Page 166 - DMGT303_BANKING_AND_INSURANCE

Unit 8: Negotiable Instruments

Restrictive Endorsement (Section 50) Notes

The endorsement of an instrument may contain terms making it restrictive. Restrictive
endorsement is one which either by express words restricts or prohibits the further negotiation
of a bill or which expresses that it is not a complete and unconditional transfer of the instrument
but is a mere authority to the endorsee to deal with bill as directed by such endorsement.
"Pay C," "Pay C for my use," "Pay C for the account of B" are instances of restrictive endorsement.
The endorsee under a restrictive endorsement acquires all the rights of the endorser except the
right of negotiation.

Conditional or Qualified Endorsement

It is open to the endorser to annex some condition to his owner liability on the endorsement. An
endorsement where the endorsee limits or negatives his liability by putting some condition in
the instrument is called a conditional endorsement. A condition imposed by the endorser may
be a condition precedent or a condition subsequent. An endorsement which says that the amount
will become payable if the endorsee attains majority embodies a condition precedent. A
conditional endorsement unlike the restrictive endorsement does not affect the negotiability of
the instrument. It is also some times called qualified endorsement. An endorsement may be
made conditional or qualified in any of the following forms:
1. 'Sans recourse' endorsement: An endorser may be express word exclude his own liability
thereon to the endorser or any subsequent holder in case of dishonour of the instrument.
Such an endorsement is called an endorsement sans recourse (without recourse). Thus 'Pay
to A or order sans recourse, 'pay to A or order without recourse to me,' are instances of this
type of endorsement. Here if the instrument is dishonoured, the subsequent holder or the
indorsee cannot look to the indorser for payment of the same. An agent signing a negotiable
instrument may exclude his personal liability by using words to indicate that he is signing
as agent only. The same rule applies to directors of a company signing instruments on
behalf of a company. The intention to exclude personal liability must be clear.
Where an endorser so excludes his liability and afterwards becomes the holder of the
instrument, all intermediate endorsers are liable to him.

Example: A is the holder of a negotiable instrument. Excluding personal liability by an
endorsement without recourse, he transfers the instrument to B, and B endorses it to C, who
endorses it to A. A can recover the amount of the bill from B and C.
2. Facultative endorsement: An endorsement where the endorser extends his liability or
abandons some right under a negotiable instrument, is called a facultative endorsement.
"Pay A or order, Notice of dishonour waived" is an example of facultative endorsement.
3. 'Sans frais' endorsement: Where the endorser does not want the endorsee or any subsequent
holder, to incur any expense on his account on the instrument, the endorsement is 'sans
frais'.
4. Liability dependent upon a contingency: Where an endorser makes his liability depend
upon the happening of a contingent event, or makes the rights of the endorsee to receive
the amount depend upon any contingent event, in such a case the liability of the endorser
will arise only on the happening of that contingent event. Thus, an endorser may write
'Pay A or order on his marriage with B'. In such a case, the endorser will not be liable until
the marriage takes place and if the marriage becomes impossible, the liability of the
endorser comes to an end.

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