M made a promissory note payable to P's order. X stole the note and forged P's signature as indorser to A. A indorsed the note to B as follows: "Pay to B sans recourse, (Sgd.)A." Who among the parties shall be liable to B?

M made a promissory note payable to P's order. X stole the note and forged P's signature as indorser to A. A indorsed the note to B as follows: "Pay to B sans recourse, (Sgd.)A." Who among the parties shall be liable to B?

• A. X only
• B. X and P only
• C. X and A only
• D. X, P, A, and B

Answer: (C)

Key idea: when a negotiable instrument is negotiated through a forged endorsement, the forgery creates liability for the forger and can leave the subsequent endorser exposed to liability to the holder, despite any “sans recourse” language, because warranties of title and proper negotiation come into play. In this scenario, X forged P’s indorsement and transferred the note to A. That forged endorsement means X did not have valid title to pass, so the transfer from M to P (and then to A) is tainted at its source. The forger’s act makes X the one responsible to a holder who suffers a loss because of the forgery. A later indorsement from A to B says “Pay to B sans recourse,” intending to limit A’s liability. However, the transfer chain began with a forged indorsement, which undermines the legitimacy of the preceding transfer and triggers warranties of title on the endorser. Those warranties can still run to the holder, making A potentially liable to B despite the “sans recourse” wording. Therefore, the parties who can be held liable to B are the forger of the indorsement (X) and the endorser who effected the transfer to B (A). The maker and the other parties are not the ones primarily liable in this chain under these facts.

Key idea: when a negotiable instrument is negotiated through a forged endorsement, the forgery creates liability for the forger and can leave the subsequent endorser exposed to liability to the holder, despite any “sans recourse” language, because warranties of title and proper negotiation come into play.

In this scenario, X forged P’s indorsement and transferred the note to A. That forged endorsement means X did not have valid title to pass, so the transfer from M to P (and then to A) is tainted at its source. The forger’s act makes X the one responsible to a holder who suffers a loss because of the forgery.

A later indorsement from A to B says “Pay to B sans recourse,” intending to limit A’s liability. However, the transfer chain began with a forged indorsement, which undermines the legitimacy of the preceding transfer and triggers warranties of title on the endorser. Those warranties can still run to the holder, making A potentially liable to B despite the “sans recourse” wording.

Therefore, the parties who can be held liable to B are the forger of the indorsement (X) and the endorser who effected the transfer to B (A). The maker and the other parties are not the ones primarily liable in this chain under these facts.