Essentials and Kinds of Endorsement

20/07/2020 1 By indiafreenotes

When the maker or holder of a negotiable instrument signs the same otherwise than as such maker, for the purpose of negotiable, he is said to endorse the same. The person who makes an endorsement is known as endorses, while the person in whose favor it is endorsed is called endorsee.

The endorsement must be put down by the holder or by his duly authorized agent. When and agent endorses and instrument on behalf on his principal, he must mention his fact in the endorsement lest he should be personally held liable thereon. The agent must mention his power f attorney for endorsement before his signature. The endorsee may if he likes insist upon seeing the power of attorney in order to satisfy him that the agent has in fact got the authority of endorsement.

It is quite valid to put down the endorsement on the face of the instrument, though it is not advisable as it will make the document clumsy. When an instrument is negotiated by endorsement so many times that no space is left for further endorsement the holder may attach a slip called alone to the instrument for further  endorsement. In such case it is advisable to put down endorsement partly on the instrument and partly on the alone so that the alone may not be detached and attached to some other instrument.

Essentials of valid endorsement

  • It must be on the back or on the face of the instrument or on a slip of paper attached to it.
  • It must be made by the maker or holder or drawer of the instrument or by his duly authorized agent.
  • It must be signed by the maker or the holder and if by the maker, he must sign it again then as a maker.
  • It can be either “in blank” or “in full”.
  • It must be made with the intention of transferring the instrument to a third person so as to entitle the transferee must clearly be expressed thereon.
  • It must be completed by delivery of the instrument with the intention of passing the property mentioned in the instrument to a third person.

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.

  1. “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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.