Liability of general indorser - Negotiable Instruments

Sec. 66. Liability of general indorser. - Every indorser who indorses without  qualification,  warrants  to  all  subsequent  holders  in  due course: (holders in good faith)
 
      (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
        
      (b) That the instrument is, at the time of his indorsement, valid and subsisting;  
 
And, in addition, he engages that, on due presentment, it shall be accepted  or  paid,  or  both,  as  the  case  may  be,  according  to  its tenor, and  that  if it be dishonored and the necessary proceedings on dishonor  be duly  taken, he  will pay the amount thereof to the holder,  or  to  any  subsequent  indorser  who  may  be  compelled  to pay it.
 
APPLICATION OF SECTION 66

•      Deals  with  the  liability  or  warranties  of  one  negotiating  by  general indorsement,  as  distinguished  from  qualified  indorsers  or  persons negotiating by mere delivery
•      It has been held that this section includes an indorser for collection
 

LIABILITY OF GENERAL INDORSER

1.    That the instrument is genuine and in all respects what it purports to be 
2.    That he has a good title to it
3.    That all prior parties had capacity to contract
4.    And that the instrument is, at  the time of his indorsement, valid and subsisting
 

FOURTH WARRANTY OF GENERAL INDORSER AND QUALIFIED INDORSER, DISTINGUISHED

•      While the qualified indorser or person negotiating by delivery warrants that he is ignorant of any fact that will render the instrument valueless or impair its validity, the general indorser warrants that the instrument he  is  indorsing  is  valid  and  subsisting  regardless  of  whether  he  is ignorant of that fact or not
 

THE WARRANTIES OF A GENERAL INDORSER EXTEND TO THE FOLLOWING

1.    Holders in due course
2.    Persons who derive their title from holders in due course
3.    Immediate transferees even if they are not holders in due course
 

WARRANTIES DON’T EXTEND TO DRAWEE

•      The  indorser  of  a  check  doesn’t  warrant  the  genuineness  of  the drawer’s signature to the drawee who pays it since the drawee is not a holder in due course
•      The warranties provided do not run in favor of the drawee in respect to the  genuineness  of  the  drawer’s  signature  but  only  in  favor  of subsequent holders in due course

OTHER LIABILITY OF GENERAL INDORSER

•      He engages that, on due presentment, it shall be accepted or paid, or both,  as  the  case  may  be,  according  to  its  tenor,  and  that  if  it  be dishonored and the necessary proceedings of dishonor be duly taken, he  will  pay  the  amount  to  the  holder,  or  to  any  subsequent  indorser who may be compelled to pay it
 

GENERAL INDORSER IS SECONDARILY LIABLE

•      Secondary liability not confined to the four warranties
•      He is liable if for any reason, the person primarily liable cannot pay, as distinguished  from  the  limited  secondary  liability  of  the  qualified indorser or of the person negotiating by mere delivery
•      The reason for dishonor need not be established.  As long as there was dishonor, this is sufficient. 

LIABILITY OF ASSIGNOR

•      The  vendor  in  good  faith  shall  be  responsible  for  the  existence  and legality of the credit at the time of the sale unless it should have been sold  as  doubtful  but  not  for  the  solvency  of  the  debtor  unless  it  has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge