Kinds of Endorsement of Negotiable Instrument

Kinds of Endorsement of Negotiable Instrument

INTRODUCTION:

A negotiable instrument is a written document that is transferred by delivery or by endorsement. Such instruments are transferred from one person to another and entitle him to the sum of money and also the right to transfer it. It helps to avoid carrying a large amount of money to reduce the risk of robbery, theft, etc. Negotiable Instrument includes documents like a cheque, a promissory note, or a bill of exchange. The Negotiable Instrument Act, 1881 deals and gives legal effect to such instruments. 

According to section 13 (i) of the Act states, “a negotiable instrument includes and means a promissory note, bill of exchange or cheque.” Before its enactment English Negotiable Act was applicable. The present Act is similar to the English laws with few changes.

WHAT IS ENDORSEMENT?

Section 15 of the Negotiable Instrument Act defines the term. Endorsement is the signature by the maker or drawer or a holder of the negotiable instrument, with or without writing, for the purpose of negotiation. Depending on the case, the endorsement is done by the holder, and if no space is left then the endorsement is done on a separate paper slip annexed which is known as “allonge”. The person doing the endorsement is known as

endorser while the person receiving such endorsed instrument is known as endorsee.

TYPES OF ENDORSEMENT:

There are 7 types of endorsement which are as follows:

  1. Blank or General Endorsement
  2. Special or Full Endorsement [S.16]
  3. Partial Endorsement [S. 56]
  4. Restrictive Endorsement [S. 50]
  5. Conditional or Qualified Endorsement
  6. Sans Recourse
  7. Facultative
  • Blank or General Endorsement – When an endorser signs his name only on the instrument and does not specify the name of any person to whom the payment is to be made, i.e, no endorsee is specified, then such endorsement is known as blank or general endorsement. 

A blank endorsement can be changed into a full endorsement by the holder by mentioning the name above the signature of the endorser with the direction to whom or to whose order it is payable.

Illustration: A endorses a bill by simply affixing her signature. This is known as a blank endorsement by A. In this case, the bill becomes payable to the bearer. 

  • Special or full endorsement – An endorsement is said to be full or special when the endorser signs the instrument as well as mentions the name on whose favor the endorsement is done. In this case, only the endorsee can transfer the instrument and in case if the amount is due on the instrument the endorser becomes liable to be sued by the payee. 

Illustration: X is the holder of a bill that is endorsed by Y in the blank. X mentions the “pay to Z or order” name over Y’s signature. The writing makes the instrument operate the endorsement in full from Y to Z.

  • Partial Endorsement – In partial endorsement, only a part of the due amount on the instrument is transferred to the endorsee. Such endorsement does not work as negotiation of the instrument. The balance can be negotiated by the endorsement only if the amount partly paid is mentioned in the instrument. 

Illustration: Suppose X is the holder of a bill for Rs.2000. He endorses it “pay to Y or order Rs.1000”. Such endorsement is known as a partial endorsement and is invalid for negotiation. 

  • Restrictive endorsement – A restrictive endorsement is an endorsement that puts a restriction or prohibits the further negotiation of an instrument by the end orsee. This is done either by expressed words or by expressing that it is an incomplete and unconditional transfer of the instrument. It is the authority of the endorsee to deal with the directions as mentioned by the endorsement. Such endorsement entitles the endorsee of all the rights except the right of negotiation further. Sometimes the restrictive endorsement is done to receive the contents of the endorser or any other specified person. Restrictive endorsement helps in avoiding the risk of fraud or forgery by an unauthorized person. 

Illustration: A endorses any negotiable instrument as ‘pay B for the account of C’ thereby restricting the negotiability of the instrument.

“Pay to X only”, “pay to X for my use” or “pay to X or order of collection” are some examples of restrictive endorsement. 

  • Conditional or Qualified Endorsement – When the endorser puts his signature along with certain conditions in writing on the instrument and where such instrument is operative only on the fulfillment of such conditions or happening of a certain event, such endorsement is known as a conditional endorsement. This thus limits or navigates the endorsee’s liability. 

The conditions may either be condition precedent or condition subsequent. In the former, the endorsee does not have the right after the condition is fulfilled, whereas in the latter the endorsee’s right is defeated on the fulfillment of the conditions. 

Conditional endorsement does not affect the negotiability of the instrument. 

  • Sans Recourse – According to section 52 of the Negotiable Instrument Act, an endorser has the right to exclude his liability by writing in the endorsement. Such endorsement is known as ‘sans recourse’ or ‘without recourse’. Further, if he becomes the holder of the instrument again, then all the intermediate endorsers will be liable to him. In case if the endorsement is done without recourse, the endorser will not be held liable if the instrument is dishonored.

Illustration: A is the payee of the negotiable instrument. He endorses it ‘sans recourse’ to B. B endorses it to C, C to D, and D again endorses it to A. In this, A is reinstated with his former rights as well as has the rights of an endorsee again B, C, and D.

  • Facultative Endorsement – In facultative endorsement, the endorser either disclaims some of the rights to which he is entitled or increases his liability under the instrument. The purpose of a facultative endorsement is to make the endorser liable, even though he is not liable under the Act. 

Author: Deepa Rishi,
3rd Year, REVA UNIVERSITY, BANGALORE.

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