What are the various types of indorsement of a negotiable instrument?

Indorsement is the signature of an individual on the commercial instrument. There are several common types of endorsement, each of which has a different effect on the instrument. Each of which is discussed below. 

What is a Blank Indorsement? 

This means signing the instrument without designating any particular payee or making any other form of limiting designation. A blank endorsement turns order paper into bearer paper.

Example: A promissory note is payable to Frank or order. If Frank signs the promissory note, it is a blank endorsement that makes the paper enforceable by any holder.

What is a Special Indorsement? 

Special indorsement is a signature and instruction that limits the instrument to a particular person. A special indorsement may limit the indorsers potential liability, but is not effective to prevent further negotiation by the holder.

Example: Isabelle writes Pay Tom or Pay to the Order of Tom on a note along with her signature. Remember, however, the the paper must contain to order to remain negotiable. Also, Pay to the Order of Tom establishes the paper as order paper, but it does not restrict Toms abilities. Tom can indorse the paper and negotiate it.

What is a Restrictive Indorsement? 

A restrictive indorsement includes the payees signature and instructions that limit the instrument to a particular use. Generally, a restrictive indorsement is not effective to prevent further negotiation of the paper. There are, however, special rules that apply to certain restrictive indorsements of checks.

Note: A conditional indorsement including words such as, "pay Tom if he washes my car" is ineffective. It does not qualify as a restrictive indorsement and does not limit negotiability.

Example: Signing the instrument and writing For Deposit Only is a restrictive indorsement on a check.

What is a Qualified indorsement? 

A qualified indorsement is an individuals signature including the words, "without recourse. The purpose of this form of indorsement is to limit the potential liability of the indorser who is transferring the instrument in the event the payor ultimately dishonors the instrument. The idea is that the indorser is transferring any rights she has in the instrument, but she is not warranting that the payor of the instrument will honor it. While this type of indorsement may limit the indorsers liability to subsequent holders of the instrument, it does not affect or limit the ability to further transfer or negotiate the instrument.

Example: Darla is the payee on a note. She signs the note and writes no recourse. She then transfers the note to Dawn. Dawn cannot sue Darla to enforce or pay the instrument if the instrument is later dishonored by the payor at the time of presentment.

What is an Anomalous Indorsement?

This is an indorsement by someone other than the holder or transferor of the instrument. It is made to guarantee or incur surety liability on the instrument. This can give a transferee confidence in accepting the instrument. This type of indorsement is not necessary for negotiation.

Example: Neo is the payee of a note. He signs the note and seeks to transfer it Arthur. Arthur is comfortable in accepting the instrument. He agrees to accept the instrument when Mr. Gates agrees to sign the note. By indorsing the instrument, Mr. Gates is stating that the holder can seek payment of the instrument from him if it is first dishonored by the payor.

Related Topics

• Commercial Paper (Intro)
• What is Commercial Paper?
• Negotiable Instrument
• What are the common types of commercial paper?
• Promissory Note
• Cashier's Check
• Convenience Check
• Certified Check
• Substitute Check
• Bill of Exchange
• Bank Draft Definition
• Sight Draft Definition
• Bankers Acceptance 
• Who is a Holder of a negotiable instrument?
• Commercial Paper Funding Program
• What is Negotiability and why is it important?
• What is required for commercial paper to be negotiable?
• Sum Certain (Contracts)
• Inflation Adjustment Clause
• When does commercial paper contain an Unconditional promise to pay?
• Backup Line of Credit
• What is Payable on Demand or Payable on Time?
• What is Order Paper and Bearer Paper?
• Bearer Form
• How is a payee identified on the negotiable instrument?
• What rules does the court apply in determining negotiability?
• How is commercial paper negotiated to a holder?
• What is Transfer of a negotiable instrument?
• What is Indorsement of a negotiable instrument?
• What are the various types of indorsement?
• Bank Endorsement
• Blank Endorsement
• Accommodation Endorsement
• How does a holder receive payment on a negotiable instrument?
• Who is potentially liable on (or obligated to pay) a negotiable instrument?
• When is an individual liable for a representative signing a negotiable instrument?
• What rules apply if a holder loses a negotiable instrument?
• When is payment of a negotiable instrument overdue?
• What effect does a negotiable instrument have on the underlying obligation?
• What is a holder in due course?
• What are the requirements for a holder to become a holder in due course?
• Receive an instrument for value?
• Receive an instrument in good faith?
• Receive an instrument without notice of a valid defense?
• How does discharge of the Underlying Obligation affect a holder in due course?
• What is the Shelter Rule?
• Can you limit a transferee from becoming a holder in due course?
• Personal Defenses?
• Real Defenses?
• What is a Claim in Recoupment?
• What are the rights of a holder in due course if the instrument involves a consumer transaction?
• What happens if a negotiable instrument is Forged?
• What happens if a negotiable instrument is Stolen?
• Guaranty or Guarantee
• Letter of Guarantee
• Personal Guarantee
• What is the role of a Guarantor or Surety of a negotiable instrument?
  
• Surety 
  
• Cosign
• Accommodation Paper Definition
• Secondary Liability
• Avalize Definition
• What is an Accord & Satisfaction?
• What is primary and secondary liability on an instrument?
• What is Drawer or Maker Liability for a negotiable instrument?
• What is Transferor Warranty of a negotiable instrument?
• What is Indorser Warranty of a negotiable instrument?
• What is Presentment Warranty of a negotiable instrument?
• What is a warrantors liability for a dishonored note or draft?
• What is the time limitation for warranty of a negotiable instrument?
• When are the warranties of a negotiable instrument discharged?