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negotiable-instruments:indorser-who-excludes-his-own-liability

Indorser who excludes his own liability or makes it conditional

Section 52 of the Negotiable Instruments Act,1881.

The indorser of a negotiable instrument may, by express words in the indorsement, exclude his own liability thereon, or make such liability or the right of the indorsee to receive the amount due thereon depend upon the happening of a specified event, although such event may never happen. Where an indorser so excludes his liability and afterwards becomes the holder of the instrument all intermediate indorsers are liable to him.

Illustrations

(a) The indorser of a negotiable instrument signs his name, adding the words “Without recourse”. Upon this indorsement he incurs no liability.

(b) A is the payee and holder of a negotiable instrument. Excluding personal liability by an indorsement “without recourse”, he transfers the instrument to B, and B indorses it to C, who indorses it to A. A is not only reinstated in his former rights, but has the rights of an indorsee against B and C.

This section deals with conditional or qualified endorsement as distinct from restrictive endorsement which relates to the negotiability of an instrument. The conditions referred to in this section have nothing to do with the negotiability of an instrument. It is important to note that the section relates only to the endorsement and not to the making or drawing of an instrument for the obvious reason that neither the making nor the drawing of a negotiable instrument can be conditional, as the first sine qua non of such an instrument is that it must contain an unconditional undertaking or order to pay.

Qualified indorsement

While the maker of a note or the drawer of a bill can impose no condition for payment the indorser is in a much better position than either of them and can by express words altogether exclude or limit his liability to the endorsee as indicated in the illustrations to the section. His liability to the endorsee will be regulated by the nature of his endorsement. He may altogether negative his own liability by adding to his endorsement the words “Without recourse”, “Sans recourse”, “at his own risk”, “not liable in case of non-payment” or words to that effect sufficient to indicate his meaning.

In such cases he, as an endorser, will not at all be liable to the endorsee. But this does not absolve him absolutely from all liabilities. He will still be liable as a mere transferor by delivery. These endorsements do not indicate that the parties are conscious of any defect in the security.

Conditional endorsement

Without, however, altogether excluding his own liability the endorser can by express words in the endorsement limit his own liability or the right of the indorsee to receive the amount from any party by adding conditions, precedent or subsequent. If a condition precedent is added as, payable on the indorsee attaining 21 years, his liability to pay will arise after the condition is fulfilled and not before i.e, after the endorsee attains 21 years. Similarly, the payment can be made dependent on the happening of an event as “on the indorsee marrying B” which may never happen. In that case his liability will stand extinguished. If the condition be subsequent, as when a bill is endorsed as “Pay to A or order, unless, before payment, I serve you with a notice to the contrary”, the title of the endorsee to recover will be defeated if such a notice is given to the maker of the note before payment. If no such notice is given he shall recover. The endorser can also limit the right of the endorsee to recover the amount from the maker or any prior party to the instrument by adding conditions similar to the above. After a qualified or conditional endorsement is made each subsequent endorsee takes the instrument subject to the same qualifications or conditions. Where the conditions stipulated do not happen and the right of the endorsee to recover is defeated he cannot sue either the endorser or any prior party thereto as title to the instrument does not pass to him before the conditions are fulfilled.

Facultative endorsement

Just as an endorser can exclude or limit his liability he can also enlarge the same by adding appropriate words to that effect in his endorsement. As for instance, he can waive presentment or notice of dishonour he is ordinarily entitled to.

Notice of conditions

An acceptor of a bill or a note is bound to take notice of the condition of indorsement as he is bound by the conditions imposed and cannot pay unless these are fulfilled. Thus, where a bill was made payable to the endorsee on certain conditions and subsequently passed through several hands and was afterwards paid by the acceptor before the conditions were fulfilled the acceptor was held liable to pay the bill again to the payee.

Back negotiation

Ordinarily where a note is negotiated back to a prior party he cannot enforce payment against intermediate parties to whom he was originally liable. Thus, A endorses a note to B or order B endorses it to C and C to D. D again endorses it back to A. A being originally liable to B, C, D cannot enforce payment on the note against them. But the rule enunciated in the last clause of this section is an exception to this general rule. Here A can proceed against all the intermediate parties on the ground that having endorsed the instrument “Sans recourse” he incurred no liability to his endorsee and other subsequent endorsees and, therefore, by negotiating the note back to him all of them become liable to him and he can recover from them.