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negotiable-instruments:indorsement

Indorsement : Section 15 and 16 of NI Act

Section 15 of the Negotiable Instruments Act

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, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the indorser.

Object of the Section

Indorsement which, in the technical sense as applied to negotiable instruments, means writing by one his name on the back of the instrument, is necessary in the interest of the endorsee. It is meant as a guarantee by the maker of the indorsement to the indorsee that

  1. at the time of the indorsement the indorser has a good title to the instrument,
  2. that the instrument is a genuine one,
  3. that all prior indorsements are genuine.

What constitute valid indorsements

To operate as a valid indorsement it must be on the back or face of the instrument except in the case of GP notes where the indorsement must always be on the back, or on a slip of paper annexed thereto but not on a copy of the instrument. It must be by the maker or holder or by the drawer, the indorsee or the payee but not by a stranger. Even if a stranger puts his signature he does not make himself liable on the instrument but he may take the liability if he guarantees payment

Nature of Indorsements

It is not indispensable that any particular form of word should be used. Signature of a party, endorsing, or the mark of an illiterate holder is sufficient under section 3 of the General Clauses Act. When the intention to transfer is clear, any thing may be written over the signature or mark and the indorsement will be valid.

The word 'signed' has not been defined in the NI Act. Therefore, a man may sign a pronote by getting some one to write his name for him although such man does not affix his mark thereto. But a mere acknowledgment of receipt of money due under a pronote or word indicating conditional directions to pay is not an indorsement under this section. The spelling of the name in the indorsement must correspond with the spelling in the instrument itself even if the name of the payee or indorsee is wrongly spelt or if they are wrongly designated in the instrument. The payee, however, if he likes, may add his correct name in bracket. Initials will suffice. The indorsement need not necessarily be in ink but may be in pencil, although the former is preferable to avoid risk of defacement. After circulation when there is no space left for further indorsement in the body of the note, an indorsement can be made on a slip or paper attached to the note. Such a slip is called 'Allonge'.

Blank Instrument

Though indorsement presupposes the existence of a completed instrument, a transfer may be made of a bill previous to its completion by indorsement and delivery.1)

Indorsement "in blank" and "in full"

Section 16 of the Negotiable Instruments Act

If the indorser signs his name only, the indorsement is said to be “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 indorsement is said to be “in full”, and the person so specified is called the “indorsee” of the instrument.

The provisions of this Act relating to a payee shall apply with the necessary modifications to an indorsee.

Explanation

This section enumerates the two classes of indorsement e.g indorsement in blank and indorsement in full and also defines the term “indorsee”. When the indorser only signs his name on the back or face of a note, as the case may be, without mentioning the name of the person in whose favour the indorsement is made, the indorsement is said to be in blank In such a case the instrument passes by mere delivery as if it were a bearer note. It has, therefore, been held that a transferee by mere delivery of such an instrument is not a party to it, the payee is neither liable under it nor is he entitled to the privileges of the same. But a bona fide holder of an instrument, indorsed in blank, may constitute himself the assignee by making it payable to himself by inserting over the name of the indorser “Pay to AB or order”.

Sub-section 2: This sub-section was added by section 3 of the N I (Amendment) Act, 1914 (V of 1914). It protects the drawer and the indorsee as well, if the signature of the indorsee is not genuine.

Endorsement in full

When an indorsement specifically mentions the name of the person in whose favour it is made as “Pay to A or order” or “Pay to A” over the signature of the person making the indorsement, it is said to be in full. It must contain a direction to pay although no actual form is prescribed. Thus, an indorsement stating that a note is made over to X on a particular date and signed by the payee is an indorsement in full and will operate as a negotiation when the instrument is delivered. But an acknowledgment of payment signed by one of the alternative payees is neither an indorsement in full nor an indorsement in blank and cannot be an assignment of actionable claims under Section 130 TP Act.

1)
vide Section 20

Created on 2021/02/04 07:03 by LawPage • Last modified on 2021/02/04 09:03 by LawPage