Endorsement

What Does Endorsement Mean?

A check endorsement also includes the signature that the account holder provides at the front of the check form. This is important because the holder acknowledges that he is issuing a check for the amount written on it and directed to a specific recipient.

On the other hand, the beneficiary also has to acknowledge that he is receiving that amount of money from the holder. Thus, he can decide whether to exchange it for cash or to deposit the funds in his own account.

Endorsements should be handled carefully to avoid that the check gets cashed by someone else different than the intended recipient. If a check is endorsed with just the signature and gets lost somehow a person different than the original beneficiary can endorse his own account number and deposit the check on his behalf. A way to avoid this situation would be to cancel that specific check as soon as it gets lost.

Example

Jackie is a 73 year old woman. Due to her advanced age she normally doesn’t handle her own finances but a few days ago she had to issue a check for one of her grandsons to help him with certain payment. She signed the check properly but his grandson endorsed it with just his signature.

A few hours later he lost the check and now they are both worried that it falls into the wrong hands, which can cause that Jackie loses her money with a stranger. They quickly went to one of the bank’s branches to cancel the check and resolved the matter before it hurt Jackie’s finances.

1.Blank Endorsement or General Endorsement

An endorsement is blank or general where the endorser signs his name only, and it becomes payable to bearer. Thus, where a bill is payable to “Ram or order”, and he writes on its back “Ram”, it is an endorsement in blank by Ram and the property in the bill can pass by a mere presentation.

We can convert a blank endorsement into an endorsement in full. We can do so by writing above the endorser’s signature, a direction to pay the instrument to another person or his order.

2.Special or Full Endorsement

An endorsement “in full” or a special endorsement is one where the endorser puts his signature on the instrument as well as writes the name of a person to whom order the payment is to be made.

A bill made payable to Ram or order, and endorsed “pay to the order of Shyam” would be specially endorsed and Shyam endorses it further. We can turn a blank endorsement into a special one by adding an order making the bill payable to the transferee.

3. Restrictive Endorsement

An endorsement is restrictive which restricts the further negotiation of an instrument.

Example of restrictive endorsement: “Pay to Mrs. Geeta only” or “Pay to Mrs Geeta for my use” or “Pay to Mrs Geeta on account of Reeta” or “Pay to Mrs. Geeta or order for collection”.

4. Partial Endorsement

An endorsement partial is one which allows transferring to the endorsee a part only of the amount payable on the instrument. This does not operate as a negotiation of the instrument.

Example: Mr. Mohan holds a bill for Rs. 5,000 and endorses it as “Pay Sohan or order Rs. 2500”. The endorsement is partial and invalid.

5. Conditional or Qualified Endorsement

Where the endorser puts his signature under such writing which makes the transfer of title subject to fulfilment of some conditions of the happening of some events, it is a conditional endorsement.

Negotiation of Lost Instrument or that Obtained by Unlawful Means

When a negotiable instrument has been lost or has been obtained from a maker, acceptor or holder by means of fraud, or for an unlawful act, no possessor or endorsee, is entitled to receive the amount due thereon from such maker, acceptor, or holder from any party prior to such holder.

He cannot do so unless such possessor or endorsee is, or some person through whom he claims was, a holder in due course.

Law Times Journal


Endorsement

Section 15 of the Negotiable Instruments Act 1881, defines the term endorsement as follows: When the maker or holder of 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 have endorsed the same and is called the endorser.

Endorsement literally means “writing on the back of the instrument.” But under the Negotiable Instruments Act, it means “writing of a person’s name on the back of the instrument or on any paper attached to it for the purpose of negotiation.” The one who signs the instrument for purpose is called the ‘endorser’. The person to whom the instrument is endorsed or transferred is called “endorsee.”

The Requisites of Valid Endorsement

The essentials for a valid endorsement are listed below:

• The endorsement must be done either on the back or face of the instrument and if there is no space then it must be made on a separate paper attached to it.

• The endorsement must be done in ink, any endorsement done in pencil or rubber stamp is considered to be invalid.

• The stranger cannot endorse, it is necessary to be done by the maker or holder of the instrument.

• The endorser must sign it.

• It must be completed by the delivery of the instrument.

• The endorsement must be of the entire bill, the partial endorsement is not operated as a valid endorsement.

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