Section 40 of NIA : Section 40: Discharge Of Indorser'S Liability

Explanation using Example

Imagine Sarah holds a promissory note which has been indorsed several times. The last indorsement is by Jack, making him liable to Sarah if the note is not paid. Sarah, without Jack's consent, deliberately tears off a part of the note that includes an indorsement by a prior party, thus potentially affecting Jack's ability to seek reimbursement from that party if he ends up paying Sarah.

In this scenario, because Sarah's action without Jack's consent impairs Jack's ability to recover from previous endorsers, Jack would be discharged from his obligation to Sarah under the note, to the extent that his remedy against the prior party is impaired.