Endorsement is made for the purpose of negotiation of a negotiable instrument by the maker or holder of a negotiable instrument by signing on the face or backside of an instrument or on a lip of paper called ‘allonge’#. Endorsement is explained under section 15 of Negotiable Instrument Act, 1881.
Cheque, Bill of Exchange and promissory note can be endorsed and an endorsement is made by maker or holder of an Negotiable Instrument. There is no limitation on number of instruments. A minor (defined under section 3 of Majority Act, 1875) can endorse a negotiable instrument under section 26 of negotiable instrument act but he will not be liable as an endorser.
Different Types of Endorsements:
Blank Endorsement (Section 16(1) of NI Act): If the endorser sign his name only without adding any words or direction, the endorsement is said to be blank. This makes the instrument payable to bearer as per section 54 of NI Act.
Full Endorsement: Where the endorser signs his name and adds the name of endorsee specifically, the endorsement is called full. Paying bank gets valid discharge if the endorsement is regular. Example: “Pay to Mr. Bahubali or Order”
Restrictive Endorsement (Section 50 of NI Act): When the endorser add words like ‘Pay the Contents to Kattappa only’. The endorsee cannot endorse the instrument further.
Partial Endorsement (Section 56 of NI Act.): When an endorser transfers only a part of the amount of the negotiable instrument to the endorsee. Its not a valid endorsement for the purpose of negotiation and such instrument should not be paid.
Conditional Endorsement: An endorsement which stipulates some condition is called conditional endorsement. Example – ‘Pay to Mr Mahendra Bahubali when he visits Mahishmati ‘. The fulfillment of condition is binding between endorser and endorsee only. The paying bank is not bound to verify the fulfillment of such conditions.
Sans Recourse Endorsement: By adding the words like “Pay Bhallaladeva or order without recourse to me” the endorser excludes his liability. It is caution to endorsee.
Facultative Endorsement: When an endorser waives the condition of notice of dishonor.
Forged Endorsement: Endorsement made by a person other that the holder, by signing the name of holder, is called forged endorsement. All endorsees including a Holder or Holder in due course or holder for value subsequent to the forged endorsement do not derive any title to the instrument. The paying banker gets protection as per section 85 (I) provided the endorsement is regular.
#allonge – a slip of paper attached to the end of a document to give room for further endorsements.