ENDORSEMENT OF CHEQUES

INTRODUCTION : Endorsement and delivery is a mode of negotiating

a negotiable instruments like cheque. A negotiable instrument like cheque payable to order (i.e., payable to specified person or his order) can be negotiated only by endorsement and delivery. So, it is necessary to have some idea about endorsement.

Meaning Of Endorsement :

The term “Endorsement” or “indorsement” is derived from the Latin term “in dorsum” which means “on the back”. So, endorsement means signing one’s name on the back of a negotiable instrument, say, a cheque , with a view to transferring the interest, right, property or title in the instrument to anther person.

Section 15 of The Negotiable Instruments Act, 1881 defines endorsement as

When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the “endorser”.

Parties:

1)Endorser: The person who endorses the instrument(i.e., the person who

signs his name on the back of the instrument for the purpose of transferring its property to another) is called the “endorser”.

2) Endorsee: The person to whom the instrument is endorsed is called the

“endorsee”

Who Can Endorse An Instrument: As per Sec 51 of The Negotiable Instruments Act, a

negotiable instrument can be endorsed by any one of the following persons:

a) The payee of the instrument.(the first endorsement of an instrument is made by the payee.)

b) The holder of a negotiable instrument.c) The endorsee of the instrument. In short, the first endorsement of negotiable instrument can

be made by the payee. Subsequent endorsements may be made by person who becomes the holder thereof.

Where Can Endorsement Be Made:The law permits an endorsement to be made on the back or

on the face of an instrument. However, it’s desirable to make the endorsement on the back of the instrument in keeping with the time-honoured practice. In case the back of the instrument is fully covered with endorsement because of its passing through many hands, further endorsements can be made on a separate slip of paper attached to the instrument. The separate slip of paper attached to the instrument for the purpose of endorsement is called an “allonge”. It must be noted that, if an allonge is used, the first endorsement on the allonge must be partly on the allonge. This is necessary in order to prevent the separation of the allonge from one instrument and its attachment to another instrument.

Effects Of Endorsement:When a negotiable instrument is endorsed and delivered by the

endorser to the endorsee, he (endorser) creates certain legal consequences. They are:

1. He transfers his right, interest, property or title in the instrument to the endorsee.

2. He certifies the genuineness of the instrument.3. He also certifies that all prior endorsement are genuine.4. He guarantees to the endorsee that he had good title to the

instrument.5. Endorsement conveys to the endorsee the right of further

negotiation.6. He undertakes to compensate every subsequent holder of the

instrument in case of dishonour or non payment of the instrument which is presented strictly in accordance with its tenor.(It should be noted that the endorser’s liability to the subsequent endorsees is that of a surety. But to the immediate endorsee, he is also liable as a principal debtor).

Kinds Of Endorsements:1. Blank or general endorsement2. Endorsement in full or special

endorsement3. Restrictive Endorsement4. Conditional Endorsement5. Sans Recourse Endorsement6. Facultative Endorsement7. Sans Frais Endorsement

1.Blank or General Endorsement:

A blank endorsement is an endorsement in which the endorser merely signs his name on the back of the instrument without mentioning the name of the person to whom the instrument is endorsed.

When the cheque is endorsed in bank, it becomes a bearer instrument, even if it was originally made payable to order. As a bearer instrument it can be negotiated (i.e., transferred) further by merely delivery.

2. Endorsement in full or special endorsement:

If the endorser, in addition to his signature, also adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person the endorsement is said to be in full [Sec. 16(1)].

When a cheque is endorsed in full, it can be negotiated further only by the endorsee named in the endorsement.

Mr X or Order

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3.Restrictive endorsement:An endorsement which, by express words, prohibits the

endorsee from further negotiating the instrument or restricts the endorsee to deal with his instrument as directed by the endorser is called ‘restrictive’ endorsement.

The endorsee under a restrictive endorsement gets all the rights of an endorser except the right of further negotiation. In other words, such an endorsement entitles the endorsee to receive the payment on due date and sue the parties for it but he cannot further negotiate the instrument.

Mr. Y Only

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4.Conditional endorsement:A conditional endorsement is an endorsement in which the

endorser makes his liability on the instrument or the right of the endorsee to receive the payment of the instrument depend upon the happening of a specified event.

When an instrument bears a conditional endorsement, the liability of the endorser will arise, or the property in the instrument will pass to the endorsee only if the specified event takes place or if the particular condition is fulfilled.

Pay Mr. A or Order on the arrival of Mr. S

at New Mangaluru Port by 23.Dec.2016

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5. Sans Recourse Endorsement (Sec. 52):When the endorser expressly excludes his own liability on

the negotiable instrument to the endorsee or any subsequent holder in case of dishonour of the instrument, the endorsement is known as ‘sans recourse’ endorsement.

Such an endorsement is generally made by adding the words ‘sans recourse’ or ‘without recourse.’

Thus, “Pay X or order sans recourse” or “Pay X without recourse to me” or “Pay X or order at his own risk” is examples of this type of endorsement.

Mr. C or Order, Sans Recourse.

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6.Facultative endorsement:Generally, the endorser of an instrument is entitled to

receive a notice of dishonour from the holder in case dishonour of the instrument, if he is to be held liable on the instrument. If he is not served with the notice of dishonour, he will not be liable to the holder. But, in the case of facultative endorsement, the endorser waives or surrenders his right to receive the notice of dishonour by writing the words “Notice Of Dishonour Waived”, after writing the name of the endorsee.

When an instrument bears a facultative endorsement, the endorser will be liable on the instrument in case of dishonour, even if he is not given any notice of dishonour.

Mr. D or Order. Notice Of Dishonour Waived

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7. Sans Frais Endorsement: A sans frais endorsement is an endorsement

in which, by writing the words “Sans Frais”(without expense), the endorser makes it clear that no one should incur any expenses on his/her account in respect of the negotiable instrument.

Mr. M or Order, Sans Frais

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Essentials Of Valid Endorsement:1. It is better that endorsement is made in Ink.2. It must be on the instrument.3. It must be made by the maker or holder of the instrument.4. It must be signed by the endorser.5. It must be completed by delivery of the instrument. 6. It should be in the form of ordinary signature of the payee

or the endorsee.7. Title of honour should be omitted.8. It must be an endorsement of the entire bill.9.  In case of illiterate, a thumb impression should be fixed.10.  If the number of payee are more then one then all the

payees will sign or that person who is authorized.

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