Indorser's Obligation - PowerPoint Presentation

Slide1

Indorser's ObligationSlide2

How does liability arise?

Payee or later holder indorses a note or check.

Happens automatically regardless of indorser’s intent.Slide3

Liability of Indorser -- Generally

Secondary Liability

Three conditions precedent must occur before the holder can sue the indorser.Slide4

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.Slide5

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.).Slide6

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.Slide7

Disclaiming Liability with

Qualified Indorsement

An indorser may disclaim liability by including the phrase “without recourse” in the indorsement.Slide8

Order of Liability

Presumed liable in order of signatures.

Sue prior

indorsers

for payment.

Liable to later

indorsers

.Slide9

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

.Slide10

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.Slide11

Problem 130 – p. 424

Maker Ivory

Marian Payee

“Without recourse”

Friendly Loan Co.