10 Types of Endorsement that Can Boost Your Business in 2023 (India)

There are seven distinct types of endorsement. partial endorsement, conditional endorsement, full endorsement, blank endorsement. Endorsement is a crucial element of negotiation, which involves the transfer of an instrument from one party to another, thereby making the recipient a holder of that instrument. While a bearer instrument can be conveyed through simple delivery, an order instrument requires transfer via endorsement.

Endorsement in Blank

When an endorsement on a bill of exchange lacks a specific endorsee, it is considered an endorsement in blank. Such an endorsed bill becomes payable to the bearer. This principle also extends to the endorsement of checks. In this scenario, as long as the instrument remains in blank, ownership of the instrument can be transferred through mere delivery, similar to an instrument payable to the bearer.

To convert a blank endorsement into a full endorsement, any holder can write a direction above the endorser’s signature, instructing payment to themselves or another person.

Section 54 of the Negotiable Instruments Act states, “Subject to the provisions hereinafter contained as to crossed cheques, a negotiable instrument endorsed in blank is payable to the bearer thereof even though originally payable to order.”

Endorsement in Full

When the endorser includes a direction to pay the specified amount on the instrument to a particular person, the endorsement is termed a full endorsement. By signing on the back of the instrument, the endorser affirms to their immediate endorsee or any subsequent holder in due course that, at the time the instrument left their possession, they held a valid title to it, and the instrument was genuine in all aspects. This also implies that all previous endorsements are genuine.

A holder of a negotiable instrument endorsed in blank can, without signing their own name, transform the blank endorsement into a full endorsement by writing above the endorser’s signature a directive to pay another person as the endorsee. This action does not impose the responsibilities of an endorser on the holder. If a negotiable instrument, originally endorsed in blank, is subsequently endorsed in full, the full amount cannot be claimed from the endorser in full, except by the person to whom it has been fully endorsed or by someone who derives their title through that individual. types of endorsement

Here are examples of endorsements in full:

  1. “Pay to Ramesh Pawar or Order”

Madhav Gupte

  1. “Pay to Ashutosh Sharma”

Anand Phadake

Conditional Endorsement

Typically, an endorser commits to payment under no other circumstances than the dishonor of the instrument upon proper notice of dishonor to them. Nevertheless, if they wish, they can make their liability on the instrument contingent upon a condition, in which case the endorsement is termed a conditional endorsement. Alternatively, they may establish their liability depending on the occurrence of a specific event, or they may link the endorsee’s entitlement to receive payment regarding the instrument to the occurrence of such an event. types of endorsement

These added conditions can be either conditions precedent or conditions subsequent. In the former, the right to recover the amount does not pass to the endorsee until the conditions are fulfilled. In the latter case, the endorsee’s right is nullified once the conditions are met. For instance, if the endorsement states, “Pay to X if he returns from Mumbai within a year,” the right to receive payment becomes absolute only if Mr. X returns within a year from the date of the endorsement on the instrument. The presence of conditions in endorsements does not impact the negotiability of the endorsed endorsement.

Restrictive Endorsement

A restrictive endorsement is one that explicitly limits or excludes the endorsee’s right to negotiate the endorsed instrument. In some cases, a restrictive endorsement may only appoint the endorsee as an agent to endorse the instrument or receive its contents on behalf of the endorser or some other designated person. For example, if Mr. A.K.Agrawal endorses a negotiable instrument payable to order with the instruction ‘Pay Mr. R.K.Goyal for the account of Mr. S.K.Garg,’ Mr. A.K.Agrawal is restricting the negotiability of the instrument as the endorsee. types of endorsement

types of endorsement (1)
types of endorsement

Sans Recourse Endorsement

Section 52 of the Negotiable Instruments Act allows an endorser to exclude their own liability on the instrument through express language in the endorsement. This type of endorsement is referred to as a ‘Sans Recourse’ endorsement or ‘without recourse’ endorsement. In such a case, if the endorser becomes the holder of the instrument again, all the intermediate endorsers will be liable to them. An endorser who uses a ‘without recourse’ endorsement cannot be held liable in case the instrument is dishonored.

An endorser may also introduce a condition where the endorsee’s right to receive the amount is contingent on the occurrence of an event, whether it happens or not. This would be considered a conditional endorsement. Alternatively, an endorser may endorse the instrument solely for the purpose of collection. In this scenario, any subsequent transferees will have limited rights based on the nature of the endorsement.

Facultative Endorsement

A facultative endorsement is characterized by the endorser expressly relinquishing certain rights or expanding their liability under the instrument. This can be achieved by adding specific phrases after the endorsement, such as ‘notice of dishonour dispensed with,’ ‘waiver of notice of dishonour,’ or ‘notice of dishonour not required.’ The consequence of a facultative endorsement is that it renders the endorser liable, even in cases where, according to the Negotiable Instruments Act, 1881, they might not be liable. types of endorsement

For instance: “Pay to A or order. Notice of dishonour waived.”

Partial Endorsement

In the context of negotiable instruments, any inscription on the instrument that appears to transfer only a portion of the total amount due is not considered valid for the purpose of negotiation. However, if a part of the amount has already been paid, a note indicating this payment can be added to the instrument, and then it can be negotiated for the remaining balance.

As a general rule, when a negotiable instrument’s amount is meant to be transferred through an endorsement, such an endorsement, which only transfers part of the amount, is considered partial and, therefore, invalid. This is because a personal contract cannot be divided. It’s only when a partial payment has been made, and this payment is acknowledged on the instrument, that the remaining balance can be negotiated through endorsement.

For example, if the maker of a promissory note for Rs. 5,000 pays Rs. 2,000, and this payment is noted on the instrument, the holder can then negotiate the note for the remaining balance of Rs. 3,000.

However, consider a situation where A is the holder of a bill worth Rs. 1,000, and A endorses it as follows: “Pay B or Order Rs. 500.” This is a partial endorsement and is not valid for the purpose of negotiation.

types of endorsement (FAQ)

Can an endorsement be changed from blank to full?

Yes, a blank endorsement can be converted into a full endorsement by adding specific instructions above the endorser’s signature.

Is a conditional endorsement similar to a restrictive endorsement?

While both involve specific conditions, a conditional endorsement introduces conditions that must be met before the instrument can be negotiated. In contrast, a restrictive endorsement limits the instrument’s negotiability for a specific purpose or person.

What is the purpose of a Sans Recourse endorsement?

A Sans Recourse endorsement is used to protect the endorser from liability if the instrument is dishonored. It disclaims responsibility for the instrument’s payment.

How can I recognize a facultative endorsement?

Facultative endorsements often include phrases like “notice of dishonor dispensed with” or “waiver of notice of dishonor.” These phrases indicate that the endorser may be liable, even when they wouldn’t be otherwise.

When is a partial endorsement considered valid?

A partial endorsement is typically invalid, except when a partial payment has been made and is noted on the instrument. In that case, the balance can be negotiated further.

Sanjeet Kumar is a graduate of Journalism, Psychology, and English. Passionate about communication - with words spoken and unspoken, written and unwritten - he looks forward to learning and growing at every opportunity. Pursuing a Post-graduate Diploma in Translation Studies, he aims to do his part in saving the 'lost…

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