A unique feature of bills of exchange comes from their negotiability at any time. Negotiability takes place through endorsement. There are three types of endorsement, an endorsement in blank or special or restrictive endorsement. An endorsement in blank specifies no endorsee. It consists of the mere signature of the endorser. A bill endorsed in blank becomes payable to bearer. Whereas, a special endorsement specifies the person to whom or to whose order the bill is to be payable, “Pay X” or “Pay X or order”. Once a bill is specifically endorsed it can only be negotiated by the endorsee endorsing it away again.
If a bill endorsed in blank, any holder may convert the blank endorsement into a special endorsement by writing above the endorser’s signature a direction to pay the bill to or to the order of himself or other person. A holder who thus makes the bill payable to someone other than himself does not become liable on the bill as an endorser.
Restrictive endorsement is one which prohibits the further negotiation of the bill, or which expresses that it is a mere authority to deal with the bill as thereby directed and not a transfer of the ownership thereof, for example, if a bill is endorsed “Pay D only” or “Pay D for the account of X”. The effect of a restrictive endorsement is merely to give the endorsee the right to receive payment of the bill and sue any party that his endorser could have sued, but gives him no power to transfer his rights as endorsee unless expressly authorizes. Where a restrictive endorsement authorizes further transfer, all subsequent endorsees take the bill with the same rights and subject to the same liabilities as the first endorsee under the restrictive endorsement.
To operate in negotiation, endorsement must comply with certain conditions. Including, the endorsement must be written on the bill itself and signed by the endorser. Moreover, it must be endorsement of the entire bill as partial endorsement to transfer to the endorsee part of the amount payable or to transfer the bill to two or more endorsees does not operate as a negotiation. If there are two or more endorsements on a bill, each endorsement is deemed to have been made in the order in which it appears on the bill, unless contrary is proved. Endorsement, to take legal effect, shall comply with such requisites.