Types or kinds of endorsement - introduction, meaning,types of endorsement.

Endorsement:-

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Introduction-

   Endorsement a delivery is a mode of negotiating a negotiable instrument.  Anegotiable instrument payable to order (i.e., payable to a specified person or his order) can be negotiated only by endorsement and delivery. So, it is necessary to have some idea about endorsement in the contest of negotiation.

Meaning of endorsement-

 The term "endorsement" or "endorsement' is derived from the Latin term "in" dorsum which means "on the back". So, endorsement means signing one's name on the back of a  negotiable instrument say, a bill ofexchange, a promissory note or a cheque, with a view to transferring the interest, right, property or title in the instrument to another person.

Section 15 of the Indian Negotiable Instruments Act, 1881 defines an endorsement as "When the maker or holder of a negotiable instrument signs the same otherwise than as such maker, for the purpose of negotiation, on the back or face thereofo or on  a slip of paper annexed thereto, or signs for the same purpose
a stamped paper intended to be completed as a negotiable instrument, he is said to endorse the same, and is called the endorser'".

Who can Endorse and Instrument?

As per Section 51 of the Negotiable Instruments Act, a negotiable instrument can be endorsed by any one of the following
persons:
a. The payee of the instrument. (The first endorsement of an instrument is made by the payee).
b. The drawer of a bill of exchange or a cheque, who signs it otherwise than as the drawer.
c. The maker of a promissory note, who signs it otherwise than as the maker.
d. Theholder of a negotiable instrument.
e. The endorsee of the instrument.
f. All of the several joint payee, drawers, makers or endorsees of the instrument.

In short, the first endorsement of a negotiable instrument can be
made by the payee. Subsequent endorsements may be made by
any person who becomes the holder thereof.

Essentials of Valid Endorsement:

The essentials of a valid endorsement are:

1. Though an endorsement in pencil is valid in the eyes of law, it

is better that the endorsement is made in ink so that it cannot

be erased easily.

2. The endorsement must be made on the instrument itself. It can be made either on the back or on the face of the instrument.

Though an endorsement on the face of an instrument is pemitted by law, it is desirable that the endorsement is made

on the back of the instrument in view of the time-honoured practice. In case the back of the instrument is fully covered by endorsements, further endorsements can be made on a separate slip of paper called an allonge attached to the instrument. However, when an allonge is used, the first

endorsement on the allonge must be partly on the back of the instrument and partly on the allonge.

3. An endorsement should be made only by the drawer, the payee or the endorsee of the instrument who is the lawful holder of the same. It should not be made by stranger.

4. An instrument made payable to two or more persons jointly should be endorsed by all of them, unless one or some of them are authorized to endorse on behalf of others.89

Types of endorsement:-

Kinds or types of Endorsement:

There are many kinds of endorsement. They are:

1) Endorsement or General Endorsement

(2) Full Endorsement or Special

 Endorsement

(3) Restrictive Endorsement

(4) Sans Recourse Endorsement

(5) Conditional Endorsement or Qualified Endorsement

(6) Facultative Endorsement

(7) Sans Frais Endorsement

1. Blank Endorsement or General Endorsement:

A blank endorsement is an endorsement in which the endorser merely signs his name on the back of the instrument without mentioning the name of the person to whom the instrument is endorsed. An example of blank endorsement is:

                   
                           (Sd.) M. Sunder

When an  instrument is endorsed in bank, it becomes a bearer instrument, even if it was originally made payable to order. As a bearer instrument, it can be negotiated (i.e., transferred) further by mere delivery.

2. Full Endorsement or Special Endorsement:

A full endorsement is an endorsement in which the endorser writes not only his name of the person to whom the instrument is endorsed on the back of the instrument. An example of full endorsement is:

                 "Pay R. Ramesh or Order" 
                             (SD.) M Sunder

When an instrument is endorsed in full, it can be negotiated further  only by the endorsee named in the endorsement.

3. Restrictive Endorsement:

A endorsement is an endorsement in which the endorser restricts the further negotiation (1.e., transferability) ofthe instrument byexpress words or constitutes the endorsee just an to endorse the instrument or to receive its contents for the endorser or some other specified person. Examples of restrictive endorsement are.

1"Pay K. Ganesh only"
    (Sd.) M. Sunder.

2"pay k. Ganesh for my use"
    (Sd.) M.Sunder.

3"Pay K. Ganesh on account of Mahesh"
   (Sd.) M. Sunder.

4"Pay K. Ganesh for the account of Mahesh"
    (Sd.) M. Sunder.

5"The within (i.e., content) must be  credited to K. Ganesh"
  (Sd.) M. Sunder.

When an instrument bears a restrictive endorsement, the endorsee cannot negotiate the instrument further, as his right to negotiate instrument further is restricted.

4. Sans Recourse Endorsement:

Generally, when an instrument is endorsed, the endorser undertakes to compensate the endorsee in case the instrument is dishonoured. But in the case of a sans recourse endorsement, the en-
dorser frees himself from such a liability by writing the words "Sans Recourse" or "Without Recourse to me" after writing the name of the endorsee. Examples of sans recourse endorsement are:

1 "Pay K. Ganesh or order Sans Recourse"
 (Sd.) M. Sunder.

2 "pay k. Ganesh or order without recourse    to me"
 (Sd.) M. Sunder.

When an instrument bears a sans recourse endorsement, the endorsee cannot look to the endorser for payment, in case the instrument is dishonoured.

5. Conditional Endorsement or Qualified Endorsement:

A conditional endorsement is an endorsement in which the endorser makes his liability on the instrument or the rights of the endorsee to receive the payment of the instrument depend upon the happening of a specified event. An example of conditional endorsement is:

"Pay K. Ganesh or order on the arrival
  of S.S. Nethravathi at New Mangalore
  port by 31st October, 2002"
  (Sd.) M. Sunder."

When an instrument bears a conditional endorsement, the liability of the endorser will arise, or the property in the instrument will pass to the endorsee only if the specified event takes place or if the
particular condition is fulfilled.

 6. Facultative Endorsement:

Generally, the endorser of an instrument is entitled to receive a notice of dishonour from the holder in case of dishonour of the
instrument, if he is to be held liable on the instrument. If he is not served with the notice of dishonour, he will not be liable to the holder. But, in the case of facultative endorsement, the endorser waives or surrenders his right to receive the notice of dishonour by writing the words "Notice of Dishonour Waived", after writing the name ofthe endorsee. An example of facultative endorsement IS

"Pay K. Ganesh or Order. Notice of Dishonour Waived"
(Sd.) M. Sunder.

When an instrument bears a facultative endorsement, the endorser will be liable on the instrument in case of dishonour, even if he is not given any notice of dishonour.

7. Sans Frais Endorsement:

A sans frais endorsement is an endorsement in which, by writing the words "sans frais" (meaning 'without expense'), the endorser makes it clear that no one should incur any expense on his account in respect of the negotiable instrument. An example of sans frais endorsement is:

"Pay K. Ganesh or order, Sans Frais"

(Sd.) M. Sunder.

Cancellation of Endorsement:

Where the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorser's remedy against any prior party (1.e., cancels any endorsement intentionally), the endorser is discharged from liability to the holder to the same extent as if the instrument had been paid at maturity. (Section 40 of the negotiable Instruments  Act). Let us discuss this point with an example. A endorses a bill of exchange to B. B endorses it to C, and

C to D.D, of his own accord, cancels the name of B as an endorser. In this case, the liability of B as well as that of C on the instrument comes to an end.

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