What do you mean by endorsement? What are its different types?
An
endorsement is the mode of negotiating a negotiable instrument. A negotiable
instrument payable otherwise than to a bearer can be negotiated only by
endorsement and delivery. An
endorsement, according to sec. 15 of the NI Act is “when the maker or holder of
a negotiable instrument signs the same, otherwise than as such marker. For the
purpose of negotiation on the back or face thereof or on
“The word
endorsement is said
to have been
derived from Latin
‘en’ means ‘upon’
and ‘dorsum’ meaning ‘the back’.
Thus usually the endorsement is on the back of the instrument though it may be
even on the face of it. Where no space is left on the instrument, the
endorsement may be made on a slip of paper attached to it. This attached slip
of paper is called ‘Allonge’.
Types of
Endorsement:
According to
the N.I. Act, 1881 endorsement may take any of the following forms:
1. Endorsement in blank or general
endorsement.
2. Endorsement in full or special
endorsement.
3. Restrictive endorsement.
4. Partial endorsement.
5. Conditional endorsement.
Endorsement in Blank or General Endorsement:
In case of
an endorsement in blank, the payee or endorser does not specify an endorsee and
he simply signs his name (S. 16 NIA).
Endorsement in Full or Special Endorsement:
When the
payee or endorser specifies the person to whom or to whose order the instrument
is to be paid, the endorsement is called special endorsement or endorsement in
full. The specified person i.e. the endorsee then becomes the payee of the
instrument.
Restrictive Endorsement:
An
endorsement is restrictive when it prohibits further negotiation of a
negotiable instrument. Sec. 50 of the NI Act 1881states. “The endorsement may,
by express words, restrict of exclude the right to negotiable or pay constitute
the endorsee an agent to endorse the instrument or to receive its contents for
the endorser or for some other specified person.”
For example,
if B endorses an instrument payable to barer as follows, the right of C to
further
negotiate is
excluded
• Pay
the contents to C only
• Pay
C for my use
Partial Endorsement:
If only a
part of the amount of the instrument is endorsed, it is a case of partial
endorsement. An endorsement which purports to transfer to the endorsee only a
part of the amount payable, or which purports to transfer the instrument to two
or more endorsees severally, is not valid.
Conditional Endorsement:
If the
endorser of a negotiable instrument, by express words in the endorsement, makes
his liability or the right of the endorsee
to receive the
amount due thereon,
dependent on the
happening of a specified
event, although such
event may never
happen, such endorsement
is called a conditional
endorsement (Section 52 of NI Act). Such an endorser gets the following rights:
He may make
his liability on the instrument conditional on the happening of a particular
event. He will not
be liable to
the subsequent holder
if the specified
event does not
take place to the
instrument even before the particular event takes place.
For example,
“pay C if he returns from London”. Thus C gets the right to receive payment
only on the happening of a particular event, i.e. if he returns from London.
Effect of Endorsement
Section 50
of NI Act also permits that an instrument may also be endorsed so as to
constitute the endorsee an agent of the endorser.
• To endorse the instrument further or
• To receive its amount for the endorser
or for some other specified person