Negotiable Endorsement & Negotiation: Instruments

NEGOTIABLE INSTRUMENTS —
ENDORSEMENT & NEGOTIATION

GROUP MEMBERS
Name Roll No.
Virendra Shekhawat- 15
Prerna Bhatt 07
Vaijant Narvekar 29
Sandra Fernandes 12
Nandita Sheth 44
Priya Save 09
[Act No. 26 of Year
1881, dated 9-12-1881]
Negotiable
Instruments
Act 1881
Came into force on 1st March, 1882
SECTION 46 60 to of the Negotiable
Instruments Act 1881.
NEGOTIATION – SEC 47
 Negotiation means the transfer of property or ownership in

the instrument from one person to another in such a
manner as to convey the title and to constitute the
transferee,the holder thereof
 Negotiable instrument can be transferred in two ways.

i. By negotiation
ii. By assignment
MODES OF NEGOTIATION
 Negotiation by delivery :
A negotiable instrument payable to the bearer can be
transferred by mere delivery and the transferee becomes
the holder of the instrument. The transferor need not sign
his name on such instrument. E.g. A, a holder of a
negotiable instrument payable to bearer, delivers it to B’s
agent to keep for B. The instrument has been negotiated.
 Negotiation by endorsement and delivery :

An instrument payable to order is negotiable by the holder
by endorsement and delivery thereof
DURATION OF NEGOTIATION
• By person other than maker, drawer, acceptor until

payment
• By the maker,drawee or acceptor until maturity.

EFFECTS OF NEGOTIATION
 The holder if he has got instrument for value will get a good
title even if the title of the transferor may be defective
 Protection would not be given in case of forgery.
 A transferee will get a better title than that of transferor on

negotiation, only if has got the instrument for value and not
otherwise.
DELIVERY – SEC 46
 The making, acceptance or endorsement of a promissory
note, bill of exchange or cheque is completed by delivery,
actual or constructive.
 Delivery to be effective must be made by the party making,

accepting or endorsing authorized by him in behalf.
 A promissory note, bill of exchange or cheque payable to

bearer is negotiable by delivery thereof.
 A promissory note, bill of exchange or cheque payable to

order is negotiable by endorsement & delivery thereof.
DELIVERY – SEC 46
 Posting in post office is good delivery.

 Delivery is essential to pass property.
 Suit on promissory note.
 Holder in due course.
 On date of contract no liability/debt existing.
 Payment to holder in the absence of endorsement in his
favour.
 Post dated cheque – computation if limitation.
ENDORSEMENT – SEC 48
It has been defined in section 15 of the Act.
“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 indorse the same, and is called endorser”.
ENDORSEMENT under NI Act 1881.
• As per Sec, 15 endorsement means signing on the face or backside of an
instrument for the purpose of negotiation. Person transferring the
instrument is called endorser.
• Through endorsement title is transferred to a person called endorsee.
• U/s 35, liability of an endorser is similar to principal debtor.
• Drawer, holder, payee can endorse.
• U/s 40 if without consent of the endorser, holder destroys endorser’s

remedy, the endorser is discharged on his liability on the instrument.
ESSENTIALS OF AN ENDORSEMENT
• Endorser must be holder
• Instrument Signed by the endorser
• Intention to negotiate
• Instrument is endorsed and delivered to the endorsee
• Endorsement must be genuine and not forged

LIABILIITY OF PARTIES
Basic liability of payment is as follows –
(a) Maker in case of Promissory Note or Cheque and

(b) Drawer of Bill till it is accepted by drawee and acceptor
after the Bill is accepted . They are liable as ‘principal debtors’
and other parties to instrument are liable as sureties for maker,
drawer or acceptor, as the case may be. When document is
endorsed number of times, each prior party is liable to each
subsequent party as principal debtor. In case of dishonour,
notice is required to be given to drawer and all earlier
endorsees.
KINDS OF ENDORSEMENT
• Blank or general.
• Full or special endorsement.
• Restrictive endorsement
• Partial endorsement
• Without recourse or Conditional
• San Recourse
• Faculative
Blank OR General – Sec. 16:
 Endorser mentions the name of endorsee and puts his signature.
 According to Sec 16 (l) If the endorser signs his name only, the
endorsement is said to be "in blank“.
 In such type of endorsement, endorser just signs his name.
Effect - Instrument becomes payable to bearer u/s 54. Can be converted

into full by writing name of a person above signatures.
Ramnathan VS Gundu
 Full OR Special Endorsement – Sec. 16:
 According to Sec 16 (l) and if he adds a direction to pay the amount

mentioned in the instrument to, or to the order of, a specified person, the
endorsement is said to be 'in full", and the person so specified is called
the "endorsee" of the instrument.
 Endorser mentions the name of endorsee and puts his signature.
Effect - Instruments becomes payable to endorsee. Paying banks discharged

when paid on the basis of regular endorsement.

Restrictive Endorsement – Sec. 50(2)
Such endorsement restricts further negotiation of the instruments,
For Example:
Pay Kamal only
Signature of endorser
Effect - Endorsee can be obtain payment but cannot endorse further.
An Endorsement is restrictive which either:-
Restricts or excludes the right to further negotiate the instrument, or

Constitutes the endorsee an agent of the endorser to endorse the instrument or to receive its
contents for the endorser or for some other specified person
Partial Endorsement – Sec. 56:
 The endorser directs the transfer only a part of amount payable on
a bill of exchange or promissory note through such endorsement.
 Negotiation by endorsement must be of the entire instrument.
 An endorsement which purports to transfer to the endorsee only a

part of the amount payable, or which purports to transfer the
instrument to two or more endorsees severally, is not valid as a
negotiable of the instrument; but where such amount has been
paid in part, a note to that effect may be endorsed on the
instrument, which may then be endorsed for the balance
Effect - Not Valid negotiation. Check not to be paid.

 Without Recourse OR Conditional Sec. 52
 Where an endorser so excludes his liability and afterwards becomes the holder of the
instrument, all intermediate endorsers are liable to him.
 Where the right of an endorsee to receive the amount due on the negotiable instrument
is made dependent in the aforesaid manner the condition is valid only as between the
endorser and the endorsee.
 Where the endorsement of a negotiable instrument purports to be conditional, the payer

may disregard the condition and payment to the endorsee is valid whether the condition
has been fulfilled or not
Effect - Paying bank not to ensure compliance of condition. Condition binds endorser and
endorsee only.
• Sans recourse - Where the endorser withdraws his liability by
specifically writing so. (pay to x without my liability).
Effect - Endorser not liable. If check dishonoured money
cannot be recovered from him.
• Facultative - Where endorser increases his liability or

sacrifices his right. (pay to s. Notice of dishonor waived).
Effect - Right of persons other than endorser not
affected.
EFFECTS OF ENDORSEMENT- SEC 50
When a negotiable instrument is endorsed and delivered to

the endorsee, the endorsee becomes entitled for the
ownership rights in the instrument and also a right is vested
in him to further transfer/ endorse the instrument, the right
not vested to an endorsee through a restrictive
endorsement.
CONVERSION OF ENDORSEMENT In
Blank in to Endorsement in Full-sec-49
• The holder of a negotiable instrument indorsed in blanks

may, without signing his own name, by writing above the
endorser's signature a direction to pay to any other
person as endorsee, convert the endorsement in full;
and the holder does not thereby incur the responsibility
of an endorser.
ENDORSEMENT IN CASE OF MINOR
 Minor’s Endorsement - Minor can endorse u/s 26.

Effect - He is not liable
 Regularity of endorsement: Paying bank get protection u/s

85(1) only when endorsement is regular (may not be
genuine).
 Negotiation back: When previous endorser becomes an

endorsee again, all parties subsequent to such endorser are
discharged.

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NEGOTIABLE INSTRUMENTS —

ENDORSEMENT & NEGOTIATION

 Negotiation means the transfer of property or ownership in

 Negotiable instrument can be transferred in two ways.

 Negotiation by endorsement and delivery :

• By person other than maker, drawer, acceptor until

• By the maker,drawee or acceptor until maturity.

 Protection would not be given in case of forgery.

 A transferee will get a better title than that of transferor on

 Delivery to be effective must be made by the party making,

 A promissory note, bill of exchange or cheque payable to

 A promissory note, bill of exchange or cheque payable to

 Posting in post office is good delivery.

It has been defined in section 15 of the Act.

“When the maker or holder of a negotiable instrument signs

• Through endorsement title is transferred to a person called endorsee.

• U/s 35, liability of an endorser is similar to principal debtor.

• Drawer, holder, payee can endorse.

• U/s 40 if without consent of the endorser, holder destroys endorser’s

• Endorser must be holder

• Instrument Signed by the endorser

• Instrument is endorsed and delivered to the endorsee

• Endorsement must be genuine and not forged

Basic liability of payment is as follows –

(a) Maker in case of Promissory Note or Cheque and

• Full or special endorsement.

• Without recourse or Conditional

 Endorser mentions the name of endorsee and puts his signature.

 In such type of endorsement, endorser just signs his name.

Effect - Instrument becomes payable to bearer u/s 54. Can be converted

 Full OR Special Endorsement – Sec. 16:

 According to Sec 16 (l) and if he adds a direction to pay the amount

 Endorser mentions the name of endorsee and puts his signature.

Effect - Instruments becomes payable to endorsee. Paying banks discharged

Such endorsement restricts further negotiation of the instruments,

Effect - Endorsee can be obtain payment but cannot endorse further.

An Endorsement is restrictive which either:-

Restricts or excludes the right to further negotiate the instrument, or

 Negotiation by endorsement must be of the entire instrument.

 An endorsement which purports to transfer to the endorsee only a

Effect - Not Valid negotiation. Check not to be paid.

 Where the endorsement of a negotiable instrument purports to be conditional, the payer

• Facultative - Where endorser increases his liability or

When a negotiable instrument is endorsed and delivered to

• The holder of a negotiable instrument indorsed in blanks

 Minor’s Endorsement - Minor can endorse u/s 26.

 Regularity of endorsement: Paying bank get protection u/s

 Negotiation back: When previous endorser becomes an

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