Article 3 — Negotiable Instruments · Section 3-414
An overview of UCC § 3-414, detailing the liability of indorsers on negotiable instruments.
Source: U.C.C. § 3-414
An indorser is liable on an instrument according to its terms at the time it was indorsed, or if it was incomplete when it was indorsed, according to its terms as completed. The indorser may be liable to a subsequent holder for the amount due, unless the instrument was dishonored and the indorser has not been properly notified of the dishonor.
UCC § 3-414 holds that an indorser (a person who signs a negotiable instrument) is responsible for the payment of the instrument according to its terms at the time they signed it. If the instrument is dishonored, the indorser can be held liable unless they weren't properly notified of the dishonor.
A person who transfers a negotiable instrument by signing it over to another party.
A signed document promising a specific amount of payment to the bearer or designated party.
The failure to meet the payment or acceptance of a negotiable instrument.
Example 1
A check signed by Alice is indorsed to Bob, who later forges Alice's signature and presents it for payment. If the check bounces, Alice can still be liable for payment to Bob if he can prove it was the original check.
Example 2
John indorses a promissory note to Sarah. If the note is not paid by the maker, and Sarah notifies John of the dishonor, John must honor the note unless there are other defenses.