Discharge of indorser's liability

Section 40 of the Negotiable Instruments Act, 1881 deals with discharge of indorser's liability. Where the holder of a negotiable instrument, without the consent of the indorser, destroys or impairs the indorser's remedy against a prior party, the indorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity. The Act came into force on 01 Mar 1882.

Where the holder of a negotiable instrument, without the consent of the indorser, destroys or impairs the indorser's remedy against a prior party, the indorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity.

Illustration

A is the holder of a bill of exchange made payable to the order of B, which contains the following indorsements in blank:--

First indorsement, "B".

Second indorsement, "Peter Williams".

Third indorsement, "Wright & Co".

Fourth indorsement. "John Rozario".

This bill A puts in suit against John Rozario and strikes out, without John Rozario's consent, the indorsements by Peter Williams and Wright & Co. A is not entitled to recover anything from John Rozario.

Section 40, The Negotiable Instruments Act, 1881 (Act 26 of 1881).