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Due to the convenience requirements of the financial market, bills in the form of blank endorsements appear in large numbers in transactions. However, our country's bill legislation and related judicial interpretations have imperfect provisions on blank endorsements, which has led to the issue of the validity of blank endorsement bills has been controversial. The disputes over the continuity of endorsements, the simple form of delivery, and the right to write-up in the application of the law have not only caused confusion in people's understanding, but also led to frequent disputes over blank endorsement bills. Facing to the potential risks of blank endorsed bills, the payer should earnestly perform its review obligations and operate in compliance, so as to better protect its rights and interests.

Blank endorsement, also known as unfinished endorsement, refers to an endorsement in which only the endorser signs the bill, but the endorser column is blank and does not record the name of the endorser. [1] In real life, as market transactions become more convenient, bills in the form of blank endorsements are widely circulated in the transaction market. However, my country’s laws on the effectiveness of blank endorsed bills are conflicting. The "Negotiable Instruments Law" promulgated in 1995 takes a relatively conservative attitude towards blank endorsements, that is, does not recognize blank endorsements. In 2000, the Supreme People’s Court issued the Supreme People’s Court on Trial "Provisions on Several Issues in Dispute Cases" (hereinafter referred to as "Judicial Interpretation of the Negotiable Instruments Law") Article 49 perfects the provisions of the Negotiable Instruments Law, clarifying that endorsements that do not record the name of the endorsed are valid in principle. In fact, conditional recognition of blank endorsements has begun in the judicial field.

1. Case import

Company A issues a bank acceptance draft with a payee of Company B and an amount of 200,000 Yuan, and Company B transfers the endorsement of the draft to Company C. Company C later signed a sales and purchase contract with Company D, and delivered the draft to Company D by prepayment, but Company C did not sign in the endorser column or fill in the name of Company D when endorsing it. D Company then delivered the draft to Mr.Li, and Mr.Li  transferred it to Mr.Wang at a price of 195,000 Yuan. Mr.Wang entrusted Company E to collect payment. Company D, Mr. Li, and Mr. Wang did not sign the bill of exchange. After Company E signed the blank endorsed column, it was refused when requesting payment from the payer. Company E sued Company c to the court, requesting confirmation that it was the legal holder of the draft. The court has two views. One view is that Company E is the legal right holder of the bill. The reason is that Company E obtained the bill legally. According to Article 49 of the Judicial Interpretation of the Negotiable Instruments Law, the holder will enjoy Negotiable instrument rights; another view is that Company E is not a legal right holder, because Article 30 of the Negotiable Instrument Law requires the name of the endorsed person to be an absolutely necessary record, and the unrecorded endorsement is not continuous, so the holder cannot obtain the instrument right.

The author believes that in this case, Company D, Mr.Li, and Mr.Wang did not sign the bills, so they could not become bill debtors. The Negotiable Instruments Law did not recognize that the rights to the bills were obtained through simple transfer, so Company D, Li, and Wang all cannot become the right holder of the bill. Therefore, according to Article 49 of the "Judicial Interpretation of the Negotiable Instruments Law", Company E became the formal right holder of the bill after it was signed in the endorser column of the bill of exchange, and the payer should pay according to the continuous endorsement rule.

2. The applicable law of blank endorsed bills

The above cases show that the confusion in the application of the law of blank endorsed bills, the lack of relevant legal systems, and the conflict between legislation and judicial interpretation make the parties to bills bear huge risks in the circulation of bills. In practice, there are many disputes about whether the blank endorsement destroys the continuity of the endorsement, the simple delivery method of the blank endorser, and the holder's right to make up the record. The following author tries to make a brief analysis of these issues.

(1)          Confirmation of continuity of blank endorsement

Most foreign countries regard whether the endorsement is continuous or not as a certificate of rights to a bill. On the basis of determining the continuity of the endorsement of a bill, the legal presumption of a blank endorsement is given the continuous effect of the legal presumption of endorsement. It can be seen from this that the continuity of the complete endorsement should be the continuity in form, and only needs to be signed by the endorser and the endorser in turn. The continuity of the blank endorsement is the continuity on the presumption. The endorser directly behind is regarded as or presumed to be the endorser of the previous endorser. This presumption produces the effect of the proof of rights. [2]  The "Negotiable Instruments Law" does not recognize the validity of blank endorsements, and Article 49 of the "Judicial Interpretation of the Negotiable Instruments Law" regarding blank endorsements cannot be used as a general rule for blank endorsements. According to the provisions of the "Negotiable Instruments Law", if the note holder fails to make up the name of the endorsed person, the payer and the indirect endorser can claim against the note holder that the endorsement of the note is not continuous. For the payment of bills that have not been added, they will bear corresponding responsibilities for failing to fulfill the duty of inspection and care. [3] Although our country has not established similar rules for the presumption of continuous endorsement, it does not stipulate that discontinuous endorsements are of course invalid. In judicial practice, the court has established such a rule: if the last holder adds the names of all the back endorsers in the endorser column, the endorsement of the bill shall be deemed to meet the requirements of continuity of endorsement and be deemed valid. [4]

(2)          Transfer of blank endorsed bills

When the holder of a blank endorsed bill transfers the bill, the main methods are: change to a registered endorsement transfer, a blank endorsement transfer, and a simple delivery transfer. The first method realizes the continuity of the endorsement under the background of acknowledging the validity of the blank endorsement, and the holder can prove his/her right to the bill by the continuity of the endorsement. In the latter two transfer methods, as long as the bill has formal continuity, it can meet the requirement of endorsement to continuously prove the rights of the bill.

In a simple delivery transfer, the assignor does not endorse, so the assignee does not have the right of recourse against the assignor, and the assignor does not bear the guarantee payment responsibility on the bill, which will affect the acceptability of the bill to a certain extent. However, the simple delivery and transfer narrows the scope of exercise of the right of recourse and is easy to implement. In fact, it also reflects the original intention of the blank endorsement system. [5] What is questionable is that if the assignor who simply delivers does not have a signature and does not bear the responsibility for the instrument, and the assignee obtains the right to the instrument, can the former endorser of the assignor oppose the assignee on the basis of defense against the assignor? The author believes that it is possible in the transfer of ordinary claims, but in the case of simple delivery, the transferor’s unsigned does not belong to the transferee’s prior endorser, and the transferor’s prior endorsers and the transferee do not directly exist. The bill relationship does not belong to the actual direct predecessor. Therefore, the defense between the transferor's previous endorser and the assignee will not be subject to the defense rules of bill acts except for absolute defenses. The reason is: Since the transfer between the assignor and the assignee is an ordinary assignment of creditor’s rights, the former endorser should naturally also enjoy the defense of the same debtor status. If the defense of the former endorsement is denied, the scope of the defense of the Negotiable Instruments Law will be reduced, then when the endorsement is transferred, it is difficult for the former endorsers to predict, and it is obviously unfair to the former endorsers. However, if the assignee simply delivers or endorses the assignment again, at this time, in accordance with the general principles of the assignment of creditor's rights and the rules of bill conduct, the effect of the assignment of creditor's rights will be cut off, and the previous endorser will not be able to plead with the basic relationship. Our national legislation does not recognize the rule of blank endorsement, thus denying the possibility of the negotiable instruments being simply delivered and transferred. However, Article 49 of the "Judicial Interpretation of the Negotiable Instruments Law" provides support for this type of transfer. For example, Mr.Zhang and Mr.Du in the above cases, the bills are all obtained by pure delivery. In addition, the name of the payee of the check is a relatively necessary record. When the record is missing, a blank check is formed, and it is completely legal for the holder to adopt a simple payment transfer method.

(3)           Granting of the right to make up

Textuality is one of the typical features of a bill. The exercise of rights is based on the items recorded in the bill. If there is no special endorsement such as non-transferability, pledge, and entrusted collection on the bill, the holder can enjoy the corresponding rights based on the bill. For the holder, the blank endorsement is a kind of "general endorsement of authorization". After the blank endorsement is made, the holder will make a supplement to the unfilled column of the bill. Moreover, this authorization does not arise from the agreement of the parties, but a presumption of the validity of the blank endorsement. Therefore, a general blank endorsement is an endorsement that transfers the rights of the bill to a subsequent party, even if the endorser does not authorize the subsequent party in addition to the items recorded in the bill or has expressed the intention of not allowing the additional inscription, which is a goodwill to the drawee. The latter does not have the effect of bill law. In practice, it is often controversial whether the right to make a supplement can only be supplemented by a direct follow-up? Is it true that only the holder of the right to make a supplement has the right to make a supplement? The holder of the right to record is limited to the immediate successor of the blank endorsement, and the object of the supplement is not limited to the name of the holder of the right to supplement. [6] In addition, considering the liquidity of bills and transaction efficiency, the right of replenishment and the objects of replenishment should not be restricted.

3.Risks and countermeasures of the payer

The emergence and application of blank endorsements is an inevitable product of the development of the market economy. Blank endorsements bring varying degrees of risks to the payer. The parties concerned should earnestly fulfill their duty of care, strictly regulate operations, and avoid potential risks.

1）Risk of application of law.

According to the provisions of Article 57 of the "Negotiable Instruments Law", the object of payment review is the continuity of endorsements and the identity certificate of the payer, while Article 49 of the "Judicial Interpretation of the Negotiable Instruments Law" affirms the validity of blank endorsements. Therefore, in terms of legal use, the payer is at risk of choosing how to protect his own interests.

2）Payment risk.

As far as the payer is concerned, it is difficult to judge whether the holder is the real right holder only from the form of the bill. Once the payment is wrong, the real right holder will often file a lawsuit for lax review of the payer. If the holder is unable to return the payment, the payer is likely to face the unfavorable situation of paying twice; in addition, when the holder uses the found and stolen blank endorsement bill to forge the corresponding document to prompt the payment, if the payer makes the payment, it is easy to be compensated by right holders.

3）Litigation risk.

The continuity of the review endorsement is the main obligation of the payer. Although the Judicial Interpretation of the Negotiable Instrument Law affirms the right to add notes to the negotiable instrument, the Negotiable Instrument Law does not clearly recognize the presumption effect of the continuous blank endorsement. "The litigant can deny the judicial interpretation under the provisions of the "Negotiable Instruments Law". On the other hand, when the bearer issues corresponding evidence to prove that the endorsement is continuous, the payer’s refusal to pay will cause disputes. If the endorser regrets the endorsement due to the relationship with the bearer, he/she can sue for the discontinuity of the endorsement. Regardless of whether the payer wins the lawsuit or not, additional litigation costs will be incurred.

(2) Countermeasures of the payer

Conscientiously fulfilling the formal review obligations stipulated by the Negotiable Instruments Law is an effective measure to prevent and eliminate risks. Although the "Judicial Interpretation of the Negotiable Instruments Law" does not specify the rules for blank endorsements, it has clearly affirmed the validity of blank endorsements. In judicial practice, some courts also try cases in accordance with this judicial interpretation. Specifically, the payer should perform two major review obligations when receiving the invoice:

1）Obligation of formal review.

Including the authenticity of the immediate previous endorsement and signature, the completeness and legality of the notes recorded, and the continuity of the endorsement. In addition, other review obligations, such as the regulation of the central bank when discounting trade contracts, value-added tax invoices, etc., are both auxiliary and formal obligations. Even if the payer does not have a substantive review, as long as there is no subjective malice or gross negligence, reasonable consideration has been paid and the above formal review obligations have been fulfilled, the negligence of these counseling obligations does not affect its right to obtain a bill.

2） Obligation to review the legality of directly obtained bills.

That is, paying attention to whether it is legal for the previous person holding the ticket directly to obtain the ticket. So how to understand the "legality" here? Generally speaking, it depends on whether the previous person obtaining the bill directly violates the law or whether it is obtained illegally. As long as the person holding the ticket previously has evidence to prove that he/she obtained the bill legally, whether it was obtained without compensation or repayment, it is legally obtained. [7]

4. Remarks

Through the comparison of domestic and foreign legislation, it can be seen that most countries outside the region recognize blank endorsements and simple delivery, and the current conflicts and deficiencies of relevant laws and regulations in my country have seriously hindered the use of bills. In judicial practice, there are many disputes about the continuity of blank endorsements, the transfer of blank endorsements, and the granting of the right to make supplementary entries. Faced with the potential legal risks of blank endorsed bills, the payer must fulfill the corresponding formal review obligations in order to effectively avoid risks. In addition, only the judicial interpretation stipulates that the rule of blank endorsement cannot achieve the desired effect. Only by clarifying the rule of blank endorsement through legislation can the bill be circulated to the maximum extent and better protect the interests of the payer of the bill.

References:

[1]Yu Yongqin, Research on Frontier Issues of Bill Law. Beijing: Peking University Publishing. 2003.

[2] For example: Article 16 of the "Geneva Uniform Bill of Exchange Law Convention" stipulates that a blank endorsement shall be followed by another endorsement, and the latter endorser will be regarded as the endorser of the endorsement; Article 16 of the "German Instruments Act" stipulates, followed by the blank endorsement, and the endorser is presumed to obtain the draft through the blank endorsement.

[3] Liu Xinyin, Liu Pu. Risk prevention in bill circulation. Beijing: China University of Political Science and Law Press. 2013.

[4] Fu Mingzi, Research on Legal Issues of Blank Endorsement of Bills. Modern Business. 2010(11).272+271.

[5] Liang Yuxian, Explanation of Examples of Bill Law (revised new edition). Beijing: Renmin University of China Press. 2004.

[6] For example, Article 118 of the French Negotiable Instruments Act stipulates that the holder of a blank endorsement may record the name of himself/herself or another person in the blank; Article 14 of the Geneva Uniform Bill of Exchange Convention stipulates that the holder of a blank endorsement People can fill in the blanks with their own or other people's names.

[7] Guo Zhanhong, On the rights of discontinuous endorsements. Journal of Ningbo University (Humanities Edition). 2012(1). 91-95.

“Statement:

This article was originally created by the lawyers of JAVY Law Firm. It only represents the author's own views and should not be regarded as a formal legal opinion or suggestion issued by JAVY Law Firm or her lawyers. If you need to reprint or quote any content in this article, please indicate the source.