Banking Law - Endorsement and its types PDF

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ENDORSEMENT AND TYPES OF ENDORSEMENT I.

INTRODUCTION A Negotiable instrument as stated under Sec 13 of the Negotiable Instrument Act 1881 can be transferred in the following modes – 1. By Negotiation (Sections 14, 46, 47, 48, 57 of the Negotiable Instrument Act 1881) and; 2. By Assignment (Sections 130 – 132 of the Transfer of Property Act, 1882) Section 48 of the NI Act 1881 deals with Negotiation of a negotiable instrument subject to the provisions of sec 58 by endorsement and delivery thereof.

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MEANING AND PRE-REQUSUITES OF A VALID ENFORSEMENT Sec 15 of the Negotiable Instruments Act 1881 defines the term ‘endorsement’. Endorsement is the mode of negotiating the Negotiable Instrument. It is derived from the Latin term ‘en’ means ‘upon’ and ‘dorsum’, ‘the back’. The essentials of a valid endorsement are listed as under: i. It must be made by the maker or holder or drawer of the instrument or by his duly authorized agent. ii. It must be on the back or on the face of the instrument or on a slip of paper attached to it. iii. It must be signed by the maker or the holder and if by the maker, he must sign it again then as a maker. iv. It must be made with the intention of transferring the instrument to a third person so as to entitle the transferee must clearly be expressed thereon. v. It must be completed by delivery of the instrument with the intention of passing the property mentioned in the instrument to a third person – (Sec 46 read with sec 48)

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WHO MAY ENDORSE AND NEGOTIATE THE INSTRUMENT – Sec 51 i.

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An endorsement may be blank or in full. However, a partial endorsement does not operate as a legally valid endorsement

The following may endorse and negotiate the negotiable instrument unless the negotiability of such instrument has been restricted or excluded as mentioned in sec 50:  Every sole maker, drawer, payee or endorsee or;  all of several joint makers, drawers, payees or endorsees, of It is necessary that such –  maker or drawer who wants to endorse the instrument is in lawful possession of the instrument, or;  the payee or endorsee who wants to endorse is the holder of this instrument.

TYPES OF ENDORSEMENT i.

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Blank or general endorsement: Sec 16(1) contemplates that if the endorser signs his name only, the endorsement is said to be “in blank”. The effect of a blank endorsement is to convert the order instrument into bearer instrument (Sec. 54), which may be transferred merely by delivery. Endorsement in full or special endorsement: Sec 16(1) provides where the endorser, in addition to his signature, also 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” Effect – A blank endorsement can easily be converted into an endorsement in full, Further Sec 49, provides that the holder of a negotiable instrument may convert the endorsement in blank into an endorsement in full and since such holder does

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not sign himself on the instrument he does not thereby incur the responsibility of an endorser. Partial Endorsement: Section 56 contemplates that a negotiable instrument cannot be endorsed for a part of the amount appearing to be due on the instrument. Conditional endorsement: (Sec 52) Law permits a conditional endorsement and therefore it does not in any way affect the negotiability of the instrument. Where an endorser so excludes his liability and afterwards becomes the holder of the instrument all intermediates endorsers are liable to him. Thus, endorsements can validly be made in the following terms: a. “Pay B or order on his marriage;” b. “Pay B on the arrival of Pearless ship at Bombay.” Sans recourse endorsement: Section 52 contemplates when the endorser expressly excludes his own liability on the negotiable instrument to the endorsee or any subsequent holder in case of dishonour of the instrument, the endorsement is known as ‘sans recourse’ endorsement. Example – “Pay X or order sans recourse” or; “Pay X without recourse to me” or Facultative Endorsement: When the endorser expressly gives up some of his rights under the negotiable instrument, the endorsement is called a ‘facultative’ endorsement. Example – “Pay X or order, notice of dishonour waived”

EFFECT OF ENDORSEMENT AND RESTRICTIVE ENDORSEMENT – Sec 50 a. The endorsement of an instrument, followed by delivery, transfers to the endorsee the property in the instrument with the right of further negotiation. That is, the endorsee may endorse it to some other person.

b. The endorsement may also contain express terms making it restrictive. The effect of restrictive endorsement is  to prohibit or exclude the right of further negotiation; or  to constitute the endorsee an agent to endorse the instrument; or  to entitle the endorsee to receive the contents of the instrument from the endorser or from some other specified person. c. A restrictive endorsement gives the endorsee:  the right to receive payment of the instrument;  the same rights of action against any other party to the instrument as the endorser had;  power, only in accordance with the express terms of his authority, to transfer the instruments and his right thereon to another. Illustrations: B signs the following endorsements on different negotiable instruments payable to bearer.— a. “Pay the contents to C only”. b. “Pay C or order for the account of B.” These endorsements exclude the right of further negotiation by C. a. “Pay C.” b. “Pay C value in account with the Oriental Bank.” These endorsements do not exclude the right of further negotiation by C. The endorsee under a restrictive endorsement gets all the rights of an endorser except the right of further negotiation. Morepen Finance Ltd v. RBI It was held that the effect of endorsement is that the legal title passes to the transferee and the transferee is therein entitled to demand, receive or sue for money which is to be paid under that instrument....