ENDORSEMENT OF BILL OF EXCHANGE

  ENDORSEMENT OF BILL OF EXCHANGE

The drawer or holder of the bill may endorse (transfer) the bill in favour of his creditor for the clearance of his own debts. A bill of exchange is a "negotiable instrument" i.e. A document which is transferable by delivery without notice to the third party liable (drawee).

If the holder of the bill puts his signature on the back of the bill with a view to transfer the property contained in it (right to receive money  from the acceptor), then he becomes Endorser, and the person to whom the bill is transferred will become Endorsee.

                        Definition

This procedure by which a bill is transferred from one person to another for the settlement of debts is called Endorsement.

 

For Example: 

A drews a bill on B for Rs. 5,000 which is accepted by B at three months. A bought goods from C worth Rs.7,000 on credit basis. Now C is creditor of A for Rs. 7000. A endorsed the bill in favour of his creditor C for paying his debts up to the extent of Rs. 5,000. Thus C is now creditors of A up to the extent of Rs. 2000 only i.e. 7,000-5,000=2,000

Now C is the holder of the bill of exchange, which he has got from A . Being holder of the bill, C has all the four options before him. He may retain the bill till the due date. On the due date he will present the bill to the acceptor and receive cash from him.

One important point that we should remember is, whenever a bill is discounted or endorse, it will not be considered as the property (asset) of the person who has discounted or endorsed it and the Bill Receivable account is written off as it is no longer receivable . However, there is one possibility in which he can still affected by the bill i.e. the person liable to pay. So, this is a contingent liability of the endorser until the bill is honoured by the acceptor.

An Endorse Bill Is Contingent Liability Of The Endorser:

For example, on maturity date , C presented the bill t the acceptor B but he refused to make payment. C will receive the amount from the endorser A. So, A has to take up the liability and in return  A will receive the amount from B.