ICom Notes Class 12 Banking Endorsement its Kinds, Crossing of a Cheque, Promissory Note, Draft and Letter of Credit

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ENDORSEMENT

The word Endorsement has been derive from the latin word ‘’Indorsum’’ which means ‘’On the back’’. Anything written or printed on the back of a deed or instruments is called endorsement. When the member or holder signs his name on the negotiable instrument for the purpose of negotiation i.e. direction to pay the amount to another person is called Endorsement. Section 15 of the Negotiable Instrument Act 1881 defines Endorsement as

When the maker or holder of a negotiable instrument sign the same, otherwise than as such maker for the purpose of negotiation on the back or face therefore on a slip of paper or so signs for the same purpose a stamp paper intended to be completed as a negotiable instrument he is said to endorse the same and he is called the endorse.

KINDS OF ENDORSEMENT

Different kinds of Endorsement are as follows.

i. Blank or General Endorsement

When the endorser simply put his signature on the back of the instrument without specifying the name of the endorsee, it is said to be general endorsement. The holder can convert it in full endorsement by writing the name of the payee above the signature of the endorsee.

ii. Special or Full Endorsement

It specifies in addition to the signature of the endorser the person to whom or to whose order the instrument is payable.

iii. Restrictive Endorsement

An endorsement which prohibited further negotiation of the instrument is called restrictive endorsement. For instance if a cheque is endorsed saying “Pay A only” or “Pay A for A/C of B” the endorsed has no power to transfer his right further.

iv. Partial Endorsement

An endorsement which makes the transfer of the instrument from the endorser to the endorsee after the fulfillment of stated conditions is called Partial Endorsement.

Sans Recourse

When a person wants to exclude his liability to the endorse or any subsequent holder in case of dishonour of the instrument. The Endorser fees himself from his liability on a negotiable instrument by writing the words SANS RECOURSE after the name of the endorsee. He should make it clean that he endorsee or the holder should not look to him for payment in case of the dishonour of the instrument. The endorsee may refuse to take an instrument with such an endorsement.

CROSSING OF A CHEQUE

A Crossing is a direction to the paying banker that the cheque should be paid only is a specified banker named in crossing. A cheque is said to be crossed when it bears across it is face the transfers lines without any words on them.

Crossing prevents the cheque from being cashed by anyone except the payee. This ensures safety of payment by means of cheques. It affords security and protection to the true corner. Cheques are crossed in order to avoid losses arising from open cheques. However it does not affect the negotiability of a cheque.

PROMISSORY NOTE

The promissory note is one of the simplest forms of the credit instrument. Section 4 of the Act defines a Promissory Note as an instrument in writing not being bank note or a currency note containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the orders of a certain person to the bearer of the instrument.

Characteristics of a Promissory Note

The essential characteristics of a promissory note are as follows

1. It is a written document signed as follows.
2. It contains an unconditional promise to pay.
3. Besides an acknowledgement a promissory note is an express promise to pay.
4. Promissory note must always relate to a definite and certain amount of legal money of the country and not to foreign money.
5. It should not be a bank note or currency note.
6. No particular from is prescribed for it.
7. A promissory note is not payable to the bearer on demand.
8. The person to whom the promise is made must be definite person.

DRAFT

A draft is a cheque drawn by one branch of a bank upon another situated at any other place required to pay a fixed / certain amount of money to a specified person or by his order. A bank draft may either by inland or foreign. Drafts are issued by banders after receiving written and signed applications. The person is required to remit the required amount of money along with its commission. The banker hands over the draft to the depositors and sends a credit advice to the branch upon which the draft is drawn.

Draft are a common media of transferring money from one place to another. They are of great importance for financing trade, specially foreign trade. The draft are also known as demand draft.

LETTER OF CREDIT

The letter of credit is a request made by the issuing bank to its correspondent or agent making the request on demand on any draft on the issuing bank up to the amount mentioned in the letter of credit. A letter of credit remain enforced for a fixed date only. They are issued only to the persons who furnish guarantee or securities or make payment of the full amount there in. The L.C’s are of great significance in international trade. Specially the importers and exporters frequently use them. It saves from the trouble of carrying money from place to place with the risk of loss or theft.