Florida: Commercial Paper (Indorser Liability)

Outside of holders/holders in due course, one of the more important topics to understand within Commercial Paper is indorser liability. An indorser is considered secondarily liable (with the drawee of a check or the maker of a note as primarily liable). There's quite a bit to unpack on this topic.

With a question such as this, you should first address the indorser's liability in contract. The indorser is liable merely by signing his/her name on the instrument though this can be negated by including the words "without recourse" along with the signature. Importantly, there's a process that a holder must follow before seeking payment from an indorser in contract. There are 3 steps to the process:

Presentment: 

Presentment is a demand on the drawee of a check (such as a bank) or the maker of a note made by a person entitled to enforce an instrument. It may be made by any commercially reasonably means. As for a check, an indorser is discharged unless the check is presented to the drawee for payment within 30 days after the indorsement. Presentment, however, will be excused if a person entitled to present cannot with reasonable diligence do so or if the maker of the instrument has repudiated the obligation to pay (or if the maker is dead/insolvent). It's also excused if presentment is unnecessary as per the instrument's terms, if the obligation to present has been waived, or if the drawer of a check instructed the drawee not to pay. 

Dishonor: 

Dishonor occurs when the maker of a note or the drawee of a check does not pay within the allowed time after presentment. Instruments payable at a particular time are generally dishonored if not paid on the date they become payable or on the date of presentment, whichever is later. If a check is deposited at a bank so that immediate payment is not requested, the check is dishonored if the bank returns the check or sends notice that it is dishonoring the check before either final payment or before the bank's midnight deadline (midnight of the next banking day after the check is deposited).

Notice:

An indorser is not liable on an instrument unless the indorser is given timely notice that the instrument has been dishonored. Notice may be given by any commercially reasonable means and generally must be given within 30 days after dishonor (or 30 days after a collecting bank's midnight deadline if the instrument is taken by a bank for collection). Delay in giving notice will be excused if caused by circumstances beyond the control of the notifier who exercised reasonable diligence in attempting to give notice. Notice is also excused if the terms of the instrument deem notice unnecessary or if the notice requirement is waived. 

Contract liability (after presentment, dishonor, and notice) is one way to hold an indorser liable, and another way is on a theory of warranty. Warranties are made by any person who transfers an instrument, and an indorser may be included as one who transfers. There are 5 warranties to keep in mind when someone transfers an instrument, and they are known as the transfer warranties: 

The transferor warrants the following:

--The transferor is entitled to enforce the instrument.

--All signatures on the instrument are authentic and authorized.

--The instrument has not been altered.

--No defense or claim of any party is good against the transferor 

--The transferor has no knowledge of any insolvency proceedings that have been instituted against the maker, acceptor, or drawer.