INDORSEMENT

Utkarsh Mishra

Indorsement

When the maker or holder of a negotiable instrument signs the instrument for the purpose of its negotiation, it is said to be the indorsement of the instrument. [Sec. 15]

Essentials of a Valid Indorsement1. Indorsers must be holder:- Indorser must be entitled in his own name

to the possession of the instrument and recover or receive the amount due thereon ,in case he looses it.

2. On the instrument:- Indorsement must be on the face or back of the instrument or on a piece of paper annexed to the instrument.

3. Signature:- Indorsement must be signed by the indorser for the purpose of negotiation of the instrument.

4. Additional words and form of words:-Indorser may sign the indorsement with or without additional words or statement. The simple signature of the indorser without any additional words is sufficient for a valid indorsement.

5. Indorsement by joint holders:-An indorsement is valid only when all joint holders(i.e. all makers,

drawer, indorsees or payees) join in indorsement unless any one of them has the authority to indorse for the others.

i. When the joint holders/indorsers are partners of a trading firm because only one partner may validly indorse.

ii. When joint holders/ indorsers authorize any one to indorse on behalf of all of them.

6. Indorsement of entire instrument: Indorsement must be of the entire instrument. An indorsement which purports to transfer only a part of the amount of the instrument is not a valid indorsement.

7. Intention- Every indorsement must be made with an intention to negotiate it in favour of the indorsee.

8. Delivery – In order to make a complete and effective indorsement, the instrument must be delivered by the indorse to the indorsee.

Persons Entitled to Indorse

1. Payee2. Maker, drawer or holder3. Indorsee4. Joint makers, drawers etc.

Kinds of Indorsement

1. Blank or general Indorsement:When the indorser signs his name only on the instrument for the purpose of its negotiation. Thus, in such an endorsement, indorser does not specify the name of the indorsee. The instrument becomes payable to bearer even though originally it was payable to order.

2. Full or special Indorsement

The indorsement in full is one in which indorser not only signs on the instrument but also specifies the person to whom or to whose order the instrument is payable. Such an instrument remains or becomes an order instrument.

i. Conversion - The holder of a negotiable instrument indorsed in blank may convert the indorsement in full.He may do so by adding the name of a person just before the signature of the indorser. The holder need not sign it. The holder even does not incur any liability as an indorser.

ii. Blank indorsement followed by a full indorsement – the indorser in full shall be liable to his immediate (next) indorsee and to any party deriving title from such endorsee and not to others.

3. Restrictive indorsement – is one which restricts or prohibits the right of further negotiation of the instrument.

4. Partial indorsement - Sometimes an indorsement purports to transfer only part of the amount of the instrument. Such an indorsement is called as partial indorsement. It is not a valid indorsement for the purpose of negotiation.

But, sometimes, the amount due on the instrument is paid in part and a note to this effect is indorsed on the instrument. On such a case, the instrument may be negotiated for the balance.

5. Conditional or qualified indorsement – indorser inserts a condition in his endorsement

i. ‘Sans recourse’ indorsement- In such a case the indorser inserts certain words in his indorsement to exclude or limit the liability. He adds the words ‘sans recourse’ or ‘without recourse’.

ii. Liability dependent upon happening of a specified event

iii. Facultative indorsement - An indorser by express words in the indorsement waives his rights or increases his liability on an instrument.

iv. ‘Sans frais’ indorsement - An indorser does not want to incur any liability for the expenses that may be incurred on account of the instrument. In such a case, the indorser usually adds words ‘san frais’ or ‘without expenses’ to the indorsement.

Effects of Indorsement An unconditional indorsement followed by an unconditional delivery of the instrument has following effects:

The property in the instrument stands transferred to the indorsee.The indorsee gets the right of further negotiation of the instrument.The indorsee is entitled to sue all parties, whose names appear on it.

Negotiation BackSometimes a prior party to a negotiable instrument again becomes holder of the instrument in the course of negotiation, before its maturity. This situation is technically called as negotiation back of the instrument to the holder.