If a negotiable instrument is endorsed in blank or is payable to bearer, it is bearer instrument. The holder may negotiate by mere delivery. But if the holder endorses it specially to a person and makes it payable to the order of such person, then the endorser in full cannot be sued by any person except the person in whose favour he endorsed it. But as regards all parties prior to the endorser in full, the instrument remains tranferable by mere delivery.
A, the payee of a bill, endorses it in blank and delivers it to B who endorses specially to C, or order C without any endorsement transfers it to D. D as the bearer is entitled to receive payment. In case of dishonour D is entitled to sue the drawer and the acceptor of the bill and also A and all indorsers prior to A, if any. He cannot, however, sue B or C.
Where a cheque is originally drawn payable to bearer, the drawee (the paying banker) is discharged by payment in due course to the bearer, even if there are any subsequent endorsement. The rule is ‘once a bearer cheque always a bearer cheque’ which means that if a cheque is originally drawn payable to bearer, it remains bearer, even though it is subsequently endorsed in full. This rule is not applicable if a cheque originally made payable to order becomes payable to bearer by blank endorsement.
Where a, bearer negotiates an instrument by mere delivery, and does not put his signature thereon, he is not liable to any party to the instrument in case it is dishonoured as he has not lent his credit to it.