Indorser's Obligation

1. Indorser's Obligation

2. How does liability arise? • Payee or later holder indorses a note or check. • Happens automatically regardless of indorser’s intent.

3. Liability of Indorser -- Generally • Secondary Liability Three conditions precedent must occur before the holder can sue the indorser.

4. 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.

5. 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.).

6. 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.

7. Disclaiming Liability withQualified Indorsement • An indorser may disclaim liability by including the phrase “without recourse” in the indorsement.

8. Order of Liability • Presumed liable in order of signatures. • Sue prior indorsers for payment. • Liable to later indorsers.

9. 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.

10. 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.

11. Problem 130 – p. 424 Maker Ivory Marian Payee “Without recourse” Friendly Loan Co.