Restrictive endorsement

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Restrictive endorsement
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A restrictive endorsement limits the use of the check to the purpose given in the endorsement. For example, you may have several checks that you want to mail to the bank. You could write "For Deposit Only" above your signature, followed by your account number. This endorsement restricts the use of the check so it can only be deposited to your account[1]. An endorsement restricting further transfer of a check's ownership is called a restrictive endorsement. The common use of it is depositing a check in a bank account. A restrictive endorsement limits use of the check to whatever purpose is stated in the endorsement. Many businesses have a stamp prepared with such an endorsement. When a check is received, it is immediately stamped with it. A restrictive endorsement prevents unauthorized person from cashing the check if it is lost or stolen[2].

Three rules of restrictive endorsement

The rules of restrictive endorsement[3]:

  1. Requires endorsers to comply with certain conditions
  2. Note that conditions in restrictive endorsements do not destroy negotiability even though conditioned placed on front of instruments to destroy negotiability because they create conditional promises or orders to pay
  3. Endorsements cannot prohibit subsequent negotiation

The type of support that affects the negotiability of the instrument

Types of endorsement: Blank, restrictive, full and qualified.

Restrictive endorsement- The holder of a check may wish to prescribe a little more carefully how the check is negotiated. A restrictive endorsement limits the use of the instrument to a means specified by the endorser. In theory, a restrictive endorsement ends further negotiation of the check. The most common restriction is "For Deposit Only", which limits the negotiation of the endorsed check to deposit in an account. By ending the instrument's transferability, a restrictive endorsement renders the instrument no longer negotiable. Restrictive endorsements do not necessarily guarantee the end of negotiation, though. Perhaps an inattentive teller may not respond to the restriction properly, or perhaps the check might be deposited into another account other than that of the intoned payee. Such cases are more common when business accounts are involved, or when the payee has many accounts. More restrictive endorsements such as "For Deposit Only, Hobbit Corporation" provide greater protection. Specifying the name of a particular account if a company has multiple accounts restricts negotiation more effectively. A split deposit occurs when a depositor designates that a single check should be divided to have portions of it deposited in different accounts[4].

Footnotes

  1. Les Dlabay, James L. Burrow, Brad Kleindl 2008, p.437
  2. Claudia Bienias Gilbertson, Mark W. Lehman, Debra Gentene 2013, p.125
  3. O. Ray Whittington, Patrick R. Delaney 2007, p.191
  4. Center for Financial Training 2010, p.161

References

Author: Dominika Grzyb