When the holder or the maker of negotiable instrument signs on the face, back or on the slip of paper annexed to it, or signs for the same purpose a stamped paper intends to be completed as an instrument which is negotiable, the maker or the holder is said to endorse the instrument. It can be endorsed by the Drawer, Maker, Holder or Payee. A person making endorsement is called ‘Endorser’ and the person to whom endorsement is made called ‘Endorsee’.
The endorsement is the mode of negotiating the Negotiable Instrument. The word endorsement is derived from the Latin term ‘en’ means ‘upon’ and ‘dorsum’, ‘the back’. The endorsement may be even made on the slip of the paper attached to it. The attached slip of paper is called as ‘Allonge’.
Essentials of a valid Endorsement:
- The Endorsement should be written on the instrument itself and must be signed by the endorser. The signature of the endorser is sufficient. The endorsement written on an allonge is considered as written on the instrument.
- The holder or maker must sign it, a stranger can not endorse it.
- The endorsement must be on the entire instrument. A partial endorsement does not operate as a negotiation of the instrument. An endorsement which purports to transfer the endorsee a part of the payable amount or which implies to transfer the instrument to two or more endorsees exclusively is known as a partial endorsement.
- A negotiable instrument payable to two or more payees or endorsees who are not partners, all must endorse the instrument unless the one endorsee has an authority to endorse for others.
- If the payee or endorsee has wrongly designated or has made a mistake in his name, he should sign in the same way as in instrument.
- When two or more endorsements are made on an instrument, and each is deemed to have been made in the order that appears on the instrument until the contrary is provided.
- An endorsement may be made in particular or blank. It may also be restrictive.
- The signature should be in ink and not by pencil or rubber stamp.
- No particular words are necessary to develop a contractual relationship between endorser and endorsee.
Kinds of Endorsement
According to the Negotiable Instrument Act, 1881 endorsement can be of the following types:
The endorsement in blank or general endorsement:
In case of blank endorsement, the payee or endorser signs his name, the payee or endorser does not specify an endorsee.
Full or Special Endorsement:
When the payee or endorser specifies the name of the person to whom or to whose order the instrument is paid, this type of endorsement is called as a full or special endorsement.
When an endorsement is restricted or prohibited for further negotiation of a negotiable instrument is known as restrictive Endorsement. The endorsement may be by the express words, restrict or exclude the right to pay or negotiate the endorsee or to receive its contents for the endorser or for some other specified person.
When only a part of the amount of instrument is endorsed, then it is known as a partial endorsement. An endorsement which transfers the instrument to two or more endorsees separately is not valid.
If the endorser of a negotiable instrument makes his liability or the right of endorsee to receive the due amount, by express words in the endorsement, dependent on happening of the specific event, although such event may never happen, this type of endorsement is called as a conditional endorsement.
He may make his liability on the conditional happening of a particular event. He will not be liable to that particular holder if the event specified does not take place to the instrument even before the particular event takes place.
An unconditional endorsement followed by its unconditional delivery has the effect of transferring the property to the endorsee. The endorsee has the right to negotiate the instrument further to anyone he prefers, or he wants to transfer.