DEFINITION of Allonge
Allonge is a sheet of paper attached to a bill of exchange for the purpose of documenting endorsements. The need for an allonge arises when there is no space on the bill itself.
Allonge is derived from the French verb allonger, which means ‘to draw out.’
BREAKING DOWN Allonge
A bill of exchange is a binding agreement between two parties wherein one part agrees to pay a determinate sum of money to the other party, either immediately or on a predetermined date. Bills of exchange generally do not pay interest, making them, in essence, post-dated checks. These financial instruments are primarily used in international trade. There are up to three parties that may be involved in a bill of exchange – (1) the drawee – pays the sum of money specified on the bill of exchange; (2) the drawer – requires the drawee to pay the payee; (3) the payee – receives the money paid by the drawee. The drawer and the payee are the same entity, unless the drawer transfers the bill of exchange to a third-party payee.
Because a bill of exchange is transferable through endorsement, it may be exchanged among so many parties that these parties don't all fit on the bill. In this case, a separate piece of paper, called the allonge, is attached to the bill, acting as a legal extension of the document. To receive additional endorsements on a bill which does not have sufficient space, an allonge is affixed to the financial instrument. An endorser must sign any endorsement written on the allonge in order for the paper to be valid.
A giver of an aval is a person who guarantees the payment of the sum of money stated on a bill of exchange by affixing his or her signature on the allonge. The term ‘aval’ is a guarantee noting that the amount stipulated on the bill or allonge will be paid off. An aval must specify for whose account it is given. In default of this, it is deemed to be provided for the drawer.
An allonge is principally used in civil law countries but is a rare financial instrument given that bills of exchange are not common anymore.