sue the indorser.
1. Presentment • Note – holder previously presented to maker. • Draft (e.g., check) – holder previously presented to drawee (e.g., bank on which the check is drawn; the drawer’s bank). • Must be done within 30 days of indorsement.
2. Dishonor • Note – Maker refuses to pay. • Draft (e.g., check) – Drawee refuses to pay (e.g., the check bounces for insufficient funds, closed account, etc.).
3. Notice of Dishonor to Indorser • General Rule = Indorser is given notice of the dishonor within 30 days of the dishonor. • Collecting Bank = Indorser is given notice of the dishonor by the midnight deadline.
Disclaiming Liability withQualified Indorsement • An indorser may disclaim liability by including the phrase “without recourse” in the indorsement.
Order of Liability • Presumed liable in order of signatures. • Sue prior indorsers for payment. • Liable to later indorsers.
Problem 128 – p. 422 Drawer Payee – I1 Bigelow Snow Bascombe – I2 Drawee Jordan State Bank – I3 Rogers An indorser in chain of title is a sub-surety and can recover all from earlier indorser.
Problem 129 – p. 422 Maker Bank Charlie Payee Lucy – I1 Schroeder – I2 Pig Pen – I3 Patty – I4 An indorser not in chain of title is a co-surety and is only entitled to contribution.
Problem 130 – p. 424 Maker Ivory Marian Payee “Without recourse” Friendly Loan Co.
