CHAPTER 13
Endorsement
Learning objectives• This chapter will explain about endorsement of
negotiable instrument :
• Definition of endorsement
• Form of endorsement
• Essentials of endorsements
• Different types of endorsements
Learning objectives• Liability of endorser on dishonour
• Effect of endorsement
• Forged endorsement
Endorsement Definition • When the marker or holder of an 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 indorse the same, and
• is called the endorser.
Who may endorse • Endorsement can be made by the holder of
negotiable instrument or by the maker signing it.
• A payee or endorsee may endorse an instrument
only if he is the holder.
• If a bill or note is made payable to the drawer’s
or maker’s order, the drawer or maker should
endorse it.
• A stranger can’t endorse bill but however he can
be held liable as a surety, if he intends to
guarantee payment.
Allonge • If back of the instrument is filled with
endorsements, the holder to provide space for
further endorsements may tag or past a piece of
paper to is called as “allonge”
• Subsequent endorsements are made on the
allonge.
Form of endorsement • Act does not lay down any specific form.
• The only requirement of endorsement is that
transferor shall use appropriate writing on an
instrument so as to transfer his right, title and
interest therein to some person.
• An endorsement made by a stamp which is said
to be a copy of the payee’s signature is valid if it
has been placed with the approval of the payee.
Delivery of endorsement •
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Endorsement is complete only by delivery.
Delivery may be actual or constructive.
Delivery may be by endorser or his agent.
Delivery must be made with the intention of
passing the property therein.
• Until delivery, contract of endorsement is
incomplete.
Blank or general endorsement • In this type, the endorser puts his signature on
the back of the instrument without mentioning
the name of any person in whose favour
endorsement is made.
• The endorsement in such case is payable to
bearer.
• It can be negotiated by mere delivery.
Special endorsement • Unlike general endorsement, in case of special
endorsement name of the person to whom it is
endorsed has also been written.
• The instrument is thus payable to specific
person and not bearer.
• It can be negotiated by further endorsement and
delivery.
Conditional endorsement •
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Conditional endorsement can be of following 4 types –
Sans Recourse – when endorser excludes his liability
Sans frais – when the endorser does not want the
endorsee or any subsequent holder to incur any
expenditure on his account on the instrument.
Facultative – endorsee must give notice of dishonour of
the instrument to the endorser, but later may waive his
duty of endorsee.
Contingent – making endorsee entitled to receive
amount on happening or non-happening of an event
Liability of endorser on dishonour • In the absence of a contract to the contrary
• Whoever indorses and delivers a negotiable instrument before
maturity
• Without in such endorsement, expressly excluding or making
conditional his own liability,
• Is bound thereby to every subsequent holder,
• In case of dishonour by the drawee, acceptor or maker,
• To compensate such holder for any loss or damage caused to
him by such dishonor,
• Provided due notice of dishonour has been given to, or received
by, such endorser as hereinafter provided.
• Every endorser after dishonour is liable as upon an instrument
payable on demand.
Effect of endorsement • The endorsement of an instrument followed by
a delivery transfers to the endorsee the property
in the instrument with right of further
negotiation.
• A holder of an instrument deriving title from a
holder in due course has rights thereon of the
holder in due course.