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Endorsement Under Ethiopian Law of Negotiable Instruments

Table of Contents

Meaning, Form and Effects
Types of Endorsement
Blank endorsement
Special endorsement
Qualified endorsement
Restrictive endorsement
Forged, Unauthorized, misspellet and multiple endorsements
A/ Forged or unauthorized endorsement
B. Misspellet endorsement
C. Multiple payees

Meaning, Form and Effects

If an instrument is an order instrument the payee or the holder is required to endorse it for a valid negotiation. Endorsement is the placing of a signature, sometimes with additional notation, on the back of a negotiable instrument to transfer or guarantee the instrument or to acknowledge payment. This definition gives a very comprehensive meaning of endorsement. The signature is usually placed on the back of the instrument or an a separate paper firmly attached to it (allonge). It’s object may be transfer of ownership to another person or as indicated in the definition endorsement may also be for the purpose of guarantee or it may be to acknowledge payment, for example in case of endorsement by the holder in favor of the drawee. A simple signature may be sufficient to constitute endorsement; however additional notation like the name of the subsequent holder, date or any other additional valid statements may be included. The person who transfers a negotiable instrument by endorsement is known as endorser. The person whose name is specified by the endorser and who receiver right from the instrument is called the endorsee.


The following is cheque is issued to Abera Tilahun

XXX Bank                                                           Date1-4-1996 YYYY
Branch Pay Abera Tilahun or order Br.600 (six hundred Birr)

Abera Tilahun has two options to enforce his rights arising out of the cheque. He can present it to Dashen Bank and collect Br 600 in cash. Alternatively he may negotiate it to another person. If he simply puts his signature and deliver to Almaz Fisseha. (endorsed it to Almaz Fisseha), she will be the one entitled to collect payment from the Bank. In this case Abera Tilahun is the endorser and Almaz Fisseha is the endorsee.

One purpose of an endorsement is to effect the negotiation of order instrument. Endorsement transfers all the rights of the endorser to the endorsee, including the right to further negotiation, but the right to further negotiation may be restricted or excluded by express words.

The commercial code without defining the term endorsement provides rules governing forms, types and effects of endorsement in the general part and in the special part. The special rules applicable to endorsement of Bill of exchange, promissory note and cheque are more or less repetition of the general part. Actually, there is no need for providing different categories of rules governing endorsement. All these rules could have been drafted in one section of the commercial code.

Article 725(1)748(1),825(1) & 844(1) all provide the form of a valid endorsement. For a valid endorsement it has to be written on the instrument and signed by the maker. As a principle, the provisions do not impose an obligation on the endorser to place his signature on the back of the instrument, it should simply be on the instrument, meaning it could be on the face or on the back. However in one Exceptional circumstance the rule is modified and the law requires the endorser to put his endorsement on the back of the instrument or on a slip affixed there of. This is when the endorser uses a blank endorsement i.e. puts his signature without specifying the payee. (see Article 748(2) & 825(1)(a),844(2).

In general, endorsement on a Bill of exchange, promissory note or cheque may be either on the face, on the back or on a slip attached to it. But if the type of endorsement used by the endorser is a blank endorsement, he cannot put his signature on the face of the instrument.  If it is on the back, because the back of the instrument will be clean or indicate only successive endorsements it will be clean or indicate only successive endorsement it will be difficult for the endorsee to deny his signature. Signature on the face of the instrument may belong to the Drawer, making it doubtful to determine whether it belongs to the drawer (maker) payee or subsequent holder. In practice to avoid such doubtful cases it is usually written on the back of the instrument.

The unconditionality requirement to promise or order for the negotiability of the instrument is similarly applicable to endorsements. An endorsement must be unconditional. But unconditional endorsement does make neither the instrument nor the endorsement void. Only the condition to which the endorsement is made subject becomes of no effect [(Articles 725(4),747(1),825(1)(a) and 843(1)] An endorsement transfers all the rights arising out of the instrument. The endorser cannot endorse for part of the money stated in the instrument. Any partial endorsement is null and void (Articles 725(5),747(2),825(1)(a),843(2)]

One more element regarding the validity of endorsement is related to the party who can stand as an endorser. Generally, a party to be bound by a commercial instrument should have a contractual capacity. This means, for instance, a minor cannot issue an instrument as a drawer or maker. This is equally applicable to his capacity as an endorser. An endorsement by a minor does not created any obligation against him. However, the instrument still retains its negotiability and will be valid as between the other parties to the instrument.


A Bill of exchange is issued in favor of Ketema or order. Then Ketema negotiates it in favor of Ababu who is a minor. This minor in turn endorses and delivers it to Fatuma. Ababu does not have any obligation towards the endorsee or any of the other parties. But the instrument still retains its negotiability and is effective as between all the parties save Ababu.

Assuming all the parties have contractual capacity, The maker, drawer, payee or endorsee and if there are several makers, drawers, payees or endorsees, all of them  can negotiate an instrument. The maker or drawer, could not normally endorse an instrument at the initial stage of issuance.


Dinku issues a promissory note to Dalcha or order. At this stage any endorsement by Dinku to Dalcha or any other person is of no effect. He has to only deliver the note to the payee i.e. Dalcha. The maker or Drawer may endorse an instrument provided they have received it back through endorsement from the holder. In a bill of exchange and a promissory note endorsement may be validly made to the Drawer or maker [(Articles 746(3),825(1)(a)] there is no corresponding provision which specifically allows endorsement to the drawer of a cheque (again a drafting mistake)

An endorsement to the drawee discharges the obligation arising from the instrument and is considered as a receipt. This is typically the rule with regard to cheques (Art 843(4)]. Exceptionally an endorsement to a drawee bank will be valid as endorsement if endorsement is to Branch other than the paying Branch.

If the instrument is a Bill of exchange there is no limitation upon endorsement to the drawee. The Bill may be endorsed in favor of the drawee whether he has accepted or not. [(Art 746(3)]

Types of Endorsement

Generally, there are four categories of Endorsement blank, special, Qualified and restrictive.

Blank endorsement

This type of endorsement is an endorsement that names no specific payee, thus making the instrument payable to the bearer and negotiable by delivery only. It consists of a mere signature


A cheque payble to “Abera Tilahun or order” can be endorsed in blank simply by having Abera’s signature written on the back of the cheque as.

Abera Tilahun  

A blank endorsement on an order instrument makes the instrument payable to bearer and negotiable by delivery. In other words a blank endorsement converts an order instrument in to a Bear instrument. In the above example Abera Tilahun by putting his signature on the back of the cheque can negotiate it to any person, by simple delivery. The person who received it can in turn negotiate it to subsequent 3rd party by delivery.

There are two ways an instrument may endorsed in blank under the commercial code. The first and typical one is when the endorsement does not contain the name of the endorsee. i.e. mere signature of endorser (Article 725(2),748(2),825(1)(a),844(2)] secondly, by endorsing it “to bearer” followed by signature of the endorser.(Article 725(3),747(3),825(1)(a),843(3)]

Special endorsement

A special endorsement indicates the identified person to whom the endorser intends to make the instrument payable i.e. it names the endorsee. No special words of negotiation are needed.


A cheque issued to Ali Hussein may be endorsed as

Pay to Girum Zenebu                 Ali Hussein (signed)
pay to the order of Girum Zenebe                         Ali Hussein (signed)  

Qualified Endorsement

This can be defined as an endorsement that passes title to the holder of the instrument but limits the endorser’s liability to later holders if the instrument is dishonored. Typically, a qualified endorsement is made by writing the words “with out recourse “or” san recourse” over the signature.

Generally, an endorser, merely by endorsing impliedly promises to pay the holder, or any subsequent endorser, the amount of the instrument in the event that the drawer or maker defaults on the payment

A qualified endorsement is used by an endorser to disclaim or limit this liability on the instrument


Pay to Geremew Haile

Without recourse

Dawit Zergaw (sinuate

Qualified endorsements are often used by persons acting in a representative capacity. The “without recourse” endorsement absolves the agent from liability. If the instrument is dishonored, the holder cannot obtain recovery from the agent who endorsed “without recourse.” An instrument bearing a qualified endorsement can be further negotiated.  A qualified endorsement is accompanied by either a special or a blank endorsement that determines further negotiation. Accordingly, a special qualified endorsement makes the instrument an order instrument, and it requires an endorsement plus delivery for negotiation. A blank qualified endorsement makes the instrument a bearer instrument, and only delivery is required for negotiation. 

Restrictive endorsement

A restrictive endorsement is one that specifies the purpose of the endorsement or specifies the use to be made of the instrument. A restrictive endorsement does not prohibit further negotiation of an instrument. Among the more common restrictive endorsements are:-

1. endorsement for deposit (Articles 728,753,737(3),867,825(1)(a),851 e.g. “For deposit only” or For deposit to my account at commercial Bank of Ethiopia, Harar Bank”

2. endorsement for collection(Art 728,753,863,864,825(1)(a),851.”For collection only” “Pay any bank”

3. endorsement indicating that the endorsement if for the benefit of someone other than the person to whom it is payable. e.g. “pay to Almaz, tutor for minor Alemu”

Generally, the person who takes an instrument with restrictive endorsement must pay or apply any money or other value he gives for the instrument consistently with the endorsement. 

Forged, Unauthorized, misspellet and multiple endorsements

The rules in the commercial code govern the correct manner of negotiation through endorsement. The right person who can endorse (there by negotiate the instrument) and the legal effects attached to such valid transfer. By providing the proper rules, it impliedly excludes any mode of transfer from the scope of negotiation. Sometimes, there is a possibility of resort to unlawful means or situations may be created giving rise to practical problems. For some of these deviating circumstances, the code formulates governing the effect of such case, however, failing to provide answer for some of the case such typical problems usually arise with regard to endorsement.

Of course, a significant problem in relation to endorsements occurs when an endorsement is forged or unauthorized. The code does not contain specific provisions regarding such issue. However, there are rules governing unauthorized or forged signature on a bill of exchange, promissory note or cheque. In general irrespective of the fact that forged or unauthorized signature is by endorser, drawer (upon issuance) or drawee (upon acceptance) [Articles 741,742,825(2),838,839]

A/ Forged or unauthorized endorsement

The general rule can be summarized as follows ‘Forged or unauthorized signature does not make the instrument invalid, rather it will have effect only as between the party who placed  such forged or unauthorized signature and the remaining parties’. Applying this rule to forged or authorized endorsement, it means that there will be a valid negotiation only as between the one who places a forged or unauthorized endorsement and the other parties.


A cheque to Niggussie Kebede or order was stolen by Firew Fikadu. Firew endorses the cheque as “pay to Zemede Tena.’’ And signs the fored signature of Niggussie Kebede. The one whose signature is forged does not have any obligation to Zemede, but Zemede, provided he acquires the cheque in good faith and for value may enforce his right against Firew and the drawer. The same rule applies to authorized signature. Assume in the above case that the cheque was validly negotiated from Niggussie to Firew and from Firew to Zemede. Zemede then transfer it through endorsement but writing as “pay to Hana” followed by his own signature with the qualifying phrase “ as agent of Ato Biru” Zemede if he he is not authorized to do so by Ato Biru the instrument becomes valid only as between Zemede and the other parties. Hana may enforce her right against the drawer and all the previous endorsers. Ato Biru will be relived from liability due to lack of authorization given to Zemede.

In light of the Bank’s liability, payment on a forged or unauthorized endorsement does not make the bank liable towards the drawer. The Bank does not have legal obligation to verify the signature of the endorsers except that of the drawer and the last endorsee. (Art 860)

B. Misspellet endorsement

An endorsement should be identical to the name that appears on the instrument. Sometimes the name of the payee or endorsee may be in correctly written by the endorser. The commercial code does not provide rules to determine disputes arising in such situation. The first problem concerns the status of the endorsee (i.e. whether he should be legally considered as a holder) whose name is miss pelt by the endorser. Secondly and most importunately considering such endorsee a holder, in what form can he endorse the  instrument to another person? The uniform commercial code treats a payee whose name is misspellelt as a holder and he can endorse it with the misspelled name, the correct name or both. Hence an instrument endorsed to Tsedale worku as “ Sedale Worku” may be re- endorsed as

Tsedale Worku, or

Sedale Wlrku, or

Sedale Worku (Tsedale Worku)

The usual practice in America is to endorse the name as it appears on the instrument and followed by the correct name.

Under Ethiopian law, the gap in the commercial code may be filled by following the same approach as the American. The underlying, basic principle behind the law of negotiable instruments is encouraging the free flow of commerce through practical and reasonable laws. For this reason, provided the true identity of an endorsee whose name is misspelled could be accurately verified, judges should not regard such type of endorsements as invalid merely due to spelling error.

C. Multiple payees

Still there is no clear provision applicable to multiple payee or endorsees, under the commercial Code. To have a better idea, let’s summarize the approach adopted by the UUC. An instrument payable to two or more person in the alternative (  example pay to the order of Assefa or Gemechu) requires the endorsement of only one of the payees. If, however, an instrument is made payable to two or more persons jointly. (for example “pay to the order of Assefa and Gemechu “or” pay to the order of Assefa, Gemechu”), all of the payee’s endorsement is necessary for negotiation.

The case of alternative payees doesn’t seem to pose any difficulty in determining endorsement and payment by the drawee, contractual interpretation of the word “or” clearly signifies either of them may endorse the instrument and payment by the drawee to either one of the payees is on effective (valid) payment. When we come to joint payees, still based on the actual meaning of the word and one may safely conclude (for the purpose of endorsement by joint payees under Ethiopian law of negotiable instruments) that the endorsement of both payees is needed. On the other hand in determining as to whom payment should be made by the drawee, the provisions of general provisions of contract should be consulted.

The principle laid down by the civil code regarding joint creditors is presumption against solidarity. (Art 1910 Commercial Code). Each creditor may require the debtor to discharge the debt but only half of his share (half of the amount stated) (Art 1910 & 1912 (2) Civil Code) when we relate this   principle of law of joint payees on a negotiable instrument, it means each joint payee may require the drawee to pay half of the stated amount on the instrument. A Drawee paying the whole amount to either one of the joint creditors will be liable to the unpaid joint payee for half of the amount. Exceptionally, As can be inferred from art 1910 of the civil code the joint payees by an express agreement authorize the drawee to pay the whole amount to one of the joint creditors. In this case payment of the total sum to one of joint payees is effective as against the other payee. The agreement creates a relationship of agency as between the joint payees. The joint payee receiving payment will now be considered as an agent and there by receiving the amount on behalf of the other joint payee.

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