What is bank endorsement?

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.

 

General Rules regarding the Form of Endorsements

An endorsement must be regular and valid in order to be effective. The appropriateness or otherwise of a particular
form of endorsement depends upon the practice amongst the bankers. The following rules are usually followed in
this regard.
1. Signature of the endorser. The signature on the document for the purpose of endorsement must be that
of the endorser or any other person who is duly authorized to endorse on his behalf. If a cheque is
payable to two persons, both of them should sign their names in their own handwriting. If the endorser
signs in block letters, it will not be considered a regular endorsement.

2. Spelling. The endorser should spell his name in the same way as his name appears on the cheque or bill
as its payee or endorsee. If his name is mis-spelt or his designation has been given incorrectly, he should
sign the instrument in the same manner as given in the instrument. Thereafter, he may also put his
proper signature in the same handwriting, if he likes to do so. For example, if the payee’s name is wrongly
spelt as ‘Virendra Perkash’ instead of ‘Virendra Prakash’ regular endorsement will be as follows:

3. No addition or omission of initial of the name. An initial name should neither be an added nor omitted from
the name of the payee or endorsee as given in the cheque. For example, a cheque is payable to S.C.
Gupta should not be endorsed as S. Gupta or vice versa. Similarly, a cheque payable to Harish Saxena
should not be endorsed as H. Saxena because it will be doubtful for the paying banker to ascertain that
H. Saxena is Harish Saxena and nobody else. It is possible that some Hari Saxena has signed on the
cheque as H. Saxena.
4. Prefixes and suffixes to be excluded. The prefixes and suffixes to the names of the payee or endorsee
need not be included in the endorsement. For example, the words “Mr., Messrs, Mrs., Miss, Shri, Shrimati,
Lala, Babu, General, Dr., Major, etc.” need not be given by the endorser otherwise the endorsement will
not be regular. However, an endorser may indicate has title or rank, etc., after his signature. For example,
a cheque payable to Mojor Raja Ram or Dr. Laxmi Chandra may be endorsed as ‘Raja Ram, Major’ or
Laxmi Chandra, M.D.’ A cheque payable to Padmashri Vishnu Kant may be endorsed as Vishnu Kant,
Padmashri.