(a) Subject to Subsections (b), (c), (d) and (e) of this section and to Section 55-3-419(d) NMSA 1978, if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument (i) according to the terms of the instrument at the time it was indorsed or (ii) if the indorser indorsed an incomplete instrument, according to its terms when completed, to the extent stated in Sections 55-3-115 and 55-3-407 NMSA 1978. The obligation of the indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section.

(b) If an indorsement states that it is made "without recourse" or otherwise disclaims liability of the indorser, the indorser is not liable under Subsection (a) of this section to pay the instrument.

(c) If notice of dishonor of an instrument is required by Section 55-3-503 NMSA 1978 and notice of dishonor complying with that section is not given to an indorser, the liability of the indorser under Subsection (a) of this section is discharged.

(d) If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under Subsection (a) of this section is discharged.

(e) If an indorser of a check is liable under Subsection (a) of this section and the check is not presented for payment, or given to a depositary bank for collection, within thirty days after the day the indorsement was made, the liability of the indorser under Subsection (a) of this section is discharged.

OFFICIAL COMMENTS

1. UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
2. 1. Subsections (a) and (b) restate the substance of former Section 3-414(1). Subsection (2) of former Section 3-414 has been dropped because it is superfluous. Although notice of dishonor is not mentioned in Subsection (a), it must be given in some cases to charge an indorser. It is covered in Subsection (c). Regulation CC § 229.35(b) provides that a bank handling a check for collection or return is liable to a bank that subsequently handles the check to the extent the latter bank does not receive payment for the check. This liability applies whether or not the bank incurring the liability indorsed the check.
3. 2. Section 3-503 [55-3-503 NMSA 1978] states when notice of dishonor is required and how it must be given. If required notice of dishonor is not given in compliance with Section 3-503 [55-3-503 NMSA 1978], Subsection (c) of Section 3-415 [55-3-415 NMSA 1978] states that the effect is to discharge the indorser's obligation.
4. 3. Subsection (d) is similar in effect to Section 3-414(c) [55-3-414 NMSA 1978] if the draft is accepted by a bank after the indorsement is made. See Comment 3 to Section 3-414 [55-3-414 NMSA 1978]. If a draft is accepted by a bank before the indorsement is made, the indorser incurs the obligation stated in subsection (a).
5. 4. Subsection (e) modified former Sections 3-503(2)(b) and 3-502(1)(a) [55-3-502 NMSA 1978] by stating a 30-day rather than a seven-day period, and stating it as an absolute rather than a presumptive period.
6. 5. As stated in subsection (a), the obligation of an indorser to pay the amount due on the instrument is generally owed not only to a person entitled to enforce the instrument but also to a subsequent indorser who paid the instrument. But if the prior indorser and the subsequent indorser are both anomalous indorsers, this rule does not apply. In that case, Section 3-116 [55-3-116 NMSA 1978] applies. Under Section 3-116(a), the anomalous indorsers are jointly and severally liable and if either pays the instrument the indorser who pays has a right of contribution against the other. Section 3-116(b). The right to contribution in Section 3-116(b) is subject to "agreement of the affected parties". Suppose the subsequent indorser can prove an agreement with the prior indorser under which the prior indorser agreed to treat the subsequent indorser as a guarantor of the obligation of the prior indorser. Rights of the two indorsers between themselves would be governed by the agreement. Under suretyship law, the subsequent indorser under such an agreement is referred to as a sub-surety. Under the agreement, if the subsequent indorser pays the instrument there is a right to reimbursement from the prior indorser; if the prior indorser pays the instrument, there is no right of recourse against the subsequent indorser. See PEB Commentary No. 11.
7. 6. The rule of this section is similar to the rule of Article 44 of the Convention on International Bills of Exchange and International Promissory Notes.

History: 1978 Comp., § 55-3-415, enacted by Laws 1992, ch. 114, § 140; 2015, ch. 54, § 2.

ANNOTATIONS

Repeals. — Laws 1992, ch. 114, § 237 repealed former 55-3-415 NMSA 1978, as enacted by Laws 1961, ch. 96, § 3-415, relating to contract of accommodation party, effective July 1, 1992. Laws 1992, ch. 114, § 140, enacted a new section, effective July 1, 1992. For provisions of former section, see the 1991 NMSA 1978 on NMOneSource.com.

The 2015 amendment, effective July 1, 2015, amended the Uniform Commercial Code, as enacted by New Mexico, to make it uniform; in Subsection (a), after "(c)", deleted "and", after "(d)", added "and (e) of this section"; and in Subsections (b), (c ), (d) and (e), after "Subsection (a)", added "of this section".

Law reviews. — For article, "New Mexico's Uniform Commercial Code: Who Is the Beneficiary of the Stop Payment Provisions of Article 4?" see 4 Nat. Resources J. 69 (1964).

For note, "New Mexico's Uniform Commercial Code: Presentment Warranties and the Myth of the 'Shelter Provision'," see 4 Nat. Resources J. 398 (1964).

For article, "Essential Attributes of Commercial Paper - Part I," see 1 N.M. L. Rev. 479 (1971).

For note, "Self-Help Repossession Under the Uniform Commercial Code: The Constitutionality of Article 9, Section 503," see 4 N.M. L. Rev. 75 (1973).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 11 Am. Jur. 2d Bills and Notes §§ 334, 349, 351, 363, 599, 607, 611, 617 to 620, 628, 629; 12 Am. Jur. 2d Bills and Notes §§ 1241, 1268, 1271, 1274.

Undertaking of one who endorses a note without recourse, 2 A.L.R. 216, 91 A.L.R. 399.

Admissibility of parol evidence to vary or explain the contract implied from the regular endorsement of a bill or note, 4 A.L.R. 764, 11 A.L.R. 637, 22 A.L.R. 527, 35 A.L.R. 1120, 54 A.L.R. 999, 92 A.L.R. 721.

Necessity of express agreement between endorsers to be jointly and not successively liable, in order to give a right of contribution as between themselves, 11 A.L.R. 1332, 90 A.L.R. 305.

Endorsement of bill or note in form of guaranty as transferring title, 21 A.L.R. 1375, 33 A.L.R. 97, 46 A.L.R. 1516.

Endorsement without recourse as affecting character of endorsee or subsequent holder as holder in due course, 77 A.L.R. 487.

Insanity of endorser as defense against holder in due course, 24 A.L.R.2d 1380.

10 C.J.S. Bills and Notes § 154 et seq.