Page 100 - DMGT407Corporate and Business Laws

Unit 4: Law of Negotiable Instruments

4.5.2 Endorsement Notes

An endorsement is the mode of negotiating a negotiable instrument. A negotiable instrument
payable otherwise than to bearer can be negotiated only by indorsement and delivery. An
endorsement according to s.15, is “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 endorsed is called the endorsee. Usually
the endorsement is on the back of the instrument; though it may be even on the face of it. Where
no space is left on the instrument, the endorsement may be made on a slip of paper attached to
it. This attached slip of paper is called ‘Allonge’.

Kinds of Endorsement

Endorsement may take any of the following seven forms:
1. Endorsement in blank: Where the endorser just puts his signature without specifying the
endorsee, the endorsement is said to be in blank (s.160). The effect of such an endorsement
is to render the instrument payable to bearer even though originally payable to order
(s.54). No further endorsement is needed for its negotiation.

Example: A cheque is payable to ‘X or order’, and ‘X’ merely signs on the back of it. This
will constitute endorsement in blank. Where an endorsement in blank is subsequently followed
by an endorsement in full, the endorser in full will be liable to his immediate endorsee and
parties deriving title from him, but not to others (s.55).
2. Endorsement in full: Where along with endorser’s signature, the name of the endorsee is
specified, the endorsement is called endorsement in full (s.16). Thus, where the instrument
states, ‘Pay Y or order’, and is signed by ‘X’, the payee, it constitutes ‘endorsement in full’.
An endorsement in blank may be converted into ‘endorsement in full’ by the holder by
merely adding above the endorser’s signature, a direction to pay to any other person. By
doing so, the endorser does not incur any responsibility of an endorser. (s.49).

Example: A cheque is endorsed in blank by ‘X’. Y, the holder of the cheque, may convert
this ‘blank endorsement’ into ‘endorsement in full’ by say, adding the words ‘Pay Z or order’,
above ‘X’s signature. Y, in this case cannot be held liable on the cheque, if it is dishonoured.

3. Restrictive endorsement: An endorsement is restrictive which prohibits the further
negotiation of a negotiable instrument. Section 50 states: “The endorsement may, by
express words, restrict or exclude the right to negotiate or may constitute the endorser an
agent to endorse the instrument or to receive its contents for the endorser or for some
other specified person.”

Example: If a cheque is endorsed ‘Pay X only’, or ‘Pay D for the account of X’, it cannot be
negotiated further.
4. Conditional endorsement: A conditional endorsement is one which makes the transfer of
the property in a negotiable instrument from the endorser to the endorsee dependent
upon the fulfillment of a stated condition. Thus, according to s.52, where an endorser
makes his liability on the instrument conditional on the happening of a particular event,
it is called conditional endorsement, though such event may never happen. Similarly, the
right of the endorser may be made conditional on the happening of a particular event.

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