The word ‘endorsement’ in its literal sense means, a writing on the back of an instrument. But under the negotiable instruments act it means, the writing of one’s name on the back of the instrument or any paper attached to it with the intention of transferring the rights therein. Thus endorsement is signing a negotiable instrument for the purpose of negotiation. The person who effects an endorsements is called an ‘endorser’ and the person to whom negotiable instrument is transferred by endorsement are called the ‘endorsee’.
An endorsement on a negotiable instrument, such as a check or a promissory note, has the effect of transferring all the rights represented by the instrument to another individual. The ordinary manner in which an individual endorses a check is by placing his or her signature on the back of it, but it is valid even if the signature is placed somewhere else, such as on a separate paper, known as an allonge, which provides a space for a signature.
Meaning Endorsements :
In its literal sense, the term endorsement means writing on an instrument. In its technical sense in the Act, it means the writing of a person’s name on the face or back of a negotiable instrument or on a slip of paper for the purpose of negotiation. In simple words endorsement means transferring the instrument by the holder by signing the instrument. In simple words, thus, Endorsement means transferring the instrument by the holder by signing the instrument. Such signature must be in ink. The indorser must sign his name as exactly as he has signed on the face of negotiable instrument. He must sign for the purpose of negotiation.
Section 15 of the Negotiable Instrument Act : “When the maker or holder of a negotiable instrument signs and the same, otherwise than as such maker, for and 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 intended to be completed as negotiable instrument, he is said to have indorsed the same, and is called the indorser.”
Parties of Endorsement :
Endorsement involves two parties
i) Endorser : The person making the endorsement.
ii) Endorsee : The person to whom the instrument is endorsed.
The essence of a negotiable instrument is easy legal transfer of ownership right. It is assumed that the transfer is done in good faith and for value received.A credit instrument is negotiated, i.e. transferred from one person to another (called holder) by delivery or by endorsement and delivery. When the maker or holder of a negotiable instrument signs his name for the purpose of negotiation on the back or face thereof or on a slip of paper annexed to it, he is said to have endorsed the instrument. A person in whose favour the endorsement is made is called the endorsee.