The word ‘endorsement’ in its literal sense means, a writing on the back of an instrument. In the words of Section 15, of the Negotiable Instruments Act, 1881 endorsement is defined as follows:
“When the maker or the 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, he is said to endorse the same and is called the endorser and the person to whom the instrument is endorsed is called the endorsee.”
Essentials of a valid endorsement:
Following are the essentials of a valid endorsement:
1. It must be on the instrument. The endorsement may be on the back or the face of the instrument and if no space is left on the instrument, it may be made on a separate paper attached to it called along.
2. It must be an endorsement of the entire bill. A partial endorsement that is which purports to transfer to the endorse a part only of the amount payable does not operate as a valid endorsement.
3. It must be made by the maker or holder of the instrument. A stranger cannot endorse it.
4. It may be made either by the endorser merely signing his name on the instrument or by any words showing an intention to endorse or transfer the instrument to a specified person.
5. It must be signed by the endorser. It is not necessary to write the full name initial may be sufficient. Thumb- impression should be attested.
6. It must be completed by delivery of the instrument. The delivery must be made by the endorser himself or by somebody on his behalf with the intention of passing property therein.
According to Section 40 of the Act, where the holder of a negotiable instrument, without the consent of the endorser, destroys or impairs the endorsers remedy against a prior party, the endorser is discharged from his liability to the holder to the same extent as if the instrument had been paid at maturity.
Thus, if the endorsement of ‘D’ and ‘C’ are struck out without the knowledge of ‘E’, A will not be entitled to recover anything from ‘E’ the reason being that as between D and E. D is the principal debtor and E is surety.
If D is released by the holder then under Section 39 of the Act, E being surety will be discharged. In this problem the rule followed will thus be stated as. When the holder without the knowledge of the endorser impairs the endorser’s remedy against a prior party, the endorser is discharged from liability to the holder.