Bill of Exchange Indorsement – KNOW HOW TO USE

Introduction: What is a Bill of Exchange and Indorsement?

A Bill of Exchange is a negotiable financial instrument commonly used in international trade and finance. An indorsement is a signature or statement on the bill that transfers the rights to another party. This guide explains what a legitimate indorsement looks like, how to write one, and where it should appear on the bill to ensure clarity and compliance.

What is a Legitimate Indorsement?

An indorsement on a Bill of Exchange is a written statement or signature by the holder (payee or indorser) that transfers ownership or rights to another party (indorsee). According to the Uniform Commercial Code (UCC) in the United States and similar laws such as the Bills of Exchange Act 1882 in the UK, a legitimate indorsement must:

• Be written and signed by the indorser (the person transferring the bill).
• Clearly indicate the intent to transfer the bill to another party or to order.
• Be made on the bill itself or on an attached paper (called an allonge if there’s no space on the bill).

Types of Indorsements

1. Blank Indorsement:
   The indorser simply signs their name without specifying a new payee. This makes the bill payable to the bearer (whoever holds it).
   Example:
   Alice Smith
2. Special Indorsement:
   The indorser specifies the new payee to whom the bill is transferred.
   Example:
   Pay to John Doe, Alice Smith
3. Restrictive Indorsement:
   Limits the use of the bill, such as for deposit or collection only.
   Example:
   For deposit only, Alice Smith
4. Conditional Indorsement:
   Adds a condition for payment.
   Example:
   Pay to John Doe upon delivery of goods, Alice Smith
5. Qualified Indorsement:
   Limits the indorser’s liability (for example, “without recourse”).
   Example:
   Pay to John Doe, without recourse, Alice Smith

How to Write a Legitimate Indorsement

1. Identify the Indorser:
   The current payee or holder of the bill signs their name.
2. Specify the Intent (if not a blank indorsement):
   Clearly state the new payee or any restrictions or conditions.
3. Sign and Date (optional):
   The signature is mandatory; the date is optional unless required by the bill or local law.
4. Ensure Clarity:
   Write legibly in ink to prevent fraud or disputes.

Where to Write the Indorsement

• On the Back of the Bill:
  Indorsements are traditionally written on the reverse side of the Bill of Exchange, keeping the front clear.
• On an Allonge:
  If there’s no space on the back (for example, due to multiple indorsements), write on a separate piece of paper called an allonge, which must be firmly attached to the bill.
• Placement:
  Write the indorsement clearly, usually at the top or centre of the back of the bill. Avoid covering other indorsements or important terms.

Example of a Bill of Exchange with Indorsement

Front of the Bill (Sample)

$10,000
New York, July 13, 2025

Three months after date, pay to the order of Alice Smith the sum of Ten Thousand Dollars for value received.

To: John Brown
123 Main St, New York, NY

[Signature of Drawer: Robert Jones]

Back of the Bill (Indorsement Examples)

1. Blank Indorsement: Alice Smith
2. Special Indorsement: Pay to the order of Emma Wilson Alice Smith
3. Restrictive Indorsement: For deposit only to Account #123456 Alice Smith
4. On an Allonge (if attached): Allonge to Bill of Exchange dated July 13, 2025 Pay to the order of Emma Wilson Alice Smith

Key Considerations

• Legibility and Authenticity:
  The indorsement must be clear and signed by the authorised holder to be legally valid.
• Order of Indorsements:
  If multiple indorsements are made, they should be written in sequence (top to bottom) to show the chain of transfer.
• Legal Requirements:
  Ensure compliance with local laws (for example, UCC Article 3 in the US or the Bills of Exchange Act in the UK), as requirements may vary.
• Avoid Alterations:
  Corrections or changes to an indorsement may raise suspicions of fraud. Ensure all details are correct before signing.

Additional Notes

• To verify a specific bill or indorsement format, provide details such as jurisdiction or specific bill terms for more tailored advice.
• If you would like a visual representation of a Bill of Exchange with an indorsement, or further guidance, please ask.