Endorsement

Endorsement of a negotiable instrument (유가증권의 배서/背書) is fixing one's name plate and seal (기명날인/記名捺印), or placing one's signature (서명/署名) on the instrument to transfer the endorser's right.

Persons other than the original obligor and obligee can become parties to a negotiable instrument by endorsement. If the person who fixes name and seal or signs does so with the intention of obtaining payment of the instrument or acquiring or transferring rights to the instrument, it is called an endorsement.

Key words
endorsement, transfer of rights, guarantee, recourse

Types of Endorsement
Under the Bills of Exchange and Promissory Notes Act (어음법), there are several types of endorsements.
 * An endorsement which purports to transfer the instrument to a specified person is a special endorsement – for example, "Pay to the order of A";
 * An endorsement by the payee or holder which does not contain any additional notation (thus purporting to make the instrument payable to bearer) is an endorsement in blank or blank endorsement;
 * An endorsement which purports to require that the funds be applied for collection is a restrictive endorsement; and,
 * An endorsement purporting to disclaim retroactive liability is called a qualified endorsement (through the inscription of the words "without recourse" as part of the endorsement on the instrument or in allonge to the instrument).

Legal Effects of Endorsement
To enhance the negotiability and transferability of the instrument, the Act provides for following three types of effects to endorsement of the bill of exchang or promissory note: Article 14 (Effect of Endorsement Transferring All Rights) of the Act
 * transfer of rights (권리이전/權利移轉)
 * liability to recourse (소구/遡求) and
 * qualifying ability (자격수여/資格授與).
 * (1) An endorsement shall transfer all the rights arising out of a bill of exchange.
 * (2) If the endorsement is in blank, the holder my:
 * 1. Fill up the blank either iwth his own name or with the name of some other person;
 * 2. Re-endorse the bill in blank, or to some other person; and
 * 3. Transfer the bill to a third person without filling up the blank, and without endorsing it.

Article 15 (Effect of Endorsement Guaranteeing Acceptance and Payment)
 * (1) In the absense of any contrary stipulation, the endorser shall guarantee acceptance and payment.
 * (2) The endorser may prohibit any further endorsement; in this case, he shall give no guarantee to the persons to whom the bill is subsequently endorsed.

Article 16 (Effect of Endorsement Establishing Title and Bona Fide Acquisition)
 * (1) The possessor of a bill of exchange shall be deemed to be the lawful holder if he establishes his title to the bill through an uninterrupted series of endorsements, even if the last endorsement is in blank. In this connection, cancelled endorsements shall be deemed not to be written. When an endorsement in blank is followed by another endorsement, the person who signed this last endorsement shall be deemed to have acquired the bill by the endorsement in blank.

Article 77 (Application of Provisions on Bill of Exchange)
 * (1) The following provisions relating to bills of exchange shall apply mutatis mutandis to promissory notes so far as they are not inconsistent with the nature of these instruments:
 * 1. Endorsement (Articles 11 through 20)
 * 2 - 9. Omitted.

Holder in due course
If a bill or note is negotiated to a person who acquires the instrument the transferee is a holder in due course (선의취득자/善意取得者) and can enforce the instrument without being subject to defenses which the maker of the instrument would be able to assert against the original payee, except for certain real defenses (물적항변/物的抗辯).
 * whose series of endorsements shall be apparently uninterrupted
 * in good faith and without gross negligence; and
 * without notice of any defect in title,

These real defenses include
 * any defect on the instrument
 * infancy or incapacity of the signer to contract
 * forgery or alteration of the instrument
 * agency without authority nor proxy (협의의 무권대리/無權代理)
 * fraud as to the nature of the instrument being signed
 * violation of law of a mandatory nature
 * judgement of nullification (제권판결/除權判決)
 * deposit the money in a designated bank (공탁/供託)
 * discharge in bankruptcy
 * the running of a statute of limitations as to the validity of the instrument.

The holder-in-due-course rule is a rebuttable presumption that makes the free transfer of negotiable instruments feasible in the modern economy. A person or entity purchasing an instrument in the ordinary course of business can reasonably expect that it will be paid when presented to, and not subject to dishonor by, the maker, without involving itself in a dispute between the maker and the person to whom the instrument was first issued (this can be contrasted to the lesser rights and obligations accruing to mere holders).

The foregoing is the theory and application presuming compliance with the relevant law. Practically, the obligor-payor on an instrument who feels he has been defrauded or otherwise unfairly dealt with by the payee may nonetheless refuse to pay even a holder in due course, requiring the latter to resort to litigation to recover on the instrument.