A negotiable instrument holder may endorse the instrument by signing his or her name on the reverse of the document, which mimics the transfer of ownership of the instrument. You can give someone or anything your endorsement by maintaining their good standing. As a result, we can conclude that an endorsement facilitates the transfer of property to another person or legal body. In this context, we shall learn about the various ways that legal endorsement of instruments is carried out.

In an act of endorsement, there are mainly two persons – Endorser and Endorsee who initiates the act overall. 

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)The Endorser may endorse an instrument by simply writing his name on it, by stating his name specifically on it, or by adding a note to the effect that the instrument is payable on the order of the person to whom he has given his endorsement. No specific wording is required for the endorsement..

(3) The delivery of the instrument into your possession constitutes full endorsement. It’s crucial to deliver possession of the document with the goal of transferring the property to the endorsee. It should be noted that the endorser or someone acting on his behalf must make the delivery of possession..

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

Types of Endorsement

There are essentially two types of endorsements: The Signature in Blank According to Section 16 of the Negotiable Instrument Act of 1881, if the endorser simply signs his name, the underwriting is presumed to be clear. However, if he adds a heading requesting payment of the amount specified in the instrument to or on behalf of a specific person, the endorsement is presumed to be in full, and the person named in the heading is referred to as the endorsee of the document. The following list includes a number of established but lesser-known types.

There are six types of endorsement.These are applicable for endorsement in banking and various types of endorsement cheques: 

1. Blank or General Endorsement
2. Full Endorsement or Special Endorsement.
3. Conditional Endorsement.
4. Restrictive Endorsement.
5. Partial Endorsement.
6. Facultivate 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 

When the endorser includes the name of the person at whose request the payment is to be made in addition to his mark, this is known as a special endorsement or full endorsement. The person named as the endorsee of the instrument, who has now become its payee and is eligible to suit for the money owed on the instrument, has a heading added by endorsement.

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

A restrictive endorsement is an arrangement that has effects only when a specific event occurs and nothing else. According to Section 52 of the Negotiable Instrument Act of 1881, the endorser of a disputed instrument has the option to expressly reject his own risk in the future or to condition the endorsee’s right to receive the amount due on the occurrence of a predetermined event, even though such an event may never take place. All intermediate endorsers are obligated to him in the event that an endorser so limits his risk and thereafter becomes the holder of the instrument.

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

A restrictive endorsement aims to eliminate a Negotiable Instrument’s key characteristics and ends further negotiation. This may seem a little out of the ordinary, but the endorsee is especially within his rights if he signs that the subsequent action is restricted. This eliminates the possibility of an unapproved person losing money by fraudulently obtaining an instalment and misrepresenting themselves.

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

When the endorser suggests to transfer to the endorsee, simply a portion of the amount payable, an endorsement is supposed to be a partial endorsement. Halfway underwriting is the simple name for support that facilitates transferring to the endorsee a portion of the amount due.. 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 

Underwriting that involves the endorser deferring a privilege to which he is entitled is known as facultative endorsement. For instance, the endorsee may withdraw out of scorn for the endorser, and normally, the endorser’s inability to withdraw will absolve him of 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

No possessor or endorsee is entitled to receive the sum owed on a negotiable instrument from a maker, acceptor, or holder from any party anterior to such holder if the instrument was lost or gained from such a party by fraud, illicit methods, or otherwise. He is not permitted to do so unless the possessor or endorsee is, or someone he claims to be, a holder in due course.

Forged Endorsement

When an instrument is fully endorsed, we are unable to negotiate it without an endorsement that is dated and signed by the person to or whose order the instrument is payable. The reason for this is that the endorsee only acquires title through his endorsement. The endorsee does not obtain ownership even though he is a purchaser for value and in good faith if an instrument is negotiated using a forged endorsement since the endorsement is invalid.

Forgery doesn’t confer a title. The holder obtains his title independently of the fake endorsement, however, where the instrument is a bearer instrument or has been endorsed in blank. Additionally, he has the right to pursue payment from any signatory 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.

Conclusion

The holder of a negotiable instrument may sign his or her name on the back of that instrument, which replicates the transfer of title or ownership of that negotiable instrument, this process is termed as an endorsement. An endorsement can be done by keeping another individual or an entity in a favorable position. Thus, we can say that an endorsement helps in the transfer of the property to another individual or a legal entity.