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Liability of prior parties to holder in due course

Section 36 of Negotiable Instruments Act,1881.

Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.

The expression, “Prior party”, means the maker, the drawer, the acceptor and other intervening parties upto the last holder. This section makes every party to a note liable to all subsequent holders in due course so long as the note remains unsatisfied or undischarged i.e, until the liabilities of all parties are extinguished by payment or satisfaction by the maker at or after maturity. The indorsee can make all persons whose names appear on the note on the date of the indorsement in his favour liable to him until the note is paid off. The holder can claim the amount from and sue all or some of the parties at his option.

Payments, satisfying the bill or note, must be endorsed on the same. When there is no indorsement of payment on the note or the bill, the indorsee is entitled to recover the full amount When the maker of the note makes full payment but fails to take back the note and the note is passed off to a subsequent holder in due course the liability under the note is not extinguished and all prior parties will be liable to the last holder. If a note is paid by the maker before maturity and is revived by him, after taking return of it, before maturity, the liability of the intervening parties will stand extinguished.

If an indorser pays a note at or after maturity and again becomes a holder he reverts to his former position as against the prior parties though there is no reindorsement in his favour. He may, without cancelling the indorsements subsequent to that which made him the holder, negotiate the instrument and sue upon it. When a holder strikes off the name of a prior party the liability of the person whose name is thus struck off as also the liability of parties subsequent to him stand extinguished.

Indorsement for collection may be struck out by the owner of the bill.