An endorsement may be a signature authorizing the legal transfer of a negotiable instrument between parties, or it can be an amendment to a contract or document, such as a life insurance policy or a driver’s license. A public declaration of support for a person, product, or service is also called an endorsement.

Endorsement means signing at the back of the instrument for the purpose of negotiation. The act of the signing a cheque, for the purpose of transferring to the someone else, is called the endorsement of Cheque. The endorsement is usually made on the back of the cheque. If no space is left on the Cheque, the Endorsement may be made on a separate slip to be attached to the Cheque.

Definition of Endorsement

According to Section 15 of the Negotiable Instruments Act 1881, 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 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 endorse the same, and is called the “endorser”.

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.

Essentials of Endorsement

There are following Essentials of a valid endorsement –

(1) Endorsement must be on the instrument itself. If no space is left on the instrument, it must be on a separate slip of paper and entered to the instrument.

(2) Endorsement may be made by the Endorser either by merely signing his name on the instrument or by specifying his name on the instrument or by specifying in addition to his signature on the person to whom on to whose order the instrument is payable. No particular form of words is necessary for the endorsement.

(3) Endorsement must be completed by the delivery of possession of the instrument. The delivery of possession of the instrument with intention of passing the property to endorsee is important. It is worth mentioning that the delivery of possession must be made by the endorser himself or by someone on his behalf.

(4) Endorsement must contain an order to pay. In need not contain any complementary prefixes and suffixes

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 Kinds of Endorsement i) Endorsement in Blank / General ii) Endorsement in Full / Special iii) Conditional Endorsement iv) Restrictive Endorsement v) Endorsement Sans Recourse vi) Facultative Endorsement.

1. 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. 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.

 2. 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.  

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. 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.

An endorsement may be made conditional in any of the following forms; 

( i) Sans Recourse Endorsement– An endorser may express by words to exclude his own liability on the negotiable instrument to the endorsee or any subsequent holder in case of dishonor of the instrument.  

(ii) Facultative Endorsement– An endorser in such type of endorsement expressly gives up some of his rights under the negotiable instrument. For instance, Pay X or order, notice of dishonor is waived.  

(iii) Sans Frais Endorsement– In this kind of endorsement an endorser does not want the endorsee or any holder of the instrument to incur any expense on his account.  

4. 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 individual acquiring installment through misrepresentation or falsification and losing their cash. 

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”.

 5. 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.

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.

6. 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.

EFFECTS OF ENDORSEMENT 

1. Transfer- The property in instrument is transferred from endorser to endorsee. 
2. Right to negotiate- The endorsee gets the right to negotiate the instrument. 
3. Right to sue- The endorsee gets the right to sue in his own name to all other parties. 

Negotiation Back

Where an endorser negotiates an instrument and again becomes its holder, we know it as negotiation back to that endorser. After negotiation back, none of the intermediary endorsees are then liable to him.

For example, Ram, the holder of a bill endorses it to Bala, Bala endorses to Kala, and Kala to Lala, and endorses it again to Ram. Ram, being a holder in due course of the bill by the second endorsement by Lala, can recover the amount thereof from Bala, Kala, or Lala and himself being a prior party is liable to all of them.

Therefore, Ram having been relegated by the second endorsement to his original position, cannot sue Bala, Kala, and Lala. Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. “the italicized portion of the above Section is important”.

An illustration will make the point clear. Ram is the payee of a negotiable instrument. He endorses the instrument ‘sans recourse’ to Bala, Bala endorses to Kala, Kala to Lala, and Lala again endorses it to Ram.

In this case, Ram is not only reinstated in his former rights but has the right of an endorsee against Bala, Kala, and Lala.

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.

Forged Endorsement

If an instrument is endorsed in full, we cannot negotiate it except by an endorsement signed by the person to whom or to whose order the instrument is payable.

This is so because the endorsee obtains title only through his endorsement. Thus, if an instrument is negotiated by means of a forged endorsement, the endorsee acquires no title even though he is a purchaser for value and in good faith, as the endorsement is a nullity.

Forgery conveys no title. But where the instrument is a bearer instrument or has been endorsed in blank, it can be negotiated by mere delivery, and the holder derives his title independent of the forged endorsement. Also, he can claim the amount from any of the parties to the instrument.

For example, a bill is endorsed, “Pay A or order”. A endorses it in the blank, and it comes into the hands of B, who simply delivers it to C. C forges B’s endorsement and transfer it to D. Here, D, as the holder does not derive his title through the forged endorsement of B, but through the genuine endorsement of A. Thus, he can claim payment from any of the parties in spite of the intervening forged endorsement.