Effects of Endorsement: Meaning, Effect of a Forged Endorsement

Meaning of Endorsement : Section 50 of the Negotiable Instrument Act deals with effects of endorsement. The endorsement of a negotiable instrument followed by delivery transfers to the endorsee, the property therein with the right of further negotiation. The endorsement may be, by express words, restrict or exclude such right, or may merely constitute the endorsee, an agent to endorse the instrument, or to receive its contents for the endorser or for some other specified person.

Effects of Endorsement

B) Illustration : B signs the following endorsement on different negotiable instruments payable to bearer :

  • i) Pay the contents to C only.
  • ii) Pay C for my use.
  • iii) Pay C or order for the account of B.
  • iv) The within must be credited to C.
  • These endorsements exclude the right of further negotiation by C.
  • v) “Pay C”.
  • vi) “Pay C value in account with the Oriental Bank”.
  • vii)”Pay the contents to C being part of the consideration in a certain deed of assignment executed by C to the endorsers and others.”

These endorsements do not exclude the right of further negotiation by C.

Endorsement thus Assures :

  • i) Transfer of ownership in the instrument to the endorsee.
  • ii) Right of further negotiation to anyone.
  • iii) Gives the right of action to the endorsee against all parties whose names appear on the instrument.
  • iv) That the instrument is genuine and all prior endorsements are genuine.

It is a fundamental principle of law relating to negotiable instruments that no one whose name does not appear in the instrument can be held liable thereon as there is no privity of contract between the endorsee and the maker or acceptor. It must be noted that the above effects result when the endorsement is unconditional.

i) Effect of Unconditional Endorsement :

An unconditional endorsement of a negotiable instrument, also followed by its unconditional delivery, has the effect of transferring the amount (property) in the instrument to the endorsee. In such cases (of unconditional endorsement), the endorsee concerned acquires all the legal rights to negotiate the instrument to any person whom he likes to. Further, he also acquires all the legal rights to file suits against any of the parties whose names appear on it.

ii) Effect of an Endorsement in Blank :

The effect of an endorsement in blank is that, by virtue of such in endorsement, an order instrument (i.e., the instrument made payable to the order of a specific person) can be converted into a bearer instrument. Thus, the title of such instrument can therafter be transferred by mere delivery, without requiring any endorsement thereon.

iii) Effect of a Restrictive Endorsement :

The following are the effects of a restrictive endorsement :

  • a) To restrict or prohibit any further endorsement and negotiation thereafter;
  • b) To constitute the endorsee as the agent of the endorser, to endorse the document; or
  • c) To constitute the endorsee as an agent to receive its contents for some other person specified therein.

However, in case of an instrument made payable to the joint payees or the endorsees, it must be endorsed by all of them jointly, failing which such endorsement may be held invalid in the eye of law, even if it is endorsed in favour of another person.

Effect of a Forged Endorsement :

A negotiable instrument, endorsed in full, cannot be negotiated or endorsed any further except where such endorsement is made by the same person to whom it was originally made payable (or to his order) or where it was endorsed in full in his favour (or to his order). But then, if such instrument is negotiated by endorsement, by forging the signature of such specific payee or endorsee, the endorsee in such cases will not acquire any titile, even in the cases where such endorsee may be the purchaser for value and in good faith. This is so because a forged endorsement is a nullity in the eye of law.

As against the case involving endorsement in full, in the case of an endorsement in blank, it can be negotiated by mere delivery, as no endorsement is required in the case of a bearer instrument. That is, the holder of such an instrument derives his legal title thereon just by its delivery, and thus, can claim the amount of the instrument from any of the parties involved therein, irrespective of the fact whether any endorsement is there or not.

Thus, as the endorsement itself is ignored and not taken any cognisance or notice thereof, in the case of a bearer instrument (and likewise, in the case of a blank endorsement), the endorsement being genuine or even a forged one, does not matter or alter the legal position in any way.

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