How to Endorsement

How to Endorsement
A negotiable instrument may be transferred by negotiation or assignment. Negotiation can be effected by mere delivery if the instrument is a bearer one and by endorsement and delivery in case it is an order instrument. An order instrument means instrument payable to a specified person or to the order of that specified person. If an instrument payable to order is transferred without endorsement, it is merely assigned and the holder thereof is not entitled to the rights of a holder in due course.
Meaning of Endorsement
An endorsement is the mode of negotiating a negotiable instrument. A negotiable instrument payable otherwise than to a bearer can be negotiated only by endorsement and delivery. An endorsement, according to sec. 15 of the N.I.Act. is, “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 signs for the same purpose a stamped paper to be completed as a negotiable instrument, he is said to endorse the same and is called the endorser.” The person to whom the instrument is endorsed is called the endorsee.
“The word ‘endorsement’ is said to have been derived from Latin: ‘en’ means ‘upon ‘ and ‘dorsum’ meaning ‘the back’. Thususually the endorsement is on the back of the instrument though it may be even on the face of it. Where no space is left on the instrument, the endorsement may be made on a slip of paper attached to it. This attached slip of paper is called ‘Allonge’.
Essentials of a Valid Endorsement
An endorsement in order to operate as a mode of negotiation must comply with the following conditions, namely:

It must be written on the instrument itself and be signed by the endorser. The simple signature of the endorser, without additional words, is sufficient. An endorsement written on an allonge is deemed to be written on the instrument itself.
The endorsement must be of the entire instrument. A partial endorsement, that is to say, an endorsement which purports to transfer to the endorsee a part only of the amount payable, or which purports to transfer the instrument to two or more endorsees severally (i.e., separately), does not operate as a negotiation of the instrument.
Where a negotiable instrument is payable to the order of two or more payees or endorsees who are not partners, all must endorse unless the one endorsing has authority to endorse for the others.
Wherein a negotiable instrument payable to order, the payee or endorsee is wrongly designated or his name is mis-spelt, he should sign the instrument in the same manner as given in the instrument. Though, he may add, if he thinks fit, his proper signature.
Where there are two or more endorsements on an instrument, each endorsement is deemed to have been made in the order in which it appears on the instrument, until contrary is proved.
An endorsement may be made in blank or special. It may also be restrictive.

Types of Endorsements:
According to the N.I. Act., 1881 endorsement may take any of the following forms:
1) Endorsement in blank or general endorsement
2) Endorsement is full or special endorsement.
3) Restrictive endorsement
4) Partial endorsement
5) Conditional endorsement.
How to Endorsement
1. Endorsement in Blank or General Endorsement:
In case of an endorsement in blank the payee or endorser does not specify an endorsee and he simply signs his name (S. 16. N.I.A). An instrument so endorsed becomes payable to the bearer thereof even though originally payable to order. (S.54, N.I.A). No further endorsement is needed for its negotiation. For example, if a chaque is payable to ‘X’ or order’ and ‘X’ merely sign on its back, this will constitute ‘endorsement in blank.’
2. Endorsement in Full or Special Endorsement:
When the payee or endorser specifies the person to whom or to whose order the instrument is to be paid, the endorsement is called special endorsement or endorsement in full. The specified person i.e., the endorsee then becomes the payee of the instrument. Thus, where the instrument states “Pay Y or order” and is signed by ‘X’, the payee, it constitutes ‘endorsement in full. The holder of an instrument endorsed in blank can convert the blank endorsement into an endorsement in full by simply writing the name of any person in the space above the endorser’s signature and thereby, he does no become an endorser to incur any responsibility on the instrument. For example, a cheque is endorsed in blank by ‘X’ ; ‘Y’, the holder of the cheque, may convert this ‘blank endorsement’ into ‘endorsement in full’ by, say, adding the words ‘Pay Z or order’, above X’s signatures. ‘Y’, in this case, cannot be held liable on the cheque, if it is dishonored. If an instrument endorsed in blank is followed by a special endorsement, the endorsee must endorse it for further negotiation.
3. Restrictive Endorsement:
An endorsement is restrictive when it prohibits further negotiation of a negotiable instrument. Sec. 50 of the N. I. Act, 1881 states: “The endorsement may, by express words, restrict or exclude the right to negotiate or may constitute the endorsee an agent to endorse the instrument or to receive its contents for the endorser or for some other specified person”. For example, if a cheque is endorsed as ‘Pay to X only’, it cannot be negotiated further.
4. Partial Endorsement :
If only a part of the amount of the instrument is endorsed, it is a case of partial endorsement. According to sec C. 56 of the N.I.A. – “No writing on a negotiable instrument is valid for the purpose of negotiability, if such a writing purport to transfer only a part of the amount appearing to be due on the instrument.” Thus partial endorsement is invalid.
For example, a cheque for Tk. 5000/- payable to ‘Jamal’ is endorsed by him as follows:
“Pay to Kamal Tk. 1000/- only” – Jamal.
Suppose the same cheque is endorsed as follows:
“Pay to Kamal Tk. 3000/- and Rahim Tk. 2000/-“ Jamal.
This endorsement is also invalid. Neither Kamal nor Rahim can sue or further endorse.
How to Endorsement
5. Conditional Endorsement (Qualified Endorsement):
This is not a common form of endorsement. It may take many forms. It may either limit the liability of the endorser or create some liability on the endorsee to receive payment of the instrument. That is, an endorsement may be preceded by certain condition, which should have been fulfilled by the endorsee, for obtaining payment. For example, a cheque payable to Haider may be endorsed as follows:
‘Pay to Raihan if the reaches Rajshahi’
In such a case, Raihan (the endorsee) can claim payment on the instrument only if he reaches Rajshahi.
The paying banker is really put into a difficult situation with regard to a conditional endorsement. Since, a cheque must be an unconditional order, the paying banker can simply return the Chinese which are conditionally endorsed. However, sec. 52 of the N.I. Act. Permits the use of any stipulation in an endorsement, which limits or negatives the liabilities of the endorses. This type of endorsement is other wise called Qualified Endorsement. Thus a banker is obliged to honour the conditionally endorsed cheques and should see to the fulfillment of the condition before making payment. It is advisable to get the approval of the customer before making payment since the position of paying banker is not certain as far as a conditional endorsement is concerned. It is to be noted that, restrictive endorsement restricts further negotiability of the instrument but does not any way limit liability of the endorser. On the other hand the insertion of a condition in the endorsement dose not in any way affect the negotiability of the instrument but limits the liability of the endorser. A conditional endorsement may be in any of following forms:
(a) Sans Recourse endorsement: It is an endorsement which limits the Liability of the endorser. The effect of this endorsement is, to render the endorser free from all liability to any subsequent holder.
Example: A cheque payable to Rashid may be endorsed as follows: “Pay to Rahim or order Sans Recourse” or “Pay to Rahim or order “without recourse to me” – Rashid.
It signifies that, if the cheque is dishonored, Rahim and the subsequent endorsees can not hold Rashid liable, since he has already excluded his liability by means of his endorsement. In our country the words, ‘without recourse’ are mostly used instead of ‘Sans recourse.’
However, this type of endorsement will not relieve the endorser from his liability if the cheque contains any forgery.
(a) Sans Frais endorsement: ‘Sans Frais’ means ‘without expense.’ Here, the endorser does not want any expense to be incurred on his account on the instrument. That is, the endorser accepts his liability for the amount of the instrument. But, he does not want any additional expenditures like noting and protesting charges to be borne by him.
Example: A cheque payable to Rashid endorses the cheque as follows:
Pay to Rahim order without expense to me’ – Rashid.
How to Endorsement
(b) Facultative endorsement: It is an endorsement, whereby, the endorser waives some of his rights on the instrument.

Example: Rashid, the holder of a bill, makes the following endorsement on the bill.
“Pay to Raja or order. Notice of dishonor waived” – Rashid.
Normally, when a bill is dishonored, notice of dishonor should be served by the holder to all the previous parties. But, in the above example, the holder can, without serving any notice to Rashid make him liable, in case the bill it dishonored.
(c) Liability dependent upon a contingency – The endorser may make the endorsement in such a way that his liability depends upon happening of a specified event which may in future happen. In case the event becomes impossible to happen, the liability of the endorsee will be at an end.

Per pro Endorsement
It is an endorsement made by an authorized agent. Prior information about the delegation of authority to the agent must have been given to the banker. Otherwise, a banker is not legally bound to accept this type of endorsement.
Illustration: Rashid the holder of bill, makes the following endorsement on the bill: “Pay Rana or order on his marriage with Bina” – Rashid
It becomes the duty of the drawee in such a case to see that the instrument is paid order only when the specified event has happened. In case he make the payment otherwise, it will not be a payment in due course.

Effect of Endorsement
An unconditional endorsement of a negotiable instrument followed by its unconditional delivery has the effect of transferring the property therein to the endorsee. The endorsee acquires a right to negotiate the instrument to anyone he likes and to sue all parties whose names appear on it.
The effect of an endorsement in blank and delivery of an instrument originally made, drawn, payable to order is to convert it into one payable to bearer and transferable by mere delivery. The effect of restrictive endorsement is (a) to prohibit or exclude further negotiation, or (b) to constitute the endorsee an agent of endorser to endorse the instruments, or (c) to constitute the endorsee as agent to receive its contents for some other specified person.
In case of joint payees or endorsees, all of them must endorse the instrument, otherwise the endorsement is rendered as invalid, even if it is made in favour of the other payee.
Effect or an Intentional Cancellation of Endorsement:
When the holder of negotiable instrument intentionally strikes off the endorsement with the object of discharging the person liable to make payment from liability, such a party will be discharged from liability to the bolder and to all parties claiming title under such holder.
Example: ‘A’ endorses a negotiable instrument to ‘B’, ‘B’ endorses it to ‘C’ and endorses it to ‘D’. D of his own accord cancels the name of ‘B’ as an endorser. The liability of ‘B’ as well as that of C comes to an end.
(2) Forged Endorsements
In case an instrument is endorsed in full, it cannot be further endorsed or negotiated except by an endorsement signed by the person to whom or to whose order the instrument is payable. Thus, if such an instrument is negotiated by way of a forged endorsement, the endorsee will acquire no title even though he be a purchaser for value and in good faith, because the endorsement is a nullity. But where the instrument has been endorsed in blank, it can be negotiated by mere delivery and the holder derives his title independent of the forged endorsement and can claim the amount from any of the parties to the instrument.
Endorsement of Cheques payable to Fictitious, Impersonal or Imaginary Persons
Cheques made out in the names of impersonal payees such as “wages or order”, “cash or order” have been held not to be cheques as they do not satisfy the essential requisites of a cheque.It will be appropriate in such cases for the banks to insist on their customers to draw cheques in the name of “self or order”. The bank in case makes the payment, should obtain a duly stamped receipt from the receiver of such payment. It is, however, customary to treat the cheques drawn in favour of imaginary persons such as “Lord Krishna or order”, or “Mother India or order” bearer cheques, and, therefore, no endorsement is required in such cases.
Endorsement by Legal Representative
The legal representative of a deceased person cannot negotiate by delivery only, a negotiable instrument payable to order and endorsed by the deceased but not delivered (Sec. 57). He will have to reendorse the instrument and deliver it.
Example: ‘A’ is the holder of a bill. He endorses it as, “Payable to B or order”. ‘A’ dies before he could deliver the instrument to ‘B’. The instrument is later on found in ‘A’ s papers. The legal representative of ‘A’ delivers it to ‘B’. ‘B’ cannot sue on the bill as the endorsement is invalid.
Liability of Endorser:
a) As per Sec. 35 of the N.I. Act, every endorser is liable to every subsequent holder, in case, the instrument is dishonored.
b) Where there are two or more endorsement on aninstrument, the liability of the endorser will be fixed in the order in which their signature appear on the instrument.
c) The liability of the endorser continues even alter the death till the instrument is paid. The endorsee can sue even after the death of the endorser. Supposing the endorsee dies, the right to sue the endorser is available to his legal representatives.
d) The endorser is liable, only if he is served with a notice of dishonor.
e) This liability of the endorser can be excluded by a separate contract to the contrary.
f) The endorser can get rid of his liability by making such endorsement like ‘Sans Recourse’.
g) When the instrument is paid in due course the endorser is relieved form his liability.
How to Endorsement

Rules Regarding Endorsement

(i) Complimentary and Courtesy Title :

An endorsement should be in the form of an ordinary signature of the payee or endorsee. Complimentary prefixes and suffixes and other courtesy title should not form a part of the endorsement. Hence, courtesy title like Mr. Mrs. Miss, captain, esquire, dr., etc., should not precede or follow the names of the endorsees in the endorsement. But, if the courtesy little appearing in the endorsement is merely descriptive, then it is accepted.

Example :

(a) A cheque payable to “Mr. Haider” is to be endorsed as follows:

“Pay to Mr. Jamal or order”
Haider

(b) A cheque payable to “Dr. S. Alam” may be endorsed as follows:

“Pay to Dr. A. Salam or order”
S. Alam. M.D.

(ii) Correct and Incorrect Spelling :
The payee must sign his name in the exact spellings as appearing on the instrument. If the name of the payee or endorsee is spelt incorrectly on a cheque, then, the endorsement must correspond with that of the mis-spelt name. If the payee wants, he can add his correct spelling in brackets.
Example : A cheque is payable to “Mr. Ikram or order” whereas, the correct spelling of the payee’s name is ‘Ekram’. Here, the proper endorsement would be as follows:
“Pay to Mr. T. Uddin or order”
Ikram (Ekram)
(iii) Endorsement by Women :
(a) In the case of a spinster, the correct endorsement consists of her first name and surname. That is, her endorsement is her maiden name followed by her father’s name.
Example : A cheque payable to “Miss Ahmed”cannot be endorsed as “Miss Ahmed” because it is an incomplete name for a girl. Here the correct form of endorsement would be as follows:
“Pay to Ruma or order
Mitali Ahmed (Miss)
(b) In case of a married woman, she would endorse an instrument by her name followed by the husband’s name.
Example : A cheque payable to “Mrs. Haider” may be endorsed as “Kabita Haider” or it may be endorsed as “Kabita” (Wife of Mr. Haider).
(c) While endorsing any negotiable instrument, the woman who was unmarried a few days ago but now married, will write her name followed by the husbands surname with the words “nee” (meaning formerly or born as) and her maiden’s name.
Example : A cheque payable to “Miss Suchitra Alam”. is now married to Mr. Kabir Hossain. Here, the cheque may be endorsed as Suchitra Hossain nee Alam. However, the cheque may also be endorsed as (i) Suchitra Alam. (Now Mrs. Kabir Hossain) or (ii) Suchitra Hossain (formerly Suchitra Alam.)

(iv) Endorsement by Illiterate Persons :
Cheques payable to illiterate persons should be endorsed with their left hand thumb impression, which should be witnessed by an individual well known to both the parties. The witness should given his/her signature and the complete address.
Example : A cheque payable to “Mr. Karim” an illiterate person should be endorsed as follows:
Left thumb impression of Karim
witnessed and attested by
Saiful Islam
Advocate
733, West Kazipara, Mirpur, Dhaka.
(v) Endorsement of Deceased Person :
A cheque in the name of a deceased person must be endorsed by his legal representative.
Example : A cheque payable to “Mr. Haider or order” (now dead) is to be endorsed as follows :
“Pay to Mr. Jamal or order”
Anis Haider
Son on late Haider.

(vi) Endorsement by Firms :
Endorsement in the case of firms can be either in the name of the firm itself, or, it may be by an authorized agent, or by a legally authorized person on behalf of the firm. The name of the firm must be mentioned in full.
In Arab Bank Ltd. Vs. ross, it was held that the omission of the word ‘company’ in the endorsement amounts to an irregular endorsement.
Example : A cheque payable to Empire Trading Company might be endorsed as follows :
(a) Empire Trading Company
It is regular one. But, in practice, most of the bankers accept either of the following forms of endorsement:
(b) ‘Pay to Modern Company’.
For Empire Trading Company
Munir Ahmed
Manager
(c) ‘Pay to Lucky Traders’.
Per pro Empire Trading company
Munir Ahmed
Manager
Note : In case a person signing a negotiable instrument only as an agent of another he should make this clear adding the words “For and on behalf of” or “Per Pro” or “Per procurationem” before the name of his principal. In case the paying banker has doubts about the competence of the person signing “per Pro” , he should make necessary enquiry However, if the cheque is being presented through a collecting banker, he may make the payment without such enquiry.

(vii) Endorsement by Companies :
In case of Joint stock companies the endorsement should be made by persons who are duly authorised to sign of behalf of the company, followed by the rubber stamp impression of his designation (and also the company.)
Example :
(a) A cheque payable to Newman Co. Ltd., may be endorsed as follows:
For Newman Company Limited.
Nurul Azam
General Manager
(b) In the case of companies in liquidation, the correct endorsement would be as follows :
For Newman Company Limited,
(in liquidation)
X.Y.Z
Liquidators
(viii) Endorsement by Clubs and other non-trading Associations :
The proper endorsement in such cases consists of the signature of the authorised person, followed by his designation and the seal of the association.
Example : A cheque payable to ‘Friends Club’ may be endorsed as follows :
For Friends Club
Anal Raihan
( Secretary)

Note : If a cheque is received in the personal name of the Secretary, but, the amount is for the institution, then a mere signature will constitute a regular endorsement.
(ix) Endorsement by Executors and Trustees :
A cheque payable to executors and administrators may be endorsed by all of them or any one of them acting for all.
How to Endorsement
Example : A cheque payable to the executors of late A. Latif, may be endorsed as follows :
(a) A. Rahim
S. Alam
Executors of late A. Latif
or
(b) For self and co-executors of late A. Latif
A. Rahim
In the case of trustees, the endorsement must be made by all of them because one trustee can not sign for others.
Endorsement by Joint Payees:
A cheque payable to two or more payees must be endorsed by every one of them. However, if authority has been given to any one of them, he can make a valid endorsement. If any one of the joint payees has died and the banker has knowledge of it, he can permit the other payees to endorse the instrument.
Example : A cheque payable to ”Mr. Abdullah Harun and Mrs. Harun” may be endorsed as follows :
(a) Abdullah Harun and Laila Harun (Signed by both)
or
(b) For self and Laila Harun,
Abdullah Harun. (Here, Mr. Harun is authorized to sign on behalf of Mrs. Harun)
(x) Endorsement by Impersonal Payees :
Where a cheque is payable to impersonal payees, it requires the endorsement of the authority in relation to the impersonal payee. A cheque payable to cash or bearer may require the endorsement of the bearer.
Exmaple : A cheque payable to the ‘Income Tax’ might be endorsed as follows:
Jamil Raihan (Income-Tax Officer)
Income-Tax office
Dhaka.
(xi) Endorsement by Public Authorities :
A cheque payable to a public authority may be endorsed by the officer in charge, for and on behalf of the respective body.
Example : A cheque payable to Noakhali Municipality may be endorsed as follows :
For Noakhali Municipality
Hamid Ullah
(Chairman)

Other Regularities

(a) All endorsement should be made in ink only, even though, law does not object to an endorsement being made in pencil, but, endorsements in pencils are liable to alteration and obliteration. So they are discouraged.
(b) An endorsement in block letter is not a regular endorsement. Example JOHN SMITH.
(c) It has been held that, a typewritten endorsement is valid under the Act. Even, endorsement in printed character can be accepted. But, in practice bankers do not normally permit it, as it can be duplicated very easily.
(d) A rubber-stamp endorsement is as valid as a written endorsement. But, it is not conducive for the safety of a banker and customer, if it is not accompanied by the handwritten signature of an authorized officer.
(e) Where an endorsement happens to be in a language which the banker is not expected to know, then, the paying banker can refuse the payment for its confirmation. But, he should given valid reasons for the same.
(f) Endorsement must be completed by delivery of the instrument.
How to Endorsement
Usual Farms of Banks’ Endorsement
Some of the usual forms of our Bank’s endorsement are the following:

Payee’s Account Credited

For Falguni Bank Ltd.

Manager

Payee’s Account will be Credited

on realisation
For Falguni Bank Ltd.
Manager

1^st Payee’s endorsement confirmed

2^nd Payee’s Account Credited
For Falguni Bank Ltd.
Manager

Our Branch endorsement confirmed

For Falguni Bank Ltd.

Manager

Purchaser’s Account Credited

For Falguni Bank Ltd.
Manager
CHEQUE

How to Endorsement