Legal Definitions - indorser

An indorser is a person who transfers a negotiable instrument, such as a check or a promissory note, to another party by signing it, typically on the back. This signature, known as an indorsement, signifies the transfer of ownership and often carries a promise to pay if the original payer defaults. An indorser is distinct from the original creator (maker or drawer) or the primary payer (acceptor) of the instrument.

• Example 1: Cashing a check for a friend
  Maria receives a check for $500 from a client. Instead of depositing it into her own bank account, she wants her friend, Leo, to cash it for her. Maria signs the back of the check and writes "Pay to the order of Leo." Leo then takes the check to his bank to cash it.

  Explanation: In this scenario, Maria is the indorser. By signing the check, she transfers her right to receive the $500 to Leo. If the check were to bounce due to insufficient funds from the client, Maria, as the indorser, might be held responsible for the payment to Leo.

• Example 2: Selling a promissory note
  "Tech Innovations Inc." owes a supplier, "Parts & Components Ltd.," $20,000, documented by a promissory note due in 60 days. Parts & Components Ltd. needs immediate cash flow, so they decide to sell this promissory note to a financial firm, "Capital Solutions," at a discount. An authorized representative of Parts & Components Ltd. signs the back of the promissory note to transfer it to Capital Solutions.

  Explanation: Parts & Components Ltd. becomes the indorser. By signing the note, they transfer their right to collect the $20,000 from Tech Innovations Inc. to Capital Solutions. If Tech Innovations Inc. fails to pay the note when due, Capital Solutions might be able to seek payment from Parts & Components Ltd. as the indorser.

An accommodation indorser is a specific type of indorser who signs a negotiable instrument to guarantee payment for another person, essentially acting as a co-signer or surety. They do not directly benefit from the transaction but lend their creditworthiness to help the primary party obtain funds or credit.

• Example 1: Parent co-signing a student loan
  A college student, Chloe, needs a loan to cover her tuition, but she has no credit history. Her mother, Susan, agrees to sign the promissory note for the loan alongside Chloe. Susan does not receive any of the loan money herself; it goes directly to Chloe's university.

  Explanation: Susan is an accommodation indorser. She signs the promissory note not because she is the primary borrower or receives the funds, but to assure the lender that if Chloe defaults on the loan, Susan will be responsible for the debt. She is providing a guarantee for Chloe's obligation.

• Example 2: Business owner guaranteeing a company lease
  "Fresh Bites Cafe," a new restaurant, wants to lease commercial kitchen equipment. The leasing company is hesitant due to the cafe's limited operating history. The owner of Fresh Bites Cafe, David, agrees to personally indorse the lease agreement's promissory note, even though the cafe itself is the primary lessee.

  Explanation: David acts as an accommodation indorser. He is not the primary party benefiting from the equipment lease (the cafe is), but by indorsing the promissory note, he personally guarantees the cafe's payment obligations. If Fresh Bites Cafe fails to make its lease payments, David, as the accommodation indorser, would be legally obligated to pay.