Every so often, one sees a promissory note that is passed around more than the proverbial “Sweetheart of Sigma Chi,” one with a long chain of endorsements and allonges. Just as often, it seems, someone – whether deliberately or by inadvertence – has simply endorsed it without naming an assignee. This is an endorsement “in blank.”
Endorsements in blank, though not always a safe practice, are valid and enforceable and are not gaps in title to the note.
Let’s walk it through: Promissory notes are classified by Article 3 of the Uniform Commercial Code (the “UCC”) as “negotiable instruments.” As such, they may be enforced by the “holder,” that being “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession; . . .” of a negotiable instrument that is payable either to bearer or to an identified person if the identified person is in possession of the instrument.” UCC §1-201(b)(20); Utah Code Ann. Section 70A-1a-201(u). Accordingly, to have an entitlement to enforce a promissory note, an assignee need only demonstrate: (1) possession of the instrument; and (2) that the note is payable to the assignee.
However, where the promissory note does not identify the assignee, the UCC provides that “When endorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone . . . .” UCC §3-205(b); U.C.A §70A-3-205(2). Thus, a promissory note that is endorsed in blank is considered payable to the bearer. “Bearer” is specifically defined by the Code as including one who is in possession of a note that is endorsed in blank. UCC §1-201(b)(5); U.C.A § 70A-1a-201(e). Therefore, having possession of a note endorsed in blank, is all that is necessary to enforce it, whether the borrower or the assignor has specifically endorsed it, or not.