Partial Endorsement

What Is Partial Endorsement?

Partial Endorsement refers to a special endorsement or halfway underwriting allowing the transfer of only a part of the amount payable on a negotiable instrument or check. It aims to aid the endorser in purporting to transfer a small portion of the amount payable to the endorsee. 

It is considered as unconventional as it does not transfer the total amount of the check to the endorsee. Such an endorsed instrument cannot be used for negotiation. It has the characteristics of limiting any further negotiation of the instrument with any other endorsee. 

• A partial endorsement can be taken as a unique form of endorsement enabling the transfer of only a restricted amount out of the total amount of the instrument. 
• It serves to guide the endorser concerning the transfer of a limited portion of the total amount endorsed to the endorsee instead of the full amount.
• It only allows the transfer of a small fraction of the instrument right to the endorsee, whereas, in special endorsement, one can transfer complete ownership and payment rights to the endorsee. 

Partial Endorsement Explained

Partial endorsement can be stated as an arrangement where the transfer of a fraction of the amount payable on an instrument to the endorsee happens. Out of seven types of endorsements, it forms one of the types allowing transfer of rights to collect or negotiate the instrument, not ownership in a traditional sense.

It works by delegating the right to transfer only a small portion of the total amount of the instrument by the endorser's designation. As a result, the instrument becomes non-negotiable for the following line of endorsee. It is because the instrument does not clearly confer the right to the entire amount to any single endorsee. Besides, it may create ambiguities and disagreements amongst the users of the instrument due to split ownership.

For claiming the total amount in a partial endorsement, one may have to furnish additional papers and steps. In some cases, it may even become risky to the instrument's validity. It comes as a tool to promote tailored agreements and offers customized financial arrangements between parties involved. Also, one finds its usability in crucial but complex financial transactions requiring only selective fund transfer. In the financial sector, it encompasses a protective layer for parties to engage in transactions having highly micro-level control over the instruments used.

Examples

Let us use a few examples to understand the topic. 

Example #1

Let us assume a promissory maker, Jane, issued a promissory note of $10,000 in favor of endorsee Ben. After some time, Jane makes a partial payment of $4,000 to Ben. The remaining balance on the promissory note is now $6,000.

Instead of endorsing the entire remaining balance of the promissory note, Ben decides to make a partial endorsement. Ben endorses $2,000 of the remaining $6,000 to new holder Carry while retaining the right to the remaining $4,000.

On the back of the promissory note, Ben writes - Pay $2,000 to the order of Carry - and signs it. This endorsement specifies that Carry is only entitled to $2,000 of the total amount.

This example illustrates how a partial endorsement works: Ben, as the holder of the promissory note, only transfers a part of his right to the money owed under the promissory note to Carry, precisely $2,000. The remaining $4,000 is still owed to Ben by Jane.

Example #2

Suppose a promissory note maker, Zoe, issued a Promissory note for $1000 in favor of endorsee Dave. Instead of paying or transferring the entire amount of the note, Dave decides to use a partial endorsement. He endorses the note to Farah, but only for a portion of its value.

Dave writes on the back of the note - Pay $500 to the order of Farah - and signs it. This endorsement specifies that Farah is entitled to $500 of the total $1,000 amount of the promissory note.

In this scenario, Dave has only transferred part of his amount under the promissory note to Farah, specifically $500, and the promissory note still has a remaining value of a partial payment of $500 to Dave.

Partial Endorsement vs Special Endorsement

These two types of endorsement in the banking sector have certain differences, as in the table below:

Partial Endorsement	Special Endorsement
Only a part of the rights of the instrument gets transferred to the endorsee by the endorser.	All rights to the instrument are transferred to the endorsee.
The endorser limits the endorser's power of transfer rights over the instrument.	Endorsee receives the full right of transfer of rights from the endorser.
The endorsee does not have the right to collect the total amount of the instrument, like a check or bill of exchange.	The total amount of the bill of exchange or the check can be collected or uncashed by the endorsee.
It has become useful in certain niche payments in some sectors but in a limited manner.	It has become useful in situations when the endorser has to transfer all the rights to the endorsee.
The bank or the financial institution does not recognize it.	All banks and financial institutions recognize it.
It becomes invalid as it is not allowed under the law.	It never becomes invalid under the law.
It does not guarantee any security regarding fraud, theft, and loss of the instruments.	It offers more security concerning protection with regard to fraud, theft, and loss of instruments.
It has multiple types, namely restrictive, blank, special facultative, and conditional.	Only represents special or full endorsement.

Frequently Asked Questions (FAQs)

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