The indorser of a negotiable instrument may, by express words in the indorsement exclude his own liability thereon, or makes such liability or the right of the indorsee to receive the amount due thereon dependent upon the happening of a specified event, although such event may never happen. Where an indorser so excludes his liability and afterwards becomes the holder of the instrument all the intermediate indorsers are liable to him.
1) The indorser of a negotiable instrument signs his name adding words without recourse or sans recourse upon this indorsement be incurs no liability.
2) A is the payee and holder of a negotiable instrument. Excluding personal liability by an indorsement without recourse he transfers the instrument to B, indorses it to C, who indorses it to A is not only reinstated in his former rights but has the rights of an indorsee against B and C.
Thus, the indorser by express words can exclude or limit his liability on the instrument or make his liability conditional upon the happening of a specified event may never happen. The liability of the indorser is, therefore extinguished if the event never happens or becomes impossible. Though indorser is not liable, all prior parties will continue to be liable t the indorsee.
It would be interesting to note that the drawer cannot draw a bill conditionally. The acceptor can make his acceptance conditional, but cannot exclude his liability altogether or make his liability conditional.
The indorser can exclude his liability by adding the words to his indorsement without recourse or sans recourse as given in illustration (1) above.
Negotiation back: when an indorser excludes his liability and subsequently the instrument comes back in his hands i.e. the instrument is negotiated back to him, by virtue of which the again becomes the holder of the instrument, all the intermediate parties will be liable to him. He cannot however, sue any intermediate party to whom he was previously liable by reason of his prior indorsement. The object of this is to prevent circuity of action. One cannot sue a person to whom he himself is liable. There is no principle by which a man can at the same time plaintiff and defendant. But where the prior indorsements was without recourse the holder can enforce payment against all the intermediate parties . this called negotiation back.
Taking up of a bill:
Where a prior party gets back the instrument by negotiation back he may further negotiate the bill. Such a transaction is called taking up of a bill. When the further negotiates the bill he may not cancel the indorsements of all the intermediates parties. He may also maintain a suit against parties antecedent to whom, he is not liable by virtue of his earlier conditional indorsement by adding the words without recourse.
Restrictive indorsement prohibits or restrict furthers negotiation of an instrument.
The indorsement may, be express words, restrict or exclude the right of further negotiation i.e. it puts an end to negotiability. The last indorsee can use upon the instrument. An indorsement may not restrict further transfer of an instrument though it may prohibit further negotiation. Restrictive indorsement may entitled the holder to receive the money on the instruments for the indorser or for some other specified person i.e. the indorsement may merely constitute the indorse the instruments or to receive its content for the inforser or for some other specified person.
The effects of restrictive indorsement can be summarized as under:
1) It prohibits further negotiation.
2) It may constitute indorsee an agent to:
3) Receive its contents for the indorser: or
4) Receive its contents for some other specified person.
a) Pay the contents to C only.
b) Pay C for my use.
When the indorser abandons some right or increase his liability under an instrument the indorsement is called Facultative. For example the indorser may by indorsements waive notice of dishonor as given in the illustration below:
Pay A order. Notice of dishonor waived.
Forgery is nullity , where an instrument is negotiated by a forged indorsement no person can acquire the rights of a holder in the due course even if he has obtained he instruments for value and in good faith.