Special endorsement
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Special endorsement specifies the person to whom (or to whose order) the bill is payable (e.g. "Pay X or order"). An endorser, by endorsing a bill, takes on certain obligations to the holder or subsequent endorser[1].
Special endorsement[2]:
- Indicates specific person to whom endorsee wishes to negotiate instrument
- Note that words "Pay to the order of" are not required on back as endorsements instrument need be payable to order or to bearer on front only
- Also, note that if instrument is not payable to order or to bearer on its face, it cannot be turned into a negotiable instrument by using these worlds in an endorsement on the back
- Bearer paper may be converted into order paper by use of special endorsement
- If last (or only) endorsement on instrument is a blank endorsement, any holder may convert that bearer paper into order paper by writing "Pay to X", above that blank endorsement.
Types of endorsement
Three principal kinds of endorsements can be used: blank, special and restrictive. Blank and restrictive endorsements are most commonly used[3]:
- Blank endorsement an endorsement consisting only of the endorser's signature. A blank endorsement indicates that the subsequent owner is whoever has the check. If a check with a blank endorsement is lost or stolen, the check can be cashed by anyone who has possession of it. Ownership may be transferred without further endorsement. A blank endorsement should be used only when a person is at the bank ready to cash or deposit a check.
- Special endorsement an endorsement indicating a new owner of a check. Special endorsement are sometimes known as endorsement in full. Only the person or business named in a special endorsement can cash, deposit, or further transfer ownership of the check.
- Restrictive endorsement an endorsement restricting further transfer of a check's ownership. A restrictive endorsement limits use of the check to whatever purpose is stated in the endorsement. Many business have a stamp prepared with a restrictive endorsement. When a check is received, it is immediately stamped with the restrictive endorsement. This prevents unauthorized persons from cashing the check if it is lost or stolen.
Methods of endorsement
There are two methods of endorsement[4]:
- Stamp as checks from patients and other sources arrive they should be recorded in the ledger and immediately stamped with the restrictive endorsement "For Deposit Only". This is a safeguard against lost or stolen checks. Any endorsement should agree exactly with the name on the face of the check. If the name of the payee is misspelled, the payee usually must endorse the check the way the name is spelled on the face, followed by the correctly spelled signature. Most banks accept routine stamp endorsement that is restricted to deposit only if the customer is well known and maintains an established account.
- Signature some insurance checks or drafts require a personal signature endorsement; a stamped endorsement is not acceptable. This is stated on the back of the check. In such cases ask the payee to endorse the check, then stamp immediately below the signature the restrictive endorsement "For Deposit Only".
Examples of Special endorsement
- Pay to the order of Name, Address, City, State
- Pay to the order of Name, for deposit only
- Pay to the order of Name, without recourse
- Pay to Name or order
- Pay Name or bearer
Advantages of Special endorsement
Special endorsement provides many advantages to the endorser, holder, and subsequent endorser. These advantages include:
- The holder of a bill of exchange may demand payment from the endorser of the bill if the drawee does not pay.
- The endorser of the bill is also liable for any damage caused by the dishonor of the bill.
- Endorsers of the bill are protected from any claims of fraud or material alteration of the instrument by other parties.
- Special endorsement allows the holder of the bill to transfer rights to the bill of exchange to another party.
- It simplifies the process of transferring the debt from one party to another.
- Special endorsement also allows the endorser to limit their liability by specifically stating to whom the bill is payable.
Limitations of Special endorsement
A special endorsement has several limitations:
- It does not guarantee payment of the bill and does not transfer ownership of the bill.
- It does not provide protection for the endorser in the event of a dispute.
- It cannot be used to transfer the bill to someone not named in the endorsement.
- It does not allow the endorser to impose any conditions on the payment of the bill.
- It must be made in the same form as the original endorsement.
- It cannot be assigned to a third party.
The introduction of special endorsement is important when it comes to payment of a bill as it specifies the person to whom the bill is payable. There are several other approaches related to special endorsement, including:
- Allonge - an additional piece of paper attached to the bill that provides additional space for the endorsement of the bill.
- Restrictive endorsement - an endorsement that restricts how the bill can be further negotiated.
- Blank endorsement - an endorsement where the endorser simply signs the back of the bill.
- Qualified endorsement - an endorsement that adds additional conditions to the payment of the bill.
- Partial endorsement - an endorsement that specifies the amount of the bill to be paid.
In conclusion, special endorsement is an important tool for specifying who is to receive payment from a bill. There are several other approaches related to special endorsement that can be used to further restrict or clarify the payment of a bill.
Footnotes
| Special endorsement — recommended articles |
| Restrictive endorsement — Assignment of insurance — Indemnity bond — Satisfaction of mortgage — Material alteration — Bankers lien — Acknowledgement of receipt — Mortgage deed — Executed consideration |
References
- Delaney P.R., Whittington O.R., (2010), Wiley CPA Examination Review, John Wiley & Sons, New Jersey.
- Gilbertson C.B., Lehman M.W., (2008), Fundamentals of Accounting, Cengage Learning, Minnesota.
- Law J., (2018), A Dictionary of Law, Oxford University Press, New York.
- Proctor D.B., Adams A.P., (2013), Kinn's The Medical Assistant, Elsevier Health Sciences, Missouri.
Author: Daria Polewka
