Payee or later holder indorses a note or check. Happens automatically regardless of indorser’s intent.
Secondary Liability Three conditions precedent must occur before the holder can sue the indorser.
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.
Note – Maker refuses to pay. Draft (e.g., check) – Drawee refuses to pay (e.g., the check bounces for insufficient funds, closed account, etc.).
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.
An indorser may disclaim liability by including the phrase “without recourse” in the indorsement.
Presumed liable in order of signatures. Sue prior indorsers for payment. Liable to later indorsers.
DrawerPayee – I1 BigelowSnow 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.
MakerBank CharliePayee 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.