Indorsement may be classified as follows:
1) Indorsement in blank: In this type of indorsement, the instrument consists of only the signature of the endorser (section 16). You should note that there is no difference between an instrument payable to the bearer and an instrument indorsed in blank. In both the cases the property will pass by mere delivery of the instrument. An indorsement in blank is also known as general indorsement.
2) Indorsement in full: This is defined by section 16 of the Act. In addition to the endorser’s signature if there is a direction to pay the amount to or to the order of a specified person, it is called ‘indorsement in full’. Such an indorsement is generally made in the form of “Pay to X, or order” or “Pay to X” followed by the signature of the endorser. An indorsement in full is also known as special indorsement.
Section 16 does not insist on any specific form of words to be used for an indorsement in full. It is sufficient if the words used can be properly construed as a direction of the nature mentioned therein. Thus, an indorsement in the following form on the back of a promissory note was held to be valid indorsement in full: “I have this day received in cash from you Rs. 5,300 made up of Rs. 5,000 being principal due under this note and of Rs. 300 interests accumulating upto date, and assigned to you this note with power to recover the amount due under it by showing the same”.
The indorsement on a promote reads as follows, “this note has been made over to Mr. X on 31st March”, the note is signed by the payee, and the note so indorsed was delivered to the endorsee. This indorsement could be construed as a direction to pay the amount of the note to the person named in it and is an indorsement in full. An indorsement may not contain the actual words of direction, but if it contains what is equivalent to a direction to pay to the endorsee, it is said to contain a direction to pay within the meaning of section 16. However, the acknowledgement of receipt of payment is in no way an endorsement (full blank) as defined in this section.
3) Restrictive indorsement: “The indorsement of a negotiable instrument followed by delivery transfers to the endorsee the property therein with the right of further negotiation but the indorsement may, by express words, restrict or exclude such right, or may merely constitute the endorsee an agent to indorse the instrument or to receive its contents for the endorser or for some other specified persons” (section 50).
B signs the following indorsements 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”.
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 an assignment executed by C to the endorser and others.
Study the indorsements carefully. You must note that the indorsements (i) to (iv) exclude the right of further negotiation by C. The indorsements (v) to (vii) do not exclude the right of further negotiation by C.
According to section 50 the endorsee stands in the shoes of the endorser, unless the indorsement is recalled. The instrument can be recalled at pleasure and the endorser recalling, in case the amount under the instrument indorsed for collection had not been collected, can maintain suit on the basis of note without the same being reindorsed to him. Under this section, the indorsement of a negotiable instrument followed by delivery transfers to the endorsee the property therein with the right of further negotiation. But the section provides that the indorsement may, by express words, restrict or exclude such right, or may merely constitute the endorsee as an agent to indorse the instrument or to receive its contents for the endorser or for some other specified person. Where the indorsement itself purports to assign the promissory note expressly for the purpose of collection of the amount, the indorsement has the effect merely of constituting the endorsee an agent of the payee.
4) Partial indorsement: An indorsement which purports to transfer to the endorsee only a part of the amount payable, or which purports to transfer, the bill to two or more endorsees severally, is called a partial indorsement.
A partial indorsement is invalid (section 56). However, there is an exception to this general rule. Where an instrument has been paid in part, the fact of the part payment may be indorsed on the instrument and it may then be negotiated for the residue. For example, it may be indorsed by writing ‘pay A or order being the unpaid residue of the bill’.
5) Conditional indorsement:Conditional indorsement limits or negatives the liability of the endorser. Conditional indorsement is different from restrictive indorsement. A conditional indorsement has no effect upon the negotiability of the instrument. It only qualifies the liabilities of the endorser. While a restrictive indorsement places restrictions on the negotiability of the instrument indorsed, an endorser of a qualified indorsement cannot absolve himself from the liabilities of a transferor.
Section 52 explains the possibility of indorsement ‘without recourse’. A person may draw or indorse a bill without incurring personal liability. The drawer of a bill and any endorser may insert therein any express stipulation: 1) negating or limiting his own liability to the holder, and 2) waiving as regards himself some or all of the holder’s duties. Thus, an endorser may express in his indorsement that it is made with the qualification that he shall not be liable on default of acceptance or payment by the drawee. Such qualified indorsement may be made by annexing in French the words ‘sans recours’ or in English “without recourse to me” or any equivalent expression. But any stipulation limiting the liability of the party making it must appear on the instrument itself. Otherwise, it will only be effectual between the immediate parties or a transferee without value, and will not avail against a holder in due course.
An endorser, by his indorsement, can impose a condition which may either be a condition precedent or a condition subsequent. In the case of condition precedent, the endorser acquires no right to maintain an action for the recovery of the amount until the condition is satisfied. In the case of the condition precedent, the right of the endorsee is entirely lost if the condition is fulfilled. In all such cases, the instrument is transferred subject to the same conditions to every subsequent holder. Thus, if the indorsement is: “to pay A or order, if a certain ship arrives within a year”, then the right to receive payment is absolute and irrevocable if the ship so arrives. Where a note is indorsed ‘pay to A or order, if he arrives at twenty-one years of age, or if he is living when it becomes due”, it is an indorsement with a condition precedent. If the event becomes impossible of performance or the conditions specified are not fulfilled, the endorsee gets no title to the bill, and cannot sue the endorser or any prior party thereto.
But, if the bill is indorsed “pay to A or B or order, unless before payment I advise you to the contrary”, it is an indorsement with a condition subsequent, and the title of the endorsee is defeated if, before payment the acceptor of the note is advised not to pay. Where a condition, instead of appearing in an indorsement, is inserted in the body of the bill itself, it affects the negotiability of the instrument; it may delay or even entirely destroy its negotiability. The endorser is entitled to make a qualified indorsement as well. In such cases. the endorser may enable the endorsee to maintain an action on the instrument without taking any liability on himself.
