An endorsement transferring ownership produces two principal effects: transfer of the rights arising from the cheque to the endorsee, and the creation of a negotiable instruments obligation on the part of the endorser to guarantee payment of the cheque unless such guarantee is excluded as permitted by law.
Accordingly, it is not precise to describe the endorser’s liability merely as «contractual liability»; the guarantee arising from endorsement derives directly from negotiable instruments law and from the endorser’s signature on the negotiable instrument, and is governed by rules that differ from traditional civil contractual liability.
First: What Is Meant by an Endorsement Transferring Ownership?
An endorsement transferring ownership is the act by which an endorsable cheque and the rights embodied in it are transferred to the endorsee.
Article 489 of the Trade Law provides that endorsement transfers all rights arising from the cheque to the endorsee.
Accordingly, once the transfer of the cheque satisfies the statutory requirements, the endorsee becomes entitled to present it for payment and exercise the rights of recourse granted to its holder.
Second: Legal Requirements for a Valid Endorsement
The Trade Law establishes specific rules governing endorsement, the most important of which are:
- The endorsement must not be conditional: If a condition is attached, the condition is deemed unwritten, while the endorsement itself remains valid.
- Partial endorsement is not permitted: An endorsement limited to part of the value of the cheque is void.
- The endorsement must be written on the cheque: Pursuant to Article 488.
- Blank endorsement is permitted: The endorsement may consist solely of the endorser’s signature, provided that the signature appears on the back of the cheque.
It should be noted that invalidity of a partial endorsement does not mean that the cheque itself or previous valid endorsements are invalid; the effect applies to the defective endorsement according to the nature of the violation.
Third: Blank Endorsement
The law permits an endorsement to consist solely of the endorser’s signature without naming the endorsee, which is known as a blank endorsement.
In such case, Article 489 permits the holder to:
- Fill in the blank with their own name or the name of another person.
- Endorse the cheque again in blank or to another person.
- Deliver the cheque to another person without filling in the blank and without a new endorsement.
The Court of Cassation has confirmed that, as a general rule, a signature placed on the back of a cheque is presumed to constitute an endorsement transferring ownership unless evidence establishes that another type of endorsement was intended, such as an endorsement by procuration.
Fourth: The Endorser’s Liability for Guarantee of Payment
Article 490 provides that the endorser guarantees payment of the cheque unless otherwise stipulated.
This means that the endorser’s role is not limited to transferring the right to the endorsee; the endorser also becomes, in principle, one of the parties liable under negotiable instruments law for the value of the cheque if payment is not made in accordance with the conditions and procedures prescribed by law.
The Court of Cassation confirmed this meaning in Appeal No. 4327 of Judicial Year 78 – session of 28 May 2012, holding that endorsement transfers the rights arising from the cheque and that the endorser guarantees payment of its value to the endorsee unless it is agreed that such guarantee is excluded.
Fifth: Is the Endorser’s Guarantee a Contractual Liability?
It is more accurate to describe it as a negotiable instruments obligation to guarantee payment.
The source of this obligation is not merely the contract or underlying relationship between the endorser and the endorsee, but rather the signature on the cheque and the special rules governing negotiable instruments.
The importance of this characterization appears in the fact that the lawful holder may have recourse against the endorser under the rules governing cheques, while the endorser may not, in principle, raise against the holder defenses arising from personal relationships with the drawer or previous holders except in the exceptional case specified by law.
Sixth: May the Endorser Exclude Liability for Guarantee of Payment?
Yes. Contrary to what appears in some writings, Article 490 itself provides that the endorser guarantees payment «unless otherwise stipulated».
Accordingly, the endorser may exclude the guarantee through clear wording indicating that they do not assume liability for payment.
This differs from attaching a condition to the endorsement; a conditional clause is deemed unwritten under Article 487, whereas a clause excluding the guarantee of payment is expressly permitted by Article 490.
Seventh: Prohibition of Further Endorsement
The second paragraph of Article 490 permits the endorser to prohibit further endorsement of the cheque.
In such case, the endorser is not liable by way of guarantee toward persons to whom the cheque subsequently passes through a later endorsement.
However, this effect must be distinguished from the proposition that the cheque automatically becomes a civil assignment or becomes entirely non-transferable; the provision primarily establishes an effect concerning the scope of the endorser’s guarantee toward subsequent holders.
Eighth: Lawful Holder and Uninterrupted Chain of Endorsements
Article 491 provides that the possessor of an endorsable cheque is deemed its lawful holder where the endorsements appearing on it form an uninterrupted chain, even if the last endorsement is in blank.
Cancelled endorsements are deemed unwritten for this purpose.
This rule is important when recourse is sought against the endorser, as a person asserting negotiable instruments rights must establish their status as lawful holder through the chain of endorsements.
A signature that is not connected to the chain by which the right was transferred may, however, give rise to a dispute concerning the holder’s status and entitlement to exercise negotiable instruments recourse.
Ninth: Effect of Invalid or Forged Signatures on Other Signatories
The Trade Law establishes the principle of independence of signatures on a cheque.
Pursuant to Article 480, if the cheque bears signatures of persons lacking legal capacity, forged signatures, signatures of fictitious persons, or signatures that are not binding on their purported authors for any reason, the obligations of the remaining signatories remain valid.
Accordingly, forgery of the signature of one signatory does not in itself invalidate the obligations of all other endorsers.
However, an endorser who proves that the signature attributed to them is forged does not incur a negotiable instruments obligation based on a signature that did not originate from them.
Tenth: Limited Legal Capacity and Its Effect on the Endorser’s Obligation
Article 479 provides that obligations of persons with limited legal capacity who are not traders, and persons lacking legal capacity, arising from their signatures on a cheque – whether as drawers, endorsers, avalists, or in any other capacity – are invalid only in relation to those persons.
Such invalidity does not automatically extend to the obligations of the other signatories, which is consistent with the principle of independence of signatures.
Eleventh: Personal Defenses Against the Holder
Article 494 establishes an important rule protecting the circulation of cheques.
A person against whom proceedings are brought on the basis of the cheque – including an endorser – may not raise against the holder defenses based on their personal relationship with the drawer or previous holders.
The exception is where the holder, at the time of acquiring the cheque, intended to cause harm to the debtor.
Accordingly, a dispute between the endorser and the drawer, or between the endorser and a previous holder, does not necessarily extend to a new bona fide holder.
Twelfth: Bad Faith of the Possessor and Loss of the Cheque
Article 493 addresses a different issue, namely loss of possession of a bearer cheque or an endorsable cheque.
A person to whom the cheque has passed is not required to surrender it unless they acquired it in bad faith or committed gross negligence in obtaining it, while the holder of an endorsable cheque must establish their entitlement in accordance with the chain of endorsements prescribed by Article 491.
Accordingly, Article 493 should not be treated as a general rule governing every defense that an endorser may raise against the holder; it primarily concerns disputes arising from loss of possession of the cheque.
Thirteenth: Endorsement After Protest or Expiry of the Presentation Period
Article 496 provides that an endorsement made after protest or an equivalent act, as well as an endorsement made after expiry of the period for presenting the cheque, produces only the effects of a civil assignment of rights.
In such case, the endorsement loses its full negotiable instruments effect as a method of transfer and is treated by law as a civil assignment.
An undated endorsement is presumed to have been made before protest or the equivalent act, or before expiry of the presentation period, unless the contrary is established.
The same Article prohibits antedating an endorsement and treats such conduct as forgery.
Fourteenth: Endorsement by Procuration Does Not Transfer Ownership
Not every signature on the back of a cheque necessarily transfers ownership.
Article 495 permits endorsement by procuration, such as the wording «value for collection», «for collection», or «by procuration». In such case, the endorsee may exercise the rights arising from the cheque as an agent for collection, but does not become the owner of the right in the manner resulting from an endorsement transferring ownership.
The Court of Cassation has confirmed this distinction. In Appeal No. 13914 of Judicial Year 60 – session of 29 December 1993, it held that a mere signature on the back of the cheque is presumed to constitute an endorsement transferring ownership unless it is established that the parties intended an endorsement by procuration.
It also confirmed in Appeal No. 5275 of Judicial Year 72 – session of 27 June 2013 that banking custom has developed whereby the beneficiary endorses a cheque to the bank with which they deal for collection of its value and crediting it to their account, which constitutes an endorsement by procuration depending on the circumstances.
Fifteenth: Criminal Liability of the Endorser
One of the most important legal corrections is that criminal liability in cheque offences is not always limited to the drawer.
Article 534 of the Trade Law applies the prescribed penalty to any person who endorses a cheque to another by way of transfer of ownership while knowing that the cheque does not have funds available for payment of its full value or that it is not payable.
The Article also applies to a person who delivers to another a bearer cheque payable on demand while possessing the same knowledge.
Accordingly, the endorser may incur direct criminal liability where the elements specified by the provision are satisfied, without being required to have participated with the drawer in the original offence.
Sixteenth: When Does the Endorser Not Incur Criminal Liability?
The mere fact that the cheque was dishonored is not sufficient to render every previous endorser criminally liable.
Article 534 requires, in relation to the endorser, knowledge at the time of endorsement that the cheque does not have funds available for payment of its full value or that it is not payable.
Accordingly, criminal liability differs from the negotiable instruments guarantee of payment:
- Negotiable instruments guarantee: Arises – in principle – from endorsement under Article 490 without any need to prove criminal intent.
- Criminal liability: Requires proof of knowledge and the circumstances specified by Article 534.
An endorser may therefore remain liable under negotiable instruments law for the value of the cheque even where no criminal offence is established against them.
Seventeenth: Does Characterizing the Cheque as a «Security Cheque» Exempt the Endorser?
No general rule can properly be adopted that the parties’ description of a cheque as «security» extinguishes the endorser’s negotiable instruments obligation.
The starting point is whether the instrument satisfies the statutory requirements of a cheque, the type of endorsement involved, and the defenses that the law permits to be raised against the holder.
The underlying relationship between the parties may be relevant in certain disputes, but it does not automatically permit the endorser to defeat the rights of a bona fide holder contrary to the rule barring personal defenses under Article 494.
Eighteenth: Rights of the Holder upon Non-Payment
If the cheque is presented for payment and the bank refuses to pay its value, the holder may exercise rights of recourse against the drawer, endorsers, and other liable parties, provided that the conditions and time limits prescribed by law are satisfied.
These rights are subject to specific rules concerning presentation of the cheque, proof of non-payment, notices, and periods for recourse.
Accordingly, the endorser’s liability is not merely a civil claim for compensation arising from breach of contract; the holder may claim the value of the cheque and the amounts recoverable under negotiable instruments law.
Nineteenth: Limitation Period for Recourse Against the Endorser
Article 531 provides that actions by the holder against the drawer, endorsers, and other persons liable for payment of the cheque are time-barred after six months from the date on which the cheque was presented for payment or from expiry of the presentation period, according to the cases specified by the provision.
Actions of recourse between liable parties themselves are also time-barred after six months from the date on which the liable party paid the value of the cheque or from the date on which judicial proceedings were brought against that party for payment.
These are special negotiable instruments limitation periods that differ from the periods that may govern the underlying relationship between the parties to the transaction.
Twentieth: Recourse by the Endorser After Payment
If an endorser is required to pay the value of the cheque to the holder pursuant to their negotiable instruments obligation, this does not necessarily mean that the endorser ultimately bears the amount in all circumstances.
The endorser may exercise recourse under the rules governing cheques against prior liable parties who guarantee payment, subject to the order of signatures, limitation periods, and recourse procedures.
The negotiable instruments guarantee system therefore creates a chain of liabilities among signatories, enabling the holder to recover the amount due and allowing a signatory who pays to seek recourse against prior liable parties in accordance with the law.
Twenty-First: Endorsement of a Bearer Cheque
If an endorsement is written on a cheque payable to bearer, Article 492 makes the endorser liable in accordance with the rules of recourse.
However, such endorsement does not convert the bearer cheque into an order cheque.
This is an important rule because a bearer cheque is originally transferred by delivery, yet a person who signs it by way of endorsement may nevertheless incur negotiable instruments liability as a result of that signature.
Twenty-Second: Certification of the Cheque and Its Practical Effect
The Trade Law permits a cheque to be presented to the bank for certification pursuant to Article 482.
Certification by the bank confirms the existence of funds available for payment on the date of certification, and those funds remain blocked for the benefit of the holder until expiry of the periods for presenting the cheque for payment in accordance with the provision.
Certification is an important means of reducing the risk that funds will not be available for payment, but it does not in itself alter the rules governing validity of endorsement or the endorser’s liability arising from their signature.
Twenty-Third: Precautions for the Endorser Before Signing
- Clearly identify the type of endorsement: Whether the intention is to transfer ownership or merely authorize collection.
- Verify the status of the cheque: Particularly where there is information indicating that it may not be payable.
- Do not make a partial endorsement: Because it is void by law.
- Do not make the endorsement conditional: Because the condition is deemed unwritten.
- Observe the timing of the endorsement: Because an endorsement made after protest or expiry of the presentation period produces only the effects of a civil assignment.
- Exclude the guarantee of payment through clear wording: If the endorser wishes to do so and their contractual position permits it.
- Do not insert a false earlier date for the endorsement: Because the law treats antedating as forgery.
- Retain documents relating to transfer of the cheque: To establish the nature, timing, and purpose of the endorsement in the event of a dispute.
Conclusion
The liability of an endorser of a cheque is not based solely on traditional contractual principles. An endorsement transferring ownership creates a negotiable instruments obligation to guarantee payment arising from the Trade Law and the endorser’s signature on the instrument.
Under Article 490, the general rule is that the endorser guarantees payment, but the endorser may exclude that guarantee through clear wording and may also prohibit further endorsement, thereby limiting liability toward subsequent holders within the boundaries established by law.
At the same time, the endorser’s liability may extend beyond the negotiable instruments sphere into criminal liability, as Article 534 penalizes a person who endorses a cheque by way of transfer of ownership while knowing that the cheque lacks full funds available for payment or is not payable.
Accordingly, determining the endorser’s legal position always requires answering four questions: What type of endorsement was made? Did it retain its negotiable instruments effect? Did the endorser exclude the guarantee of payment? And did the endorser know, when transferring the cheque, that it was not payable? These elements determine the scope of the endorser’s civil, negotiable instruments, and criminal liability.