Important kinds of endorsements are given below:
1. Blank or genera endorsementl:
If the endorser signs his name only and does not specify the name of the endorsee, the endorsement is said to be in blank Sec. 16(1). The effect of a blank endorsement is to convert the order instrument into bearer instrument (Sec. 54), which may be transferred merely by delivery.
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2. Endorsement in full or special endorsement:
If the endorser, in addition to his signature, also adds a direction to pay the amount mentioned in the instrument to, or to the order of, a specified person the endorsement is said to be in full [Sec. 16(1)].
If, for example, A, the holder of a bill of exchange, wants to make an endorsement in full to B, he would write thus: “Pay to B or order, SdA4.” After such an endorsement it is only the endorsee, i.e., B, who is entitled to receive the payment of the instrument and to further negotiate the instrument by his endorsement.
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A blank endorsement can easily be converted into an endorsement in full, According to Section 49, the holder of a negotiable instrument endorsed in blank may, without signing his own name, by writing above the endorser’s signature a direction to pay to any other person as endorsee, convert the endorsement in blank into an endorsement in full; and since such holder does not sign himself on the instrument he does not thereby incur the responsibility of an endorser.
3. Partial Endorsement:
Section 56 provides that a negotiable instrument cannot be endorsed for a part of the amount appearing to be due on the instrument. In other words, a partial endorsement which transfers the rights to receive only a part payment of the amount due on the instrument is invalid.
Such an endorsement has been declared invalid because it would subject the prior parties to plurality of actions (one action by holder for part value and another action by endorsee for part value) “and will thus cause inconvenience to them.
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Moreover, it would also interfere with the free circulation of negotiable instruments. It may be noted that an endorsement which purports to transfer the instrument to two or more endorses separately, and not jointly is also treated as partial endorsement and hence would be invalid.
Thus, where A holds a bill for Rs 2,000 and endorses it in favour of B for Rs 1,000 and in favour of C for the remaining Rs 1,000, the endorsement is partial and invalid.
Section 56, however, further provides that where an instrument has been paid in part, a note to that effect ma; be endorsed on the instrument and it may then be negotiated for the balance.
Thus, if in the above illustration the acceptor has already paid Rs 1,000 to A, the holder of the bill, A can then make an endorsement saying “Pay B or order” Rs 1,000 being the unpaid residue of the bill.” Such an endorsement would be valid.
4. Restrictive endorsement:
Stating the effect of endorsement, Section 50 provides that “the endorsement of negotiable instrument followed by delivery transfers to the endorsee the property herein with the right of further negotiation.” However, Section 50 permits restrictive endorsement.
An endorsement which, by express words, prohibits the endorsee from further negotiating the instrument or restricts the endorsee to deal with his instrument as directed by the endorser is called ‘restrictive’ endorsement.
The endorsee under a restrictive endorsement gets all the rights of an endorser except the right of further negotiation. In other words, such an endorsement entitles the endorsee to receive the payment on due date and sue the parties for it but he cannot further negotiate the instrument.
Illustrations:
(a) B, the holder of the bill, makes an endorsement on the bill saying “Pay C only.” It is a restrictive endorsement as C cannot negotiate the bill further.2
(b) B, the holder of the bill, makes an indorsement on the bill, saying “Pay C for my use or “Pay C or order for the account of B.” In either case there is a restrictive endorsement as the right of further negotiation by C has been excluded thereby.
The person liable on the hill must pay by drawing a cheque in the name of the holder (or the endorser) B. If he makes the payment to C on C’s own account, he will still be liable to B, the endorser; Hence C cannot endorse the bill further in his own name.
5. Conditional endorsement:
If the endorser of a negotiable instrument, by express words in the endorsement, makes his liability, dependent on the happening of a specified event, although such event may never happen, such endorsement is called a ‘conditional’ endorsement (Sec. 52).
The law permits a conditional endorsement and therefore it does not in any way affect the negotiability of the instrument. Thus, endorsements can validly be made in the following terms:
(i) “Pay B or order on his marriage;”
(ii) “Pay B on the arrival of Pearless ship at Bombay.”
In the case of a conditional endorsement the liability of the endorser would arise only upon the happening of the event specified. But the endorsee can sue other prior parties, e.g., the maker, acceptor, etc., if the instrument is not duly met at maturity, even though the specified event did not happen.
6. Sans recourse endorsement (Sec. 52):
When the endorser expressly excludes his own liability on the negotiable instrument to the endorsee or any subsequent holder in case of dishonour of the instrument, the endorsement is known as ‘sans recourse’ endorsement.
Such an endorsement is generally made by adding the words ‘sans recourse’ or ‘without recourse.’ Thus, “Pay X or order sans recourse” or “Pay X without recourse to me” or “Pay X or order at his own risk” is examples of this type of endorsement.
7. Facultative endorsement:
When the endorser expressly gives up some of his rights under the negotiable instrument, the endorsement is called a ‘facultative’ endorsement. Thus, “Pay X or order, notice of dishonour waived” is a facultative endorsement.
As a result of such an endorsement the endorsee is relieved of his duty to give notice of dishonour to the endorser and the latter remains liable to the endorsee for the non-payment of the instrument, even though no notice of dishonour has been given to him.