Endorsement and Negotiation

The endorsement is done by the payee or endorsee, as the case may be, by signing on the instrument customarily on its back and where the space is sufficient, on a slip of paper annexed thereto, called ‘allonge’. An order instrument is required to be endorsed by the payee or endorse for the purpose of negotiation. To make the negotiation complete, the endorsement must be followed by delivery of the instrument to the endorsee to make him holder (Ss. 48 &51 NIA). The endorsement should be for transferring the entire property in the instrument, if negotiation is desired and where it is done for transfer of the property partly, or to more than one severally it doesn’t operate as a negotiation. A bearer instrument is not required to be endorsed for the purpose of negotiation and can be negotiated by mere delivery (Ss 47, & 28A, NIA). In case of an order instrument, verbal assignments by mere delivery thereof without endorsement, is not valid and confer no title to the transferee except where equitable assignment is intended.

Types of Endorsement

There are five kinds of endorsements available, namely endorsement in blank, special endorsement, restrictive endorsement, conditional endorsement, and partial endorsement.

 Blank Endorsement

In case of an endorsement in blank the payee or endorser does not specify an endorsee and he simply signs his name. An instrument so endorsed becomes payable to bearer.

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. The holder of an endorsed in blank can convert the blank endorsement into an endorsement in full by simply writing the same of any person in the space above the endorser’s signature and thereby, he doesn’t become an endorser to incur any responsibility on the instrument. If an instrument endorsed in blank is followed by a special endorsement, the endorsee must endorse it to give further negotiation.

 Restrictive Endorsement

A restrictive endorsement is one where the endorser prohibits further endorsement of the instrument by his endorsee or constitutes his endorsee an agent for collection.

Conditional Endorsement

A conditional endorsement is one, where the endorser excludes his liability as an endorser or makes his liability conditional. When the endorser wants to avoid his liability on the instrument in the event of it being dishonored, he can do so by writing the words ‘Without Resource’ followed by his signature. But this does not absolve him of his liability with respect to any forgery on the instrument prior to his endorsement. He can by express words in the endorsement, also make his liability dependent upon fulfillment of certain condition. In this case the endorser’s liability is dependent upon fulfillment of the condition, otherwise his liability extinguishes. The payer is not bound by the condition and his payment to the endorsee is valid whether the condition is fulfilled or not.

Partial Endorsement

Though such an endorsement the endorser makes partial transfer of the property in the instrument but this is not operative for negotiation of the instrument. Where the amount of the instrument is partly paid, a note to that effect may be made on it and it may then be endorsed for the balance (s. 56, NIA). This is not done in case of cheque or banker’s drafts.