CLASSES OF ENDORSEMENT ON NEGOTIABLE INSTRUMENTS

Introduction:
A negotiable instrument may be by negotiation. (i) Negotiation can be effected by mere delivery if the instrument is a bearer one. (ii) 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.


Negotiable Instrument:

The negotiable Instruments Act (1881) does not define a negotiable instrument but merely state that a “negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or bearer (Section- 13)

A negotiable instrument is a transferable document that passes freely from hand to hand & forms an integral part of the modern business mechanism.

Endorsement:

Endorsement means the signature of the maker/ drawer or a holder of a
negotiable instrument, either with or without any writing, for the purpose of
negotiation. The endorsement is done by the payee or endorsee, as the case may be by signing on the instrument customarily on its back & where the space is insufficient, on a slip of paper annexed thereto called “allonge”.

An endorsement in order to operate as mode of negotiation must comply with the following conditions, namely:

1. 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.

2. 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.

3. Where a negotiable instrument is payable to the order of two or more payees or endorsees who are not partners, all must endorse unless if one endorsee has authority to endorse for the others.

4. Wherein a negotiable instrument payable to order, the payee or endorsee is wrongly designated or his name is misspelt, 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.

5. 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 provided.

6. An endorsement may be made in blank or special. It may also be restrictive.


There are five kinds of endorsement:

1. Endorsement in blank: If the endorser signs his name only, the endorsement is said to be in blank and it becomes payable to bearer, e.g. Malik Yusuf.

2. Special or Full endorsement: An endorsement “in full” or a special endorsement is one where the endorser not only puts his signature on the instrument but also writes the name of a person to whom or to whose order the payment is to be made. Example: Pay Max Obi or Order-Signed/Sarah Allison.

3. Conditional endorsement: In conditional endorsement the endorser puts his signature under such a writing which makes the transfer of title subject to fulfillment of some conditions of the happening of some events. Example: Pay to Mr. Salami John or order after his marriage-Signed/ Badru Kamaldeen.

4. Restrictive endorsement: An endorsement is called restrictive when the endorser restricts or prohibits further negotiation. Example: “Pay to Miss. Ajiboye Rukayat only” Signed/Hassan Kalgo.

5. Partial endorsement: InPartial endorsement only a part of the amount of the bill is transferred or the amount of the bill is transferred to two or more endorsees severally. This does not separate as a negotiation of the instrument. The law lays down that an endorsement must relate to the whole instrument. However, where the amount has been partly paid, a note to that affect may be endorsed on the instrument which may then be negotiated for the balance. This is not done in case of cheques or banker’s drafts.