Section 15 of the Negotiable Instruments Act 1881, defines the term endorsement as follows: When the maker or holder of negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to have endorsed the same and is called the endorser.
Endorsement literally means “writing on the back of the instrument.” But under the Negotiable Instruments Act, it means “writing of a person’s name on the back of the instrument or on any paper attached to it for the purpose of negotiation.” The one who signs the instrument for purpose is called the ‘endorser’. The person to whom the instrument is endorsed or transferred is called “endorsee.”
The Requisites of Valid Endorsement
The essentials for a valid endorsement are listed below:
• The endorsement must be done either on the back or face of the instrument and if there is no space then it must be made on a separate paper attached to it.
• The endorsement must be done in ink, any endorsement done in pencil or rubber stamp is considered to be invalid.
• The stranger cannot endorse, it is necessary to be done by the maker or holder of the instrument.
• The endorser must sign it.
• It must be completed by the delivery of the instrument.
• The endorsement must be of the entire bill, the partial endorsement is not operated as a valid endorsement.
Kinds of Endorsement
Endorsement in Blank:
When the endorser just signs his name then, the endorsement is called “in Blank.” The endorsement does not show the name of endorsee with the effect that an instrument which is endorsed in blank becomes payable to the bearer even though originally payable to order and no further endorsement is required for its negotiation.
e.g. If a cheque is payable to “Z” or order and “Z” merely signs on its back, such endorsement is known as an endorsement in blank.
The endorsement in Full:
If the endorser signs and also mention the name of the person to whom or to whose order the payment is to be made.
e.g. If a cheque is payable to “Z” or order and “Z” adds the words Pay to “X” or pay to “X or order”, such endorsement is known as an endorsement in full.
Conditional Endorsement:
The conditional endorsement is dependent on the happening of a specified event, although such an event may or may never happen. It does not make the instruments non-transferable. Section 52 of the Negotiable Instrument Act 1881 provides- The endorser of a negotiable instrument may, by express words in the endorsement, exclude his own liability thereon, or make such liability or the right of the endorsee to receive the amount due thereon depend upon the happening of a specified event, although such event may never happen.
e.g. “Pay Z if he returns from America.” Thus, Z will receive the payment only if he returns from America. If the event does not take place, the endorsee cannot sue any of the parties.
Restrictive Endorsement:
In general, an endorsee is fully competent to negotiate in negotiable instruments. But Section 50 permits restrictive endorsement which can easily take away the negotiability of such instruments.
Illustration
If Z endorses an instrument payable to the bearer as follows. The rights of X to further negotiate are excluded:
(a) Pay the contain to X only
(b) Pay X for my use.
(c) Pay X or order for the account of Z
(d) The within must be created X
But the following endorsements are not restrictive endorsements:
(a) Pay X
(b) Pay X value in account of A Bank,
Because the endorser has not specifically restricted the negotiability of the instrument.
Endorsement ‘Sans Recourse’:
Sans Recourse means without reference. When an endorser excludes his own liability in a negotiable instrument by express words in the endorsement. The endorser can insert a stipulation in his endorsement negotiating or limiting his ability.
Illustration:
(a) Pay Z or order without recourse to me
(b) Pay Z or order Sans Recourse.
(c) Pay Z or order at your own risk.
These words will exclude the liability of the endorser altogether.
Partial Endorsement:
It is defined under Section 56 which explains that an instrument cant indorsed for a part of its amount.
e.g. If the endorsement is for Rs. 200, it cannot be indorsed for Rs. 100 only. But if the amount due has already been partly paid, a note to that effect may be endorsed on the instrument and it may then be negotiated for the balance.
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The Commerce Lecturer 