Endorsement of Instruments, Meaning, Types, Effects

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Meaning of Endorsement of Instruments

Endorsement of instruments refers to the action where a person, holding a negotiable instrument, signs their name on the back of the document, effectively transferring title or ownership. This endorsement of instruments can be in favour of an individual or a legal entity, facilitating the transfer of property to the designated recipient. The recipient of the endorsed instrument is termed the endorsee, while the individual endorsing the instrument is referred to as the endorser.

Requirements for a Valid Endorsement of Instruments

• For a valid endorsement of instruments few points are required, these are:
• The endorsement of instruments should be on either the back or front of the instrument.
• The creator or holder of the instrument must execute it.
• The endorser must sign the endorsement correctly.
• The endorsement should pertain to the entire Negotiable Instrument.
• The specific wording is not mandated for a valid endorsement.

Effects of Endorsement of Instruments

• Transfer of ownership in the instrument occurs from the endorser to the endorsee.
• The endorsee acquires the privilege to engage in further negotiations of the instrument.
• The endorsee gains the authority to initiate legal action in their own name against all other involved parties.

Types of Endorsement of Instruments

Endorsement of Instruments generally falls into Blank Endorsement and Full Endorsement. According to Section 16 of the Negotiable Instrument Act 1881, if the endorser signs their name only, it is termed a "blank" endorsement. Suppose the endorser adds a directive to pay the specified amount to a designated person. In that case, it is considered a "full" endorsement, and the specified person becomes the "endorsee" of the instrument. There are also less common but constitutionally recognized types of endorsement of instruments:

Blank/General Endorsement:

A blank or general endorsement occurs when the endorser signs the instrument without specifying the recipient's name or order for payment.

Full/Special Endorsement:

A special or full endorsement involves the endorser, in addition to their signature, specifying the person to whom the payment is to be made. The endorsed person, or endorsee, becomes entitled to sue for the money on the instrument.

Conditional Endorsement:

Conditional endorsement takes effect based on a specified event. Section 52 of the Negotiable Instrument Act allows an endorser to exclude their liability or make it contingent on a specified event. Examples: If an endorser includes "without recourse" in the endorsement, they incur no liability. Having excluded personal liability, an endorser transfers the instrument to B, who endorses it to C. A, as the original payee, regains rights and has endorsee rights against B and C.

Restrictive Endorsement:

Restrictive endorsement curtails the negotiability of a negotiable instrument. It aims to prevent unauthorized individuals from obtaining payment through fraud or forgery.

Endorsement Sans Recourse:

Sans Recourse means without recourse or reference. In this type, the endorser excludes themselves from liability and responsibility to subsequent endorsees, limiting negotiation.

Facultative Endorsement:

Facultative endorsement involves the endorser waiving certain entitlements or rights. For instance, the endorsee is typically required to provide notice of dishonor to the endorser, and failure to do so might absolve the endorser of liability.

Parties Involved in Endorsement of Instruments

In the world of negotiable instruments, various entities play specific roles, each bearing distinct duties.

Drawer/Maker:  The drawer initiates the negotiable instrument, commonly by crafting a check or issuing a promissory note. Essentially, they are the parties committing to pay a specific sum.

Payee/Recipient:  The recipient, or payee, is the individual or entity entitled to receive payment on the instrument. They possess the authority to negotiate the instrument through endorsement further.

Endorser:  An endorser is an entity that signs the back of the instrument, thereby transferring their rights to the payee or another party. The nature of the endorsement, whether blank or full, dictates the extent of transferability and control over the instrument.

Holder:  The holder is the current possessor of the negotiable instrument, possessing various rights and responsibilities contingent on whether the instrument bears a blank or full endorsement.

Endorsee:  The endorsee is the party to whom the instrument is endorsed, regardless of whether it's a blank or full endorsement. An instrument endorsed in blank is payable to anyone in possession, whereas an instrument endorsed in full is payable solely to the specified endorsee.