Essentials and Kinds of Endorsement

An endorsement is the act of signing a negotiable instrument, such as a cheque or bill of exchange, to transfer its ownership or rights to another person. The person making the endorsement is the endorser, and the one receiving the rights is the endorsee. Endorsements must be made by the holder or their authorized agent, who must mention their authority to avoid personal liability. Endorsements are typically written on the back of the instrument, but if space is insufficient, a slip called an allonge can be attached. This process facilitates smooth and secure transfer of negotiable instruments.

Essentials of Valid Endorsement:

1. Signature of the Endorser

The endorsement must be signed by the endorser (the person transferring the instrument). This signature is crucial for making the endorsement valid. The endorser can sign the instrument themselves or, in some cases, by their authorized agent. If an agent endorses the instrument, they must state their authority, such as the power of attorney, to avoid personal liability.

2. Intention to Transfer

The endorsement should show the clear intention to transfer the rights of the instrument to the endorsee (the person receiving the instrument). This is often done with the words “Pay to the order of…” or simply “Pay to…” followed by the endorsee’s name. The intention to transfer should be unambiguous, otherwise, the endorsement may not be considered valid.

3. Endorsee’s Name

The endorsee (the person to whom the instrument is transferred) must be clearly mentioned in the endorsement. This can be done by writing the endorsee’s name or simply mentioning a class of persons (e.g., “to bearer” or “to the order of [name]”). If the endorsee is not specified, the instrument may not be negotiable.

4. Date of Endorsement

While the date of endorsement is not strictly necessary, it can be important to establish the timing of the transfer, especially in case of disputes regarding payment or the validity of the instrument.

5. Endorsement on the Back or a Separate Slip

Typically, the endorsement is made on the back of the negotiable instrument. However, if the space is insufficient, an allonge (a separate slip of paper) can be attached to the instrument for further endorsement. The endorsement must be clearly linked to the instrument to avoid any potential fraud or manipulation.

6. Endorsement Should Not Be Blank (In Some Cases)

In certain cases, a blank endorsement, which leaves the instrument payable to the bearer, may not be ideal as it may increase the risk of loss or theft. To avoid this, a full or restrictive endorsement is often recommended.

7. Clear Authority

If an agent or representative is endorsing the instrument, they must ensure that they have the authority to do so. This authority should be indicated in the endorsement to avoid liability issues for the agent.

Kinds of Endorsement

Following are the kinds of endorsement

1. “Blank” or “General Endorsement”

A blank or general endorsement is the one in which the endorser simply put down his signature on the instrument, without putting down the name of the endorsee. The effect of blank endorsement is that to make the instrument payable to bearer so that property therein can thence forward be transferred by me on delivery of the instrument.

This type of endorsement is not as good as forgery to this endorsement is quite easy.

2. “Special Endorsement” or “Endorsement is full”

If the endorsement contains not only the signature of the endorser but also the name of the endorsee, it is known as special endorsement or endorsement in full. If an instrument is endorsed in blank, its holed may without signing his own name, by writing above the endorser’s signature a direction to pay to any other person as endorsee, by converging the endorsement in blank into an endorsement in full and the holder does not thereby incur the responsibility of an endorser.

3. Restrictive Endorsement

As a general rule, the holder of negotiable instrument has endorsement may restrict such right, when it is known as restrictive endorsement. Such an endorsement may (1) restrict or exclude the right of further negotiation by express words that are “Pay Ahmad Ali only” or (2) merely constitute the endorsee and agent to endorse the instrument or to receive its contents for the endorser or for some other specified person.

4. Absolute Endorsement

An endorsement is absolute when the endorsement in free from any condition attached to it. This is the general rule of endorsement that the holder of a negotiable instrument has right to transfer it to other s by further negotiable. So such endorsement may be called an absolute endorsement.

5. Partial Endorsement

A partial endorsement is one which means to transfer the document o0nly for a part of its value ordinarily a partial endorsement is not valid. When any amount has already been paid, a note to that effect may be endorsed on the instrument which can then be negotiated for the balance of the said amount.

6. Conditional Endorsement

When the endorser by express words in the endorsement, makes his own liability thereon on the right of the endorsee to receive the amount, due thereon, depend upon the happening of specified event, the endorsement excludes his own liability on the instrument.

7. Forged Endorsement

As a general rule forgery does not give a good title. But an acceptor who accepts an instrument knowingly or having reason to believe forgery, is not relieved of liability. If a cheque hears a forged enforcement and the banker pays it in the ordinary course of business in good faith and proper caution, he is not liable due to forged endorsement as the banker cannot know the signature of all the endorsers. Simply the banker should see all the endorsements in order. Banker is only liable if he does not care for the forged signatures of the drawer.