Legal Definitions - allonge

An allonge is a separate piece of paper that is securely attached to a negotiable instrument, such as a check, a promissory note, or a bill of exchange. Its primary purpose is to provide additional space for endorsements when the original instrument no longer has room. When properly affixed, the allonge legally becomes part of the instrument itself, allowing for a continuous and clear record of ownership transfers.

Here are a few examples to illustrate the concept of an allonge:

• Promissory Note in a Business Loan Sale: Imagine a small business owner takes out a loan from "First National Bank," signing a promissory note. First National Bank later sells this loan to "Regional Credit Union," which then sells it to "Global Investment Fund." Each time the loan is sold, the financial institution endorses the promissory note to transfer ownership. If the back of the original promissory note becomes completely filled with these endorsements, Global Investment Fund might attach an allonge to continue adding endorsements if they decide to sell the loan to another entity, ensuring all transfers are legally documented.

  This example demonstrates how an allonge provides necessary space for a complete chain of endorsements when a financial obligation, like a promissory note, changes hands multiple times.

• International Trade Bill of Exchange: Consider a large international transaction where a company in the United States issues a bill of exchange to pay for goods from a supplier in Germany. The German supplier endorses the bill to their bank for collection, which then endorses it to another financial institution involved in the trade financing across borders. If this bill of exchange is passed through several more banks or financial intermediaries before reaching its final recipient, an allonge might be necessary to accommodate all the required endorsements, ensuring a clear and verifiable record of ownership for the payment.

  This example illustrates the use of an allonge in complex, multi-party transactions, common in international trade, where numerous endorsements are required on a single instrument.

• Mortgage Note in the Secondary Market: A homeowner obtains a mortgage from "Local Lender A." Over the years, Local Lender A sells the mortgage note to "National Bank B," which then bundles it with other notes and sells it to "Mortgage Trust C" in the secondary market. Each transfer of the mortgage note requires an endorsement on the note itself to legally transfer ownership. If the back of the original mortgage note becomes completely filled with these endorsements, an allonge would be used to record any subsequent transfers, such as when Mortgage Trust C sells its interest to another investment entity.

  This example shows how an allonge maintains the integrity of a negotiable instrument's transfer history, even when the instrument, like a mortgage note, is bought and sold many times in financial markets.