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Promissory Notes “Endorsed In Blank” Are Perfectly Fine

Sometimes assignees of promissory notes, or foreclosure counsel asked to enforce assigned notes, will see within the chain of title to the note an allonge (or assignment) that is signed by the assignor but that fails to identify the name of an assignee.  This is referred to as an endorsement “in blank.”  Can the note still be enforced?  You bet.

Note holder.  A promissory note is a negotiable instrument governed by Article 3 of the Uniform Commercial Code.  Indiana Code § 26-1-3.1-301 provides that a negotiable instrument may be enforced by “the holder of the instrument.”  The “holder” of the instrument 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.”  I.C. § 26-1-1-201(20)(A).  Under Indiana law, to demonstrate that it is entitled to enforce a note, an assignee need only establish (1) possession of the note and (2) that the note is payable to the assignee.    

Possession.  But how can a note be payable to the assignee if the assignee is not identified?  By operation of law.  I.C. § 26-1-3.1-205(b) is the provision in the UCC that permits blank endorsements:  “when endorsed in blank, an instrument becomes payable to bearer and may be negotiated  by transfer of possession alone….”  If a note is endorsed in blank, the note is payable to the bearer.  I.C. § 26-1-1-201(5)(B) defines a “bearer” as one in possession of the note endorsed in blank.  In short, possession of the promissory note is the key here. 

Like a check.  If an assignee has possession of a note, and even if the note is not specifically endorsed to the assignee, the assignee meets the requirements to be the “holder” of and “person entitled to enforce” the note under Indiana law.  See also, Egbert v. Egbert, 80 N.E.2d 104 (Ind. 1948)   Contrary to borrowers’ arguments – really, misunderstanding of the law - nothing more is needed to establish standing to enforce an assigned note.  Think of it this way - a promissory note and a check are basically the same.  Most of your parents probably taught you at some point that, once you endorse a check, anyone can cash it.