ENDORSEMENTS

• Section 15 of the Negotiable Instrument Act 1881 defines

endorsement as under:-
• “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,
he is said to endorse the same, and is called the ‘indorser’”.
• The above definition explains that an endorsement:-
• i. Means the writing of a person’s name on the back of a
negotiable instrument.
• ii. Can be given also on the face of an instrument;
• iii. Has no particular form of words;
• iv. Can be given on a piece of paper annexed to a negotiable
instrument (this annexed piece of paper is called an “allonge”);
• v. Should be given for the purpose of negotiation.
 ENDORSEMENTS

• NEGOTIATION:-
• “When a promissory note, a bill of exchange or
cheque is transferred to any person, so as to
constitute that person the holder thereof, the
instrument is said to be negotiated”.
• According to this definition ‘negotiation’ means
the transfer of a negotiable instrument to a third
party in such a way that the third party is
‘constituted the holder of the instrument who is
entitled to the possession of the same and sue
thereon in his own name’.
 ENDORSEMENTS

• CLASSIFICATION OF ENDORSEMENTS:-
• 1. ‘IN BLANK’ & ‘IN FULL’ ENDORSEMENT:-
• If the endorser signs his name only, the
endorsement is said to be ‘in blank’, 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.
• An endorsement ‘in blank’ is also known as a ‘General
Endorsement’.
• An endorsement ‘in full’ is also known as a ‘Special
Endorsement’.
 ENDORSEMENTS

• 2. RESTRICTIVE ENDORSEMENT:-
• This is an endorsement which prohibits further
negotiation of the instrument. For instance, if a cheque is
indorsed: “pay X only”. The endorsee has no power to
transfer his rights to any one further.
• 3. CONDITIONAL ENDORSEMENT:-
• It is an endorsement which makes the transfer of the
instrument form the endorser to the endorsee after the
fulfillment of stated conditions. The condition may be
neglected by the payer/banker and the payment to the
endorsee is valid and operative.
 ENDORSEMENTS

• 4. PARTIAL ENDORSEMENT:-
• This is an endorsement which purports to transfer to
the endorsee only a part of the amount payable on a bill
of exchange or promissory note, such instrument does
not operate as a negotiable instrument. An instrument
may, however be endorsed to two or more endorsees
jointly for example
• Pay X & Y or Pay X or Y
• 5. ‘SANS RECOURSE’ ENDORSEMENT”:-
• When an endorser wants to exclude his liability to
the endorsee or subsequent holder he indicates it clearly
on the instrument by writing the words, “SANS
RECOURSE’ or ‘ Without Recourse’.
 ENDORSEMENTS

• IMPORTANCE OF ENDORSEMENT
• When an endorser indorses a negotiable instrument he constitutes
the endorsee, a holder in due course because he:
• a. Confirms to the endorsee and subsequent holders that the
instrument transferred to him has a good title;
• b. Further confirms that the instrument was a genuine one at the
time of endorsement;
• c. Also confirms the genuineness of the endorsements previous
to his own.
• However, the case is different where an endorsement is forged. If a
negotiable instrument be negotiated by means of a forged
endorsement, the person claiming under such an endorsement
cannot acquire the rights of a holder in due course, though he may
be a purchaser for value.
 ENDORSEMENTS

• Since the banker has no means to determine the

genuineness of an endorsement in the normal
course of business the Negotiable Instruments
Act, 1881, places the banker in a privileged
position with regard to the payment of a
customer’s cheque. Section 85 of the Act
provides that “Where a cheque payable to order
purports to be endorsed by or on behalf of the
payee, the drawee is discharged by payment in
due course”.
 ENDORSEMENTS

• REQUISITES OF VALID ENDORSEMENT

• 1. The signature of the holder or his duly authorized agent is
essential to the validity of an endorsement.
• 2. Endorsements are usually, but not necessarily, written on the
back of the instrument.
• 3. An endorsement must be of the entire instrument, a partial
endorsement does not operate as a negotiation of the instrument.
An instrument may, however be endorsed to two or more endorsees
jointly.
• 4. Where an instrument is payable to the order of two or more
payees/endorsees who are not partners all must endorse, unless
one has authority to endorse for the others.
• 5. As for as partners are concerned, the partnership Act provides
that every partner is an agent of the firm. Accordingly one partner
may endorse cheques payable to the partnership firm.
 ENDORSEMENTS

• 6. Where an instrument payable to order the payee or endorsee is

wrongly designated or his name is misspelt, the endorsee may
endorse the instrument as therein described, adding, if the thinks fit,
his proper signature.
• 7. Where any person is under an obligation endorse an
instrument in a representative capacity, he may endorse the
instrument in such terms as to negative personal liability.
Furthermore any endorser may add an express stipulation negative
or limiting his own liability to the holder for example “without
recourse to me” or “Sans recourse”.
• 8. An endorser may add appropriate words to his endorsement in
order to waive, as regards himself some or all the holders duties.
For example he may add the words “notice of dishonour waived”
meaning that, if the instrument is not duly paid the holder need not
give notice of dishonour to the endorser in order to retain his liability.
•
 ENDORSEMENTS

• FORMS OF ENDORSEMENT:-
• 1. If name of the payee/endorsee misspelt, the endorsement must
follow the wrong spelling. However, the payee may add his name in
the brackets with correct spelling.
• Example:-
• Payee’s Name Abdul Khaliq
• misspelt as Abdul Khalik
• Regular Endorsement Abdul Kalik (Abdul Khaliq)
• 2. If the name of the payee is written in the abbreviation or if only
the surname is written, the payee must sign his full name
• a. Payee S.H. Naqvi
• RegularShams-ul-Hassan Naqvi (S.H. Naqvi)
• b. Payee Mr. Khan
• RegularAhmed Ali Khan (A.A. Khan)
 ENDORSEMENTS

• 3. Complimentary prefixes suffixes and other courtesy words etc. Should

be excluded. Therefore, words like Mr., Mrs., Miss, Esqr, Al-Haj, Hafiz,
Moulvi, Qazi and Soofi should not appear in the endorsement.
• a. Payee Mr. Abdul Ghani
• Regular Abdul Ghani
• b. Payee Alhaj Moulvi Rais Ahmed
• Regular Rais Ahmed
• 4. Words describing title or profession ect. of the payee prefixed to his
name in the cheque shall also not appear in the endorsement.
• a. Payee Dr. Ghulam Sarwar
• Regular Ghulam Sarwar (Ph. D)
• b. Payee Dr. Nazir Ahmed
• Regular Nazir Ahmed (MBBS)
• c. Payee Lt. Col. Sher Khan
• Regular Sher Khan (Lt. Col.)
 ENDORSEMENTS

• 5. If an instrument is payable to a women in her own name who is a

maiden, she must sign her own name with her father’s name.
• Payee Miss. Naheed Butt
• Regular Naheed Rafiq Butt
• or
• Naheed
• D/O Rafiq Butt
• 6. Incase of married women.
• a. Payee Mrs. Zareena Bano
• Regular Zareena Bano
• wife of Bashir Ahmed
• b. Incase of a widow
• Payee Mrs. Mariam Begum
• Regular Mariam Begum
• Widow of Amir Shah
 ENDORSEMENTS

• 7. When an instrument payable to a married woman in her

maiden name, her endorsement show her present name as well as
her maiden name:-
• Payee Miss Zareena Mehmood
• RegularZareena Bashir (Nee Mohmood)
• (Nee; means born as)
• 8. Endorsement of an illiterate person. In case of illiterate payees
the left thumb impression should be impressed and a literate person
should witness it with his full name and address:-
• Payee Roshan Din
• Regualr ‘X’
• (Roshan Din’s Thumb impression mark)
• Witness: Raqib Ali
• 56 Ahmer Street,
• Karachi.
 ENDORSEMENTS

• 10. Endorsement by joint payees when an instrument is

payable to two or more payees jointly, all of them should
indorse either individually or one of them should sign
under an authority from rest of them.
• Payee Muhammad Ali and Safdar Ali
• Regular Muhammad Ali Both signing
individually
• Safdar Ali
• or
• Muhammad Ali
• for self & Safdar Ali
 ENDORSEMENTS
• 11. Endorsement by Firms:-
• Payee M/S Best Business Company “for and on
•
behalf of” is
• Regular Best Business Company not necessary
•
in case of
• Endorsement by Safdar Ali endorsement
• a partner Partner by a partner
•
• Endorsement by an authorised employee for Best Business Company
•
For Best Business Company
•
• Safdar Ali
• ( Manager )
• 12. Incase of Joint Stock Companies
• Payee Messrs A.B. & CO. Ltd.
•
For A.B & Co. Ltd
• Muhammad Ali
• (Secretary)
• Authorised official should indicate his authority and designation.
• If the indorser is the Director of a Ltd. Company the omission of the words “for and on behalf of” does not render the endorsement
irregular.
•
•
• A.B & Co. Ltd
• Shakir Ali
• (Director)