What is Endorsement & Its Types ?

WHAT IS ENDORSEMENT ?

The act of a person who is holder of a negotiable instrument in signing his or her name on the back of that instrument, thereby transferring title or ownership is called endorsement.

It is defined in segment 15 of the Negotiable instruments act 1881. The person to whom the instrument is endorsed is called the endorsee. The person making the endorsement is the endorser.

The endorsement is usually made on the back of the cheque. If no space is left on the Cheque, the Endorsement may be made on a separate slip to be attached to the Cheque.

TYPES OF ENDORSEMENTS

There are basically 7 different types of Endorsements which are listed below-

  1. ENDORSEMENT IN BLANK – When the endorser puts his signature only on the instrument and does not write the name of anyone to whom or to whose order the payment is to be made it is known as blank or general endorsement. It can be converted into full endorsement by writing above the endorser’s signature a direction to pay the instrument to, or to the order of, himself or some other person.
  2. ENDORSEMENT IN FULL – An endorsement is ‘special’ or in ‘full’ if the endorser, in addition to his signature also mention the name of the person to whom or to whose order the payment is to be made.
  3. CONDITIONAL ENDORSEMENT – Where the endorser puts his signature under such writing which makes the transfer of title subject to fulfilment of some conditions of the happening of some events, it is a conditional endorsement.
  4. RESTRICTIVE ENDORSEMENT – Restrictive endorsement is one that directs a specific payment of the instrument, such as for deposit or collection only, and that precludes any other transfer of it.
  5. FACULTATIVE ENDORSEMENT – It refers to an underwriting where the endorser defers some privilege to which he is entitled. For example, the endorsee is liable to give notice of dishonor to the endorser and normally failure to give notice will absolve the endorser from his liability.
  6. PARTIAL ENDORSEMENT – A partial endorsement is one in which the endorser indicates to transfer only a part of the amount payable on the instrument to the endorsee.
  7. SANS RECOURSE ENDORSEMENT– In this type of endorsement, the endorser excludes his liability and in case of dishonor, endorser will not be liable for payment.

 

Thus, in a nutshell, when the holder of a negotiable instrument marks his name on the rear of the instrument in order to transfer the title or ownership to some other person or legal entity, it is known as endorsement of the instrument.

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