ENDORSEMENT/INDORSEMENT

The term endorsement is derived from the Latin word in dorsum- upon the back Acc Sec 15 of the NI Act endorsement is defined as when the maker or the holder of a NI signs, otherwise as such makes for the purpose of a negotiation, on the back or face thereof or on a slip of paper intended to be completed as NI he is said to be endorse the same and is called the endorser

Guidelines followed while endorsing

It may be made on the back if the cheque or on the face of the instrument or a separate slip. It should be writing and the endorser should sign the instrument. Endorsement should be made for the full value of the instrument. If the vale of the instrument is partially cleared the endorsement shall be made for the balance amount. The endorsement may be cancelled before delivery. It is implied that the endorsement is made in the order in which it is shown on the face or back of the instrument.

Types of endorsement
o

General or blank endorsement Full or special endorsement Restrictive endorsement Conditional or qualified indorsement Liability dependent upon a contingency Sans recourse Sans frais Facultative Partial endorsement

Regularity of endorsement

Complimentary and courtesy title Correct and incorrect spelling Endorsement by women Endorsement by illiterate persons Endorsement by deceased person Endorsement by firms Endorsement by companies Endorsement be clubs and other non-trading association Endorsement by joint payees Endorsement by public authorities

Forged endorsement

sec 85 of the N.I. Act gives protection only when the payee or endorsees signature is forged and the banker makes payment in due course. If a banker pays a cheque which carries a forged signature of his customer it does not amount to payment in due course.

Endorsers liability

As per sec 35. of NI act, every endorser is liable to every subsequent holder, in case the instrument is dishonored. If there are two or more endorsements on an instruments, the liability of the endorser will be fixed in the order in which their signature appears on instrument The liability of the endorser continues even after death till the instrument is paid.

The endorser is liable, only if he is served with a notice of dishonor. the endorser can get rid of his liability by making such endorsement like sans recourse. When the instrument is paid in due course, the endorser is relieved form his liability.

Material alteration of a cheque

material alteration is an alteration which alters (changes) materially or substantially the operation of a cheque and thereby the rights and liabilities of the parties thereof.

Aspects of material alteration

Date of the cheque Amount payable Name of the payee Converting order cheque into bearer cheque Changing a specially crossed cheque to a general crossing Cancelling the word not negotiable and account payee

Aspects which does not result in MA

Converting the bearer cheque into order cheque Making an open cheque a crossed cheque Converting a generally crossed cheque to specially crossed Completing and incomplete cheque Adding the words not negotiable and account payee.

Consequences

The cheque which are MA, lose their original legal character and cannot become cheque. They must be made valid by getting the full signature of the drawer at the places of MA The PB should exercise greater care regarding such alterations. If the alterations are confirmed by the drawer, he can honor the cheuqe.

In case, when a cheque bearing MA, which is not apparent in such case careful examination and drawer confirmation is essential. Sec 89 of the NI comes into the rescue of the PB in case of MA which is not apparent, provided the payment is made in due course.

PRECAUTIONS

Ultraviolet lamps are used to find out the MA that has been done by applying chemicals. The bank should also get confirmation from the drawer for all the alterations made in the cheque. When ever the cheque is drawn space should not be left after or before the words and figures. Using MICR cheques.

MUTILATED CHEUQE

if a cheque is torn in such a way by the customer, as to give sufficient evidence of his intention to cancel it, the cheque becomes mutilated. Such cheques cannot be debited to the customers account if such cheque is torn without the knowledge of the drawer, and if it is confirmed by the drawer, it cannot be a mutilated cheque and can be honored by the PB. Cheuqes torn at the corners are not considered as mutilated and are generally paid.

Marking of a cheque
a marked cheque means which is marked or certified by drawee banker to the effect that it is good for payment. Drawee bank thus intimated that it had sufficient funds to the credit of the drawer at the time when it certified the cheque.

Marking is done at the request of

Drawer Holder Collecting banker it is in a big way in the USA but in India the practice of marking cheuqe cannot be looked upon with the favour of bankers and such a practice, except for a clearing purpose, should be put an end.

HOLDER
sec 8 of N.I.Act defines the holder as a person entitled in his own name to the possession thereof and to receive the amount due thereon from the parties thereto. only a person who is in legitimate possession of an instrument and who can receive the value of the instrument is called the holder.

HOLDER-IN-DUE- COURSE
sec 9 of the N.I. act 1881 states that a person who for consideration became the possessor of a promissory note, BOE or cheque, if payable to bearer, or payee or endorsee thereof, if payable to order, before the amount mentioned in it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person form whom he derived his title.

Analysis of definition

The person should possess the instrument. The instrument should have come to the possession before maturity. The instrument should have been acquired for a consideration or value. The value of consideration should be lawful. The instrument should be regular and complete.

Rights and privileges of a holder-in-due-course

The holder in due course gets a better title of the instrument than that of a true owner. The defective title of the previous endorsers (if any) will not adversely affect the title. All the parties concerned are liable to the holder-in-due-course of a NI until it is paid

Even the drawer of a NI cannot claim invalidity of the instrument against him. His claim cannot be denied on the ground that, the payee has no capacity to endorse. Acc to sec 20 of the NI act if a person signed and delivered it to another, a stamped but otherwise incomplete instrument, is stopped from asserting against a holder-in-due-course.

Ways in which ownership of NI can be transferred.

BY Negotiation By assignments.

Negotiation(sec14)
it means transfer of an instrument from one person to another so as to constitute that person the holder of the instrument. it involves the transfer or right, title and interest of a person in a NI to another so as to give a good title to the transferee and make him a holder thereof.

assignment

Transfer of ownership of an article by means of a written and registered document under the provision of the transfer of property act. The assignee gets right as holder only.

Differences b/w negotiation and assignment

Formalities: negotiation of NI can be effected either by delivery or by endorsement. assignment can be effected only by a written document signed by the transferor. Title: negotiation gives better title to the transferee than that of the transferor if he is holder in due course an assignee gets same title of assignor whether it is good or bad

Notice of transfer: negotiation does not require any notice of transfer by the transferee to the debtor. notice is legally necessary in case of assignment.

MODES OF DELIVERY
DELIVERY: ACTUAL DELIVERY CONSTRUCTIVE DELIVERY CONDITIONAL DELIVERY ENDORSEMENT OR INDORSEMENT.