Legal Definitions - indorsee

An indorsee is the person or entity who receives a negotiable instrument, such as a check or a promissory note, when it is transferred to them through an official signature on the instrument itself. This signature, known as an indorsement, signifies the transfer of ownership from the previous holder to the new holder.

• Example 1 (Check Transfer): Sarah receives a check for $500 from her client, John. Instead of depositing it, Sarah decides to use the check to pay her friend, Emily, for a service. Sarah signs the back of John's check and writes "Pay to the order of Emily."

  Explanation: In this situation, Emily becomes the indorsee because Sarah (the indorser) transferred the check to her by signing it over, making Emily the new legal owner of the check.

• Example 2 (Promissory Note): A small business, "GreenTech Solutions," issues a promissory note to its supplier, "Circuit Supply Co.," promising to pay $10,000 in 60 days. "Circuit Supply Co." needs immediate cash flow, so it sells the promissory note to a financial institution, "Capital Advance Bank," signing the note over to them.

  Explanation: "Capital Advance Bank" is the indorsee because "Circuit Supply Co." transferred ownership of the promissory note to them through an indorsement, making the bank the new party entitled to receive payment from "GreenTech Solutions."

A more specific type of indorsee is an indorsee in due course. This refers to an indorsee who acquires a negotiable instrument under specific, strict conditions that grant them enhanced legal protections. To qualify as an indorsee in due course, the person or entity must have:

• Acquired the instrument in good faith (honestly and without intent to defraud).
• Paid value for it (given something of worth in exchange).
• Taken it before its maturity date (before it was due to be paid).
• Had no knowledge that the instrument had been dishonored (e.g., previously refused payment) or of any other problems with it (like a claim against it by a previous owner).

This status often protects the indorsee from certain claims or defenses that the original issuer might have had against the previous owner.

• Example 3 (Check with a Dispute): David writes a check for $2,000 to his landscaper, Maria, for a new garden. Before Maria deposits the check, David discovers that Maria used substandard materials and decides to stop payment on the check. However, before David stopped payment, Maria had already signed the check over to her equipment supplier, "Garden Tools Inc.," to pay for new machinery. "Garden Tools Inc." accepted the check without knowing about the dispute between David and Maria, and they provided Maria with the equipment.

  Explanation: "Garden Tools Inc." is likely an indorsee in due course. They received the check in good faith, paid value (by providing equipment), and had no knowledge of David's dispute with Maria when they accepted it. Because of this status, David might still be legally obligated to pay "Garden Tools Inc." for the check, even though he had a valid reason to stop payment against Maria.