Full Explanation about Endoresement.

ENDORSEMENT  MEANING:-

WHAT DO YOU MEANT BY ENDORSEMENT?

Endorsement means the signature instructions etc, placed on the reverse of a negotiable instrument for the purpose of assigning the interest there in to another. If the available space on the back side has been completely covered than a piece of paper is pasted to the instrument and subsequent endorsement are made on that paper. The paper that is pasted is called as ‘allorge’.

DEFINE ENDORSEMENT.

Endorsement is define under section 15 of the negotiable instruments act as “when the maker or holder of negotiable instrument signs the some otherwise then as such maker, for the purpose of negotiation, on the back or face there of or on a ship of paper annexed there to or so sings for the same purpose a stamped paper indented to completed as a negotiable instrument, he is said to have endorsed the same and is called endorser.

 

ESSENTIALS

WHAT ARE THE PRE-REQUISITES/ESSENTIALS OF ENDORSEMENT?

v At the time of endorsement the endorser has a good title to the instrument

v The instrument is a genuine one

v All prior endorsements are genuine and regular

v The instrument will be duty paid at maturity.

 

FEATURES

WHAT ARE THE FEATURE OF ENDORSEMENT?

v There is no proper procedure to be followed

v It needs the signature of holder or his agent

v The payee or the holder must signs in their exact names

v Endorsement should be by pen only

v An illiterate also can endorse by thumb impression

v Endorsement should be for full value

v The endorsement will be completed by delivery

v It can be endorsed any number of times.

EXPLAIN THE TYPES/ KINDS OF ENDORSEMENT.

The different types of endorsement are as follows.

1)     Blank Endorsement

When an endorsement in made on the reverse side of the instrument with a mere signature of the endorse without any name or any other remark, it is called blank endorsement.

2)     Full Endorsement

When the endorser writes the name of the endorsee on the reverse side of the instrument such as: pay to Raman or order

·       (Sd) Krishnan - Here the endorser is Krishnan and the orders see in Raman. Thus the full endorsement is complete in all respects.

3)     Conditional Endorsement

When an endorsement is made with a specific condition to be fulfilled by the endorsee for acquiring the ownership right on the instrument, it is conditional endorsement

Example: Pay to Raman on delivery of bill of lading (Sd) Krishnan

Raman will be given the instrument or the amount on the instrument only when he delivers bill of lading.

4)     Restrictive Endorsement\

Here the endorser takes away the right of the endorsee for further endorsement of the instrument Example: pay to Raman only

(Sd) Krishnan - Now Raman cannot endorse further

5)     Sans- Recourse Endorsement

If the endorse wants to avoid liability as endorse, he can do so by adding words at the time of endorsement. He may endorse like this “pay A or order sans recourse” or pay A or order at his own risk.

6)     Sans Frais Endorsement

It is made where the endorse does not want that endorse or any subsequent holder should incur any expense on his account on the instruments.

7)     Facultative Endorsement

When the endorser excuses the endorsee from performing any duty in the case of dishonour Example: Pay to Raman: Notice of dishornour waived

(Sd) Krishnan

From this endorsement the endorser does not escape his liability in card of dishonour of the instrument.

 

Impact of endorsements in banks

1. Transfer of Ownership:                                                                                                                                                                                                                                                                                                             An endorsement on a negotiable instrument serves as a legal mechanism for transferring ownership. When a payee endorses a cheque, for example, it signifies that the payee is assigning the right to receive the funds to another party.                                                                                                                                  
2. Negotiability:                                                                                                                                                                                                                                                                                                                      The negotiability of an instrument is often enhanced through endorsements. It allows the instrument to circulate freely, facilitating its use as a medium of exchange in financial transactions.                                                                                                                                                                                                                                                                    
3. Order Instruments:                                                                                                                                                                                                                                                                                                                   In the case of order instruments (e.g., cheques payable to a specific person), endorsements are essential for subsequent parties in the chain of transfer. Each endorsement indicates the successive transferees and establishes their entitlement to the instrument.                                                                                                                                  
4. Bearer Instruments:                                                                                                                                                                                                                                                                                                                  In the case of bearer instruments (e.g., cheques payable to "bearer" or "cash"), endorsements may not be necessary for negotiation. However, endorsements can still provide a record of the instrument's history and ownership.                                                                                                                                  
5. Types of Endorsements:                                                                                                                                                                                                                                                                                                                Different types of endorsements convey varying levels of transferability and control. For example, a blank endorsement (signature only) makes the instrument payable to the bearer, while a special endorsement (naming a specific payee) restricts negotiation to that person.                                                                                                                                                                                                                                                                    
6. Endorsement Restrictions:                                                                                                                                                                                                                                                                                                                  Parties can add restrictive endorsements to specify how the funds should be handled. For instance, adding "For Deposit Only" restricts the cheque to be deposited into the payee's account, preventing it from being cashed.                                                                                                                                  
7. Banks' Verification:                                                                                                                                                                                                                                                                                                              Banks play a critical role in verifying endorsements when processing negotiable instruments. They check the authenticity of signatures and adherence to specific endorsement requirements, ensuring the legal transfer of ownership.                                                                                                                                  
8. Risk Management:                                                                                                                                                                                                                                                                                                                   Proper endorsement practices help mitigate the risk of fraud. Banks scrutinize endorsements to detect any discrepancies or suspicious activities that may indicate forgery or unauthorized transfers.                                                                                                                                  
9. Endorsement Liability:                                                                                                                                                                                                                                                                                                        Parties endorsing negotiable instruments may assume liability for the endorsements made. For example, if a party endorses a cheque in blank, they potentially expose themselves to the risk of the instrument being cashed by anyone who possesses it.                                                                                                                                  
10. Clearing Process:                                                                                                                                                                                                                                                                                                                   Endorsements are crucial during the clearing process. When a cheque is deposited into a bank, the bank may verify the endorsements to ensure the instrument's legitimacy and process it accordingly.                                                                                                                                  
11. Regulatory Compliance:                                                                                                                                                                                                                                                                                                             Banks must adhere to regulatory requirements regarding endorsements, including anti-money laundering (AML) and know your customer (KYC) regulations. Proper documentation and verification of endorsements contribute to compliance efforts.