Obligation of indorser.
(a) Subject to subsections (b), (c), and (d) and to section 3-419(d), if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument (i) according to the terms of the instrument at the time it was indorsed, or (ii) if the indorser indorsed an incomplete instrument, according to its terms when completed, to the extent stated in sections 3-115 and 3-407. The obligation of the indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section.
(b) If an indorsement states that it is made "without recourse" or otherwise disclaims liability of the indorser, the indorser is not liable under subsection (a) to pay the instrument.
(c) If notice of dishonor of an instrument is required by section 3-503 and notice of dishonor complying with that section is not given to an indorser, the liability of the indorser under subsection (a) is discharged.
(d) If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under subsection (a) is discharged.
(e) If an indorser of a check is liable under subsection (a) and the check is not presented for payment, or given to a depositary bank for collection, within thirty days after the day the indorsement was made, the liability of the indorser under subsection (a) is discharged.
Source:Laws 1991, LB 161, § 56.
1. Subsections (a) and (b) restate the substance of former section 3-414(1). Subsection (2) of former section 3-414 has been dropped because it is superfluous. Although notice of dishonor is not mentioned in subsection (a), it must be given in some cases to charge an indorser. It is covered in subsection (c). Regulation CC, section 229.35(b), provides that a bank handling a check for collection or return is liable to a bank that subsequently handles the check to the extent the latter bank does not receive payment for the check. This liability applies whether or not the bank incurring the liability indorsed the check.
2. Section 3-503 states when notice of dishonor is required and how it must be given. If required notice of dishonor is not given in compliance with section 3-503, subsection (c) of section 3-415 states that the effect is to discharge the indorser's obligation.
3. Subsection (d) is similar in effect to section 3-414(c) if the draft is accepted by a bank after the indorsement is made. See comment 3 to section 3-414. If a draft is accepted by a bank before the indorsement is made, the indorser incurs the obligation stated in subsection (a).
4. Subsection (e) modifies former sections 3-502(1)(a) and 3-503(2)(b) by stating a 30-day rather than a seven-day period, and stating it as an absolute rather than a presumptive period.
5. As stated in subsection (a), the obligation of an indorser to pay the amount due on the instrument is generally owed not only to a person entitled to enforce the instrument but also to a subsequent indorser who paid the instrument. But if the prior indorser and the subsequent indorser are both anomalous indorsers, this rule does not apply. In that case, section 3-116 applies. Under section 3-116(a), the anomalous indorsers are jointly and severally liable and if either pays the instrument the indorser who pays has a right of contribution against the other. Section 3-116(b). The right to contribution in section 3-116(b) is subject to "agreement of the affected parties". Suppose the subsequent indorser can prove an agreement with the prior indorser under which the prior indorser agreed to treat the subsequent indorser as a guarantor of the obligation of the prior indorser. Rights of the two indorsers between themselves would be governed by the agreement. Under suretyship law, the subsequent indorser under such an agreement is referred to as a sub-surety. Under the agreement, if the subsequent indorser pays the instrument there is a right to reimbursement from the prior indorser; if the prior indorser pays the instrument, there is no right of recourse against the subsequent indorser. See PEB Commentary No. 11, dated February 10, 1994 (Appendix II Vol. 3B Uniform Laws Annotated, Master Edition or ULA Database on WESTLAW).