Definition and types of Endorsement
What is negotiable instrument;-
The word 'negotiable' means, "transferable from one person to another in return for consideration". The word 'instrument' means, "a written document by which a right is created in favour of some person". Hence, the term Negotiable Instrument means "a document in writing which creates a right in favour of some person", and which is freely transferable by delivery.
According to Section 13(1) of the Negotiable Instrument Act, "A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer".
Define Endorsement and Who is Endorser?
When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiable, 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 endorse the same, and is called the "endorser".
Types of Endorsement
1 )"Endorsement blank"
If the endorser signs his name only, the endorsement is said to be "blank Endorsement ",
2) "Endorsement full"
If the endorser 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", and the person so specified is called the "endorsee" of the instrument.
3) Conditional Endorsement ;-
The conditional endorsement is negotiation which takes effect on the happening of a stated event, or not otherwise. Section 52 of the Negotiable Instrument Act 1881 provides - The endorser of a negotiable instrument may, by express words in the endorsement, exclude his own liability thereon, or make such liability or the right of the endorsee to receive the amount due thereon depend upon the happening of a specified event, although such event may never happen.
Where an endorser so excludes his liability and afterwards becomes the holder of the instrument all intermediates endorsers are liable to him.
Illustrations -;-
(a) The endorser of a negotiable instrument signs his name, adding the words “without recourse”. Upon this endorsement, he incurs no liability.
(b) A is the payee and holder of a negotiable instrument. Excluding personal liability by an endorsement, “without recourse”, he transfers the instrument to B, and B endorses it to C, who endorses it to A. A is not only reinstated in his former rights but has the rights of an endorsee against B and C.
4) Restrictive Endorsement ;-
Restrictive endorsement seeks to put an end the principal characteristics of a Negotiable Instrument and seals its further negotiability. This may sound a little unusual, but the endorsee is very much within his rights if he so signs that its subsequent transfer is restricted.
This prevents the risk of unauthorized person obtaining payment through fraud or forgery and the drawer losing his money.
5) Endorsement Sans Recourse ;-
Sans Recourse which means without recourse or reference.As such a when the property in a negotiable instrument is transferred sans recourse, the endorser, negatives his liability and excludes himself from responsibility to all subsequent endorsees. It is one of the commonest form of qualified endorsement and virtually prohibits negotiation since the endorser says in effect.
6) Facultative Endorsement ;-
Faculatative Endorsement is an endorsement where the endorser waives some right to which he is entitled. For example, the endorsee is liable to give notice of dishonor to the endorser and normally failure to give notice will absolve the endorser from his liability.
