Legal Definitions - general indorsement

A general indorsement, also known as a blank indorsement, occurs when the holder of a negotiable instrument (such as a check, promissory note, or certificate of deposit) signs their name on the back of the instrument without specifying a particular person or entity to whom it should be paid. This action converts the instrument into a "bearer instrument," meaning it can then be transferred simply by physical delivery, and anyone who possesses it can legally cash it or deposit it. Essentially, the instrument becomes payable to whoever holds it.

Here are some examples to illustrate this concept:

• Example 1: Transferring a Personal Check

  Imagine John receives a check for $300 from a client. Instead of depositing it into his own account, he wants to use it to pay back his friend, Lisa, for a small loan. If John simply signs his name, "John Smith," on the back of the check without writing "Pay to Lisa" or any other specific instructions, he has made a general indorsement.

  How it illustrates the term: By signing only his name, John has converted the check into a bearer instrument. This means that anyone who possesses the check (including Lisa) can now present it for payment. If Lisa were to lose the check, and someone else found it, that person could potentially cash or deposit it because it is payable to the bearer.

• Example 2: Transferring a Promissory Note

  Sarah holds a promissory note, which is a written promise to pay a specific sum of money to her by a certain date. She decides to transfer her right to receive this payment to her business partner, Michael. If Sarah signs her name, "Sarah Chen," on the back of the promissory note without adding any other payee's name or restrictive language, she has created a general indorsement.

  How it illustrates the term: Through this general indorsement, Sarah has transferred the ownership of the promissory note to Michael. The note is now a bearer instrument, and Michael, as the new holder, has the legal right to collect the promised funds from the original maker of the note.

• Example 3: Transferring a Certificate of Deposit (CD)

  Mr. Henderson owns a transferable Certificate of Deposit (CD) from his bank. He decides to gift the value of this CD to his granddaughter, Emily, for her college education. If Mr. Henderson signs his name, "Arthur Henderson," on the back of the CD certificate, leaving the rest of the indorsement blank, he has performed a general indorsement.

  How it illustrates the term: By signing his name without specifying Emily as the new payee, Mr. Henderson has made the CD a bearer instrument. Emily can now present the CD to the bank to claim the funds, or theoretically, it could be transferred to another person by simple physical delivery, as it is now payable to whoever holds it.