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Who may negotiate

Section 51 of the Negotiable Instruments Act,1881.

Every sole maker, drawer, payee or indorsee, or all of several joint makers, drawers, payees or indorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded as mentioned in section 50, indorse and negotiate the same.

Explanation. Nothing in this section enables a maker or drawer to indorse or negotiate an instrument, unless he is in lawful possession or is holder thereof; or enables a payee or indorsee to indorse or negotiate an instrument, unless he is holder thereof.

Illustration. A bill is drawn payable to A or order. A indorses it to B, the indorsement not containing the words “or order” or any equivalent words. B may negotiate the instrument.

This section mentions the persons who are competent to endorse and negotiate a document. Not only all persons legally competent to contract but even a minor can endorse an instrument.

Minor and Guardian

An endorsement by the minor will pass the title in the bill to the endorsee but will not bind him. The natural guardian of a minor could validly endorse on his behalf even after the appointment of a court guardian but before his furnishing security. But this decision has been over ruled and it has been held in a subsequent case that the natural guardian cannot validly indorse betore he has been appointed a guardian under the Guardian and Wards Act. Where the holder has become a bankrupt his assignee or receiver may indorse on his behalf. The legal representatives of a deceased holder are competent to endorse. A maker or drawer can indorse if the instrument is payable to his order. Although the section does not mention the drawee he can also endorse a bill provided it has been drawn to his order.

Joint makers etc

Where there are more makers, drawers, payees etc than one, all of them should join in the endorsement to make it valid although they may make the indorsement at different times and not at the same time. But one of the several makers etc will be competent to endorse if he has an express authority to do so on behalf of the others. The principle of joint endorsement finds an exception when the several makers, payees, etc are members of a trading partnership. There one partner can indorse the instrument in the name of the firm and not in his own name even after dissolution of the partnership. This is done under the general law of partnership by which each partner is competent to act on behalf of the firm. Therefore, when one of several payees who are not partners endorses a bill, the indorsement is invalid. Where one of two joint payees of a note indorses it in favour of the other, the payee in whose favour the indorsement has been made can sue, not on the endorsement, but as an assignee of a chose-in-action by virtue of the indorsement operating as a transfer of his interest in the note. An agent can endorse for his principal but he will be held personally liable if he does not endorse as such. A court may endorse as an agent of the holder under Order 21 R 80 of the Code of Civil Procedure.

By strangers

A stranger cannot endorse a bill, but if he does so, he may be liable as a guarantor. Lawful possession is necessary for endorsement. To be a holder in possession of the instrument one must have a right to the possession of the instrument in his own name. When a maker is in lawful possession of the instrument it is presumed that he is the lawful owner thereof and therefore competent to endorse.