What do you mean by the Endorsement of Instruments?
The holder of a negotiable instrument may sign his or her name on the back of that instrument, which replicates the transfer of title or ownership of that negotiable instrument, this process is termed as an endorsement. An endorsement can be done by keeping another individual or an entity in a favorable position. Thus, we can say that an endorsement helps in the transfer of the property to another individual or a legal entity. In this context, we will know about the types of endorsement of instruments done in the legal world.
An Endorser and an Endorsee
In an act of endorsement, there are mainly two persons - Endorser and Endorsee who initiates the act overall.
The person to whom the instrument is being endorsed is known as the endorsee. While the person who is making the endorsement is known as the endorser.
Types of Endorsement
An endorsement is basically of two sorts:
The Endorsement in Blank
The Endorsement in full
As indicated by Section 16 of the Negotiable Instrument Act, 1881, if the endorser signs his name just, the underwriting is supposed to be in the clear, and on the off chance that he adds a heading to pay the sum referenced in the instrument to, or to the request for, a predetermined individual, the Endorsement is supposed to be in full, and the individual so determined is known as the endorsee of the instrument. There are some different sorts which are established, however, not well known, which are given underneath.
There are six types of endorsement. These are applicable for endorsement in banking and various types of endorsement cheques:
Blank or General Endorsement.
Full Endorsement or Special Endorsement.
Conditional Endorsement.
Restrictive Endorsement.
Partial Endorsement.
Facultative Endorsement.
In the following section, we are going to discuss each endorsement in detail.
Blank or General Endorsement
An endorsement is supposed to be blank or general endorsement when the endorser puts his unmistakable just on the instrument and doesn't compose the name of anybody to whom or to whose request the installment is to be made.
Full Endorsement or Special Endorsement
A special Endorsement or full Endorsement is when the endorser, notwithstanding his mark, additionally notices the name of the individual to whom or to whose request the installment is to be made. There is a heading added by Endorsement to the individual indicated called the endorsee of the instrument who presently turns into its payee qualified to sue for the cash due on the instrument.
Conditional Endorsement
The restrictive endorsement is an arrangement that produces results on the occurrence of an expressed occasion, or not something else. Segment 52 of the Negotiable Instrument Act 1881 gives the endorser of a debatable instrument may, by express words in the Endorsement, reject his own risk subsequently, or make such obligation or the privilege of the endorsee to get the sum due consequently rely on the occurrence of a predetermined occasion, albeit such occasion may never occur. Where an endorser so prohibits his risk and a short time later turns into the holder of the instrument, all intermediates endorsers are obligated to him.
Restrictive Endorsement
Restrictive Endorsement tries to end the chief qualities of a Negotiable Instrument and seals its further debatability. This may sound somewhat unordinary, yet the endorsee is especially inside his privileges on the off chance that he so signs that its resulting move is limited. This forestalls the danger of unapproved individuals acquiring installment through misrepresentation or falsification and losing their cash.
Partial Endorsement
An endorsement is supposed to be a partial endorsement when the endorser indicates to move to the endorsee, just an aspect of the sum payable. In straightforward terms, support which permits moving to the endorsee an aspect of the sum payable is known as halfway underwriting.
Facultative Endorsement
Facultative Endorsement is an underwriting where the endorser defers some privilege to which he is entitled. For instance, the endorsee is subject to pull out of disrespect to the endorser, and typically inability to pull out will vindicate the endorser from his risk.
FAQs on Instrument Endorsements Explained
1. What is the endorsement of a negotiable instrument as defined in Commerce?
An endorsement is the act of the holder of a negotiable instrument (like a cheque or promissory note) signing their name on the back of it. This signature legally transfers the title or ownership of the instrument to another individual or entity. The primary purpose of an endorsement is to negotiate the instrument, meaning to transfer it so that the new holder has the right to receive the payment.
2. Who are the 'endorser' and the 'endorsee' in an endorsement?
In the process of an endorsement, there are two key parties involved:
- The Endorser: This is the person who holds the instrument and signs it to transfer it to someone else.
- The Endorsee: This is the person to whom the instrument is being transferred and who becomes the new owner with the right to receive payment.
3. What are the main types of endorsements for negotiable instruments?
According to the Negotiable Instruments Act, 1881, endorsements are primarily classified into several types. The most common ones include:
- Blank or General Endorsement: The endorser simply signs their name, making it payable to the bearer.
- Special or Full Endorsement: The endorser specifies the person to whom the payment should be made.
- Restrictive Endorsement: This restricts further negotiation of the instrument.
- Partial Endorsement: This purports to transfer only a part of the amount payable, which is generally considered invalid.
- Conditional Endorsement: The payment depends on the fulfilment of a specified condition.
- Facultative Endorsement: The endorser waives some of their rights.
4. Can you provide a simple, real-world example of an endorsement?
A very common example of an endorsement is when you receive a cheque and need to deposit it. You turn the cheque over and sign your name on the back before giving it to the bank teller or depositing it via an ATM. This signature is the endorsement, which authorises the bank to collect the funds on your behalf and credit them to your account.
5. What is the key difference between a 'Blank Endorsement' and a 'Special Endorsement'?
The key difference lies in how the instrument can be negotiated after the endorsement. A Blank Endorsement involves only the endorser's signature, turning the instrument into a bearer instrument that can be transferred by mere delivery. Conversely, a Special or Full Endorsement includes the endorser's signature plus the name of the endorsee, meaning the instrument can only be transferred further if the specified endorsee signs it.
6. Why would someone use a 'Restrictive Endorsement' if it stops the instrument from being negotiated further?
A 'Restrictive Endorsement' is used primarily for safety and control. By prohibiting further negotiation, the endorser ensures that the payment is made only to the specified endorsee and no one else. This is a crucial security measure to prevent loss if the instrument is stolen, as it cannot be legally cashed by an unauthorised person. For example, endorsing a cheque with "Pay to ABC Corp only" is a restrictive endorsement.
7. How does a 'Conditional Endorsement' affect the payment obligation?
A 'Conditional Endorsement' makes the rights of the endorsee to receive the money, or the liability of the endorser, dependent on the occurrence of a specific event. The paying bank or party can wait until the condition is fulfilled before making the payment. For instance, an endorsement like "Pay to B on his marriage to C" makes the payment contingent upon the specified event happening. If the condition is not met, the endorsee may not have the right to receive the funds.
8. What is a 'forged endorsement', and is it legally valid?
A 'forged endorsement' is one where the signature of the endorser is fake or placed without their authority. Legally, a forged endorsement is a complete nullity. It does not transfer any title or ownership to the endorsee. Even if the person who receives the instrument paid for it in good faith, they do not have the legal right to claim the money from the drawer, acceptor, or any prior endorser.
9. What happens if an instrument with a forged endorsement is a bearer instrument?
This is a critical exception. If an instrument is a bearer instrument (e.g., a cheque payable to 'Bearer' or one with a blank endorsement), it can be negotiated by simple delivery. In this case, if it is stolen and negotiated using a forged endorsement, a subsequent holder who receives it in good faith and for value acquires a good title. Their right to the instrument comes from its status as a bearer instrument, not from the invalid forged signature.
