Definition of Endorsement :
Section 15 defines endorsement as follows:
“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 have endorsed the same and is called endorser.
Thus, an endorsement consists of the signature of the maker (or drawer) of a negotiable instrument or any holder thereof but it is essential that the intention of signing the instrument must be negotiation, otherwise it will not constitute an endorsement. The person who signs the instrument for the purpose of negotiation is called the ‘endorser’ and the person in whose favour instrument is transferred is called the ‘endorsee’. The endorser may sign either on the face or on the back of the negotiable instrument but according to the common usage, endorsements are usually made on the back of the instrument. If the space on the back is insufficient for this purpose, a piece of paper, known as ‘allonge’ may be attached thereto for the purpose of recording the endorsements.
Legal Provisions regarding Endorsements
The following provisions are contained in the Act as regards endorsements:
(1) Effect of Endorsements. The endorsement of a negotiable instrument followed by delivery transfers the endorsed property therein with the right of further negotiation (Section 50). Thus the endorsee acquires property or interest in the instrument as its holder. He can also negotiate it further. (His right can, of course, be restricted by the endorser in case of a restrictive endorsement.)
Section 50 also permits that an instrument may also be endorsed so as to constitute the endorsee an agent of the endorser. –
(1) to endorse the instrument further, or
(2) to receive its amount for the endorser or for some other specified person.
The examples of such endorsements are as follows:
(i) Pay C for my use.
(ii) Pay C or order for the account
Where a negotiable instrument is endorsed for any of the above purposes, the endorse becomes its holder and property therein is passed on the endorsee. In Kunju Pillai and Others vs. Periasami (1969 II. M.I.J. 148) the High Court held that a holder of a negotiable instrument, who secures the same by endorsement, does not lose the right of his action by reason of the death of the original payee. In Mothireddy vs. Pothireddy (A.I.R. 1963, A.P. 313) the Andhra Pradesh High Court also held that “the right based on the endorsement having made for a specific purpose, namely, collection of the amount, will be valid till that purpose is served.” The ordinary law regarding agency does not, therefore, apply in such cases.
(2) Endorser. “Every sole maker, drawer, payee or endorsee or all of several join makers, payees or endorses of a negotiable instrument may endorse and negotiate the same.” This is subject to the condition that the right to negotiate has not been restricted or excluded (Section 51). Thus in case the instrument is held jointly by a number of persons, endorsements by all of them is essential. One cannot represent the other.
The absence of the words “or order” in the instrument or endorsement thereon does not restrict further negotiation. For example a bill is drawn payable to A or order. A endorses it to B but the endorsement does not contain the words “or order” or any equivalent words. B may further negotiate the instrument.
It is, however, essential that the maker or drawer or drawer of an instrument must have lawful possession over it, i.e., he must be its holder in order to enable him to endorse o negotiate it. A payee or an endorsee of the instrument must be its holder for eth same purpose.
(3) Time. A negotiable instrument may be negotiated until its payment has been made by the banker, drawee or acceptor at or after maturity but not thereafter (Section 60).
(4) Endorsement for a part of the amount. The instrument must be endorsed for its entire amount. Section 56 provides that “no writing on a negotiable instrument is valid for the purpose of negotiable if such writing purports to transfer only a part of the amount appearing to be due on the instrument.” Thus an endorsement for a part of the amount of the instrument is invalid.
But in case an instrument has been partly paid, it may be negotiated for the balance of the amount provided a note to that effect is given on the instrument (Section 56).
If the endorser intends to transfer the document to two or more endorsees separately, it will not constitute a valid endorsement.
(5) The legal representative of a deceased person cannot negotiate by delivery only, a promissory note, bill of exchange or cheque payable to order and endorsed by the deceased but not delivered (Section 57). If the endorser dies after endorsing the instrument payable to order but without delivering the same to the endorsee, such endorsement shall not be valid and his legal representative cannot complete its negotiation by mere delivery thereof.
(6) Unless contrary is proved it is presumed under Section 118 that “the endorsements appearing upon a negotiation instrument were made in the order in which they appear thereon.” It means that the endorsement which appears on an instrument first is presumed to have been made earlier to the second one.