Negotiable Instruments Act, Section 55

Negotiable Instruments Act, Section 55: Effect Where Instrument Indorsed in Blank Is Subsequently Indorsed in Full

Section 55 of the Negotiable Instruments Act, 1881 deals with a specific situation where a negotiable instrument, after being indorsed in blank, is later indorsed in full. 

The provision clarifies the extent of liability of the indorser in full and limits the persons who may enforce the instrument against him.

1. Indorsement in Blank

An indorsement in blank occurs when the holder signs the instrument without specifying the name of the person to whom it is to be paid.

Once a negotiable instrument is endorsed in blank, it becomes payable to bearer and can be negotiated by mere delivery, allowing any person in possession of the instrument to claim to be the holder.

2. Subsequent Indorsement in Full

After an instrument has been indorsed in blank, it may later be indorsed in full by a subsequent holder.

An indorsement in full (or special indorsement) specifies the name of the person to whom the instrument is payable. For example, a holder may write, “Pay to X or order,” followed by his signature.

This action converts the instrument from a bearer instrument back into an order instrument, requiring further indorsement and delivery for negotiation.

3. Limitation on Liability of Indorser in Full

Section 55 provides that when an instrument previously endorsed in blank is subsequently endorsed in full, the amount due on the instrument cannot be claimed from the indorser except by the person to whom it has been endorsed in full. 

It further provides that such a claim may also be made by a person who derives title through the indorsee in full.

This means that the indorser in full is liable only to the specified indorsee and those claiming through him, not to every subsequent bearer who may obtain possession without proper chain of title.

4. Effect of the Provision

The section protects the indorser in full by restricting the range of persons who can enforce liability against him.

Although the instrument may previously have been payable to bearer due to blank indorsement, once a full indorsement is made, the indorser in full undertakes liability only in relation to the person named in the indorsement and subsequent lawful holders deriving title from that person.

A mere bearer who does not derive title through the specified indorsee cannot claim against the indorser in full.

5. Rationale of the Provision

The purpose of Section 55 is to ensure clarity and fairness in the chain of negotiation.

When a holder converts a bearer instrument into an order instrument by endorsing it in full, he limits its negotiability, and the law recognizes this intention by confining liability accordingly.

It prevents unintended extension of liability to persons who are not in the proper chain of title.