Legal Definitions - anomalous indorsement

An anomalous indorsement occurs when a person signs a negotiable instrument (such as a check or a promissory note) but is not the current owner (the holder) and is not signing to transfer ownership of the instrument to another party. Instead, this signature is typically made to add the person's creditworthiness to the instrument, often guaranteeing payment to a subsequent holder or lender. It is considered "anomalous" because it doesn't fit the usual sequence of signatures that transfer the instrument from one owner to the next in the normal chain of title.

Here are some examples illustrating an anomalous indorsement:

• Small Business Loan Guarantee: Sarah, a new small business owner, applies for a loan from a bank. The bank is hesitant due to her business's limited operating history. Sarah's father, David, who has excellent credit, agrees to sign the promissory note as a guarantor to help her secure the loan. David signs the back of the note, even though he is not the borrower and will not receive any of the loan funds.

  Explanation: David's signature is an anomalous indorsement. He is not the maker (Sarah's business) or the payee (the bank) and is not signing to transfer the note. His signature serves to guarantee payment, adding his personal credit to the instrument to assure the bank.

• Check Cashing Favor: Emily writes a check for $200 to her friend, Ben. Ben wants to cash the check at a local grocery store where he is not well-known. The store manager, recognizing Ben's neighbor, Carol, asks Carol to sign the back of the check below Ben's signature to verify its legitimacy. Carol agrees and signs.

  Explanation: Carol's signature is an anomalous indorsement. She is not the payee (Ben) and is not endorsing the check to transfer it to another party. Her signature is made to assure the grocery store that the check will be honored, essentially guaranteeing it for Ben.

• Commercial Paper in Trade: A manufacturer, "TechPro Inc.," issues a bill of exchange to "Distributor Co." for a shipment of electronics. Distributor Co. needs to secure immediate financing from a bank but the bank requires additional security. A third-party financial services firm, "CapitalSure LLC," signs the bill of exchange to guarantee payment if Distributor Co. defaults.

  Explanation: CapitalSure LLC's signature is an anomalous indorsement. It is not the drawer (TechPro Inc.) or the drawee (Distributor Co.) and is not involved in the direct transfer of the bill for payment of goods. Its signature serves solely to guarantee payment to the bank providing the financing, making the instrument more secure.