every negotiable instrument tells a story it begins at the issuance when the issuer of the negotiable instrument transfers it to the payee and the story ends when the negotiable instrument is presented to the issuer for payment and we know that this is done through a process called negotiation when we transfer a negotiable instrument a promissory note or a check through the process of negotiation it creates a holder and a holder is going to receive all of the rights of the previous possessor of the negotiable instrument now there are two methods of negotiation so that the receiver becomes a holder depending on whether the instrument is an order instrument or a bearer instrument we negotiate order instruments through a process of signature and delivery remember endorsement simply means a signature it's an authentication that you are the person to whom the who has the right to transfer the promise the promissory note or the check so to negotiate an order instrument it requires both the endorsement and delivery and delivery has historically meant physical delivery transferring the document physically to a second person in recent years of course we've seen the ability to accomplish delivery without delivering the actual piece of paper negotiating bearer instruments is done through delivery only so there's no endorsement needed for a bearer instrument so an endorsement it's a signature with or without additional words or comments the endorser is the person who transfers the note or the draft by signing endorsing it and delivering it to another person and the endorsee is the person to whom the check or promissory note is endorsed and delivered now there are different kinds of endorsements remember it's a signature plus additional words and these additional words can change the meaning of the endorsement let's start with the most common endorsement which we refer to as a blank endorsement and a blank endorsement is simply just a signature there is no specific indoor c and it has no words of restriction so when a check or a promissory note is endorsed in blank when there is a blank endorsement it essentially becomes a bearer document and it can be negotiated by delivery alone so if i sign the back of a check with my name then i can that check now becomes a bearer document and i can transfer that check to a third party who can transfer it to a fourth party and so on simply through physical delivery of the document another type of endorsement is called a special endorsement a special endorsement contains a signature but it also identifies the endorsee and when we endorse a check or promissory note in this way it becomes an order instrument if it's a bearer document it becomes an order instrument if it was originally an order instrument it remains an order instrument so in this case we have a situation which the endorsement says pay to william hunter and then hal cohen william hunter is the payee and this endorsement it only transfers the rights of the posse of hal cohen to william hunter the indoor sea another type of endorsement is a qualified endorsement and it's used by an endorser who does not wish to be liable on the instrument when we get into the final section of this topic we will see that the that everyone in the chain of endorsement may have liability on the document someone may sometimes want to be excluded from that chain and so they use what's called a qualified endorsement we would often see this for instance in the case of of a bankruptcy trustee who is going to have the power to endorse checks but doesn't want to be personally liable on those checks so they will use a phrase usually something along the lines of without recourse without recourse means it's a qualified endorsement now financial institutions don't like qualified endorsements because it reduces the number of people who may have a potential liability on that on that negotiable instrument and finally restrictive endorsements restrictive endorsements require the endorsee to comply with certain restructur instructions regarding the funds for instance if i sign an endorsement to pay only a named payee this is the same legal effect as a special endorsement we also have a phenomenon called a conditional endorsement in which payment is made dependent on the occurrence of some event specified in the endorsement now conditional endorsement does not destroy negotiability however again financial institutions are going to be very reluctant to take a document with the idea that it is conditional on some event and finally the most common restrictive endorsement that you will see is an endorsement for deposit or collection uh many times the um a bank for instance in uh in a mobile deposit will ask you will instruct you to sign the document make it for deposit only or for deposit only to a certain named account or what we are increasingly seeing is for mobile deposit only and what this does is it means that this instrument can only be negotiated through the restriction on the endorsement which is to say you cannot cash the check it is only permitted to be deposited into an account so here's a check actually i just got a short time ago of course we all use mobile apps to deposit checks right now and so i i simply say for mobile deposit only at the top and then include my signature now endorsements can will have an effect on the nature of the document endorsement can convert an order instrument to a bearer instrument or vice versa can convert a bearer instrument to a order instrument so it all depends on the character of the instrument at the time negotiation takes place whether the instrument is an order instrument or a um or or not a bearer instrument so an instrument made payable to the order of a named payee and endorsed in blank becomes a bearer instrument meaning it when i sign the back of a check in blank that check becomes a bearer instrument now bearer instrument can be converted in an or an order instrument through a special endorsement which is to say pay to the order of john smith or something along those lines here's a couple of examples of how to convert an order instrument to a bearer instrument and vice versa in the first case we see a blank endorsement a check payable to the order of jesse arnold arnold endorses the check in blank by simply signing her name and thus converts the instrument to a bearer instrument and she can now deliver the check to another company an endorsement converting a bearer instrument to an order instrument in this case the the party to whom she has given the bearer instrument the jace jonas tolling in this example can add a special endorsement and negotiate the check to a named indoor sea now the special endorsement because it makes the instrument payable to a specific endorsee in this case mark hyatt converts the bearer instrument into an order instrument so to negotiate the instrument further mark hyatt would then have to endorse and deliver the instrument and again mark hyatt could sign it in blank could endorse it in blank and transform it back into a bearer instrument i know that's a lot to get a hold of but review these situations on your tests there may well may be questions regarding specific endorsements so i'd have you look at those and be able to identify whether it's a blank endorsement special qualified or restrictive endorsement as always if you have any questions be sure and let me know thank you