Liability Of The Endorser

This is provided for under Section 35 of the Act, which states that “In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity, without in such endorsement, expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonor, provided due notice of dishonour has been given to, or received by, such endorser as hereinafter provided.

Every endorser after dishonour is liable as upon an instrument payable on demand."

Before moving on further, it is pertinent to study Section 15 of the Act in relevance to the term ‘endorsement’ and also to define an ‘endorser’. As per Section 15 of the Act, which defines endorsement,

“When the marker or holder of an negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, one the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the endorser."

It is seen that in order to invoke Section 35, firstly and most importantly, there has to be an endorsement of an instrument, which has to be delivered to the endorsee. It has to be noted that it either of this act does not occur, the liability of the endorser does not arise.

Secondly, this section again puts the endorser of the cheque on the same footing as the drawer of a bill/cheque or maker of a note. In the sense that it confers upon him the same levels of liability.

The idea behind this concept of endorsement is essentially on the belief that the bill, cheque or note, will be duly accepted or honored by the drawee or the maker. On the failure of this event happening, the liability of the endorser occurs. So essentially, it is seen that the role of the endorser is pretty much equivalent tot that of a surety, who undertakes the performance by the acceptor of the bill.

It is seen that immediately on the dishonor of an instrument, the older of the instrument, gets an inherent right to sue to endorser at once, which can in no way be challenged. In fact the holder stands in a rather advantageous position as he is in a better position to sue either parties, the drawer for non-compliance or the endorser for failure to ensure compliance on the part of the drawer

Then again it has to be noted that the liability of an endorser arises only when there is an absence of a contract to the contrary. As mentioned in the section itself, the endorser may save himself from liability by either excluding his liability thereon by endorsing sans recourse or by making his liability conditional. If these acts have been adhered to, the endorser would save himself the trouble of being liable.

An aspect which need to be looked in to is to when the endorsers liability is discharged?. In order to answer this, Section 36 of the Act which deals with the liability of prior parties to holder in due course, needs to be looked in to first. This Section states that “Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied."

Section 40 of the act also needs to be looked in to, which states that “Where the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorser's remedy against a prior party, the endorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity."