The indorsement — the special form of transferring a bill — is the backbone of securities circulation: it is through indorsement that a bill moves between businesses, and it is the indorsement that determines who is liable and for what. One imprecise entry on the back of the document changes its legal nature and may replace the bill's special regime with an ordinary assignment — with entirely different consequences. Legal.ge's lawyers help you execute indorsements correctly, assess the endorser's liability, and analyse disputed transfers.
How a Bill Is Transferred and What "Not to Order" Means
Every negotiable bill may be transferred by indorsement, even when it contains no entry "to order". A different situation arises if the drawer has written "not to order" or any other equivalent words on the bill: such a bill may be transferred only in the form and with the consequences of an ordinary assignment (cession). The difference between cession and indorsement is practical — rights transferred by indorsement are more strictly protected and complete, while cession engages the general civil-law rules with all their consequences, including objections that the debtor may raise against the original holder.
An indorsement may also be executed in favour of the payer — regardless of whether the payer has accepted the bill — or in favour of the drawer, or of every other person obligated on the bill. These persons, in turn, may not further indorse the bill — a meaningful restriction designed to close the circle on the original debtors and prevent the chain from looping back.
The Unconditionality and Form of an Indorsement
The law requires that an indorsement be unconditional: any restrictive condition attached to it is void. In practice there are frequent attempts to attach conditions to an indorsement — for example, a transfer valid only until a certain date, or coupled with an agreed payment condition. The law prohibits this squarely, and the consequence works both ways: the bill does not lose its force merely because a condition was written into the indorsement, but the condition itself is void and the transfer is assessed as having been executed unconditionally. This is precisely why every word of the indorsement text should be checked by a lawyer — an entry that would be a legitimate stipulation in an ordinary contract is simply disregarded here.
As to form, an indorsement must be executed on the negotiable bill itself or on an allonge (an attached sheet) and must be signed. The indorsement may omit the person in whose favour it is executed, or may consist of the endorser's signature alone — in that case it is a blank indorsement, which is valid if written on the reverse side of the bill or on an allonge.
The Rights of a Holder Under a Blank Indorsement
By indorsement, all rights arising from the bill are transferred. If the indorsement is blank, the holder of the bill has three options: to fill in the blank with its own name or that of another person; to further indorse the bill by means of a blank indorsement or one made out to a specific person; or to transfer the bill to a third person without filling in the blank indorsement and without indorsing. A blank indorsement makes the bill circulate almost like cash — but this convenience comes at the price of liability: losing the paper, or its falling into unwanted hands, becomes a real risk for the holder.
The Endorser's Liability
The endorser is liable for acceptance and for payment of the bill, unless otherwise agreed. This means that with every indorsement you are added to the chain of persons obligated on the bill: if the payer does not pay, the claim may be brought against the endorsers. At the same time, the endorser may prohibit further indorsement of the bill — in that case the endorser is not liable toward those to whom the bill is subsequently indorsed. This instrument gives the endorser a means of limiting risk, but the exact wording of the entry is decisive.
Indorsement Made After Maturity
An indorsement made at the maturity of the bill has the same consequences as one made before maturity. However, an indorsement made after protest for non-payment, or after the expiry of the period fixed for protest, is treated as an ordinary transfer of the bill with the consequences of assignment. If the indorsement bears no date, it is deemed made before the deadline fixed for drawing up the protest — which is why dating an indorsement is a matter of protecting the holder's interests.
Verifying the Chain of Indorsements When Taking a Bill
When taking a bill by indorsement, focus on three circumstances. First, every indorsement must be executed on the bill itself or on an allonge and signed, because a breach of form breaks the chain. Second, the sequence of indorsements must form an uninterrupted series in which each prior endorser transfers the right to the next. Third — the dates. Where an indorsement is undated, the law presumes it was made before the deadline fixed for protest, and this presumption may operate against the very person for whom the real timing of the indorsement tells a different story. Legal.ge's lawyers perform this verification for every disputed bill and give you a solid position — whether as recipient or as transferor.