In literal sense, the word ‘endorsement’ means, writing on back of an instrument. However under Negotiable Instruments Act 1881, it means, writing of one’s name on the back of instrument or any paper affixed to it with the intent of transferring the rights within.
Consequently, endorsement is signing a negotiable instrument for the purpose of negotiation. The person who results an endorsement is known as ‘endorser’, & the person to whom negotiable instrument is transferred by an endorsement is known as the ‘endorsee’.
Essentials of a valid endorsement
The following are essentials of valid endorsement:
1. It must be on the instrument. The endorsement may be on the front side or at the back side of the instrument & if no space is left on instrument, it may be made on a separate paper affixed to it known as allonage. It should generally be in ink.
2. It must be made by the maker or should be made by the holder of the instrument. A stranger cannot endorse it.
3. It must be signed by endorser. Full name is not important. Initials may be adequate. Thumb impression should be attested. Signature may be done on any part of instrument. A rubber stamp is not acknowledged but the designation of holder can be done by rubber stamp.
4. It may be made either by endorser only signing his name on the instrument or by any words showing a purpose to transfer or endorse the instrument to a specified person. No specific form of words is arranged for an endorsement. But intention to transfer must be there.
5. It must be concluded by delivery of instrument. The delivery must be done by the endorser or by someone on his behalf with the purpose of passing property within. Therefore, where a person endorses an instrument to another & keeps it in his papers where it is found after his death & then delivered to the endorsee, the endorsee gets no right on the instrument.
6. It must be an endorsement of the entire bill not a partial endorsement.
Who may endorse?
The payee of an instrument is the rightful person to make the 1st endorsement. Subsequently the instrument may be authorized by any person who has become the holder of instrument. The drawer or the maker can’t endorse the instrument but if any of them has become holder thereof he may endorse the instrument as per Section 51.
Classes of endorsement
The classes of endorsement are: