Types of Indorsements

We have already seen that commercial paper is a form of personal property that is especially important in business. Commercial paper is a written promise to pay a specified sum of money.

In order for commercial paper to be negotiable or transferable to other people, it must satisfy certain requirements. According to Article of the Uniform Commercial Code, it must (1) be signed by the maker or drawer, (2) contain an unconditional promise or order to pay a specific sum of money,(3) be payable on demand or at a definite time, and (4) be payable to order or to the bearer.

In order to be exchanged for cash commercial paper must be indorsed. An indorsement is the signature of the person to be paid, usually written on the back of a negotiable instrument. Essentially, there are four kinds of indorsements: blank, special, qualified and restrictive.

Blank indorsement. A blank indorsement is the most common form of indorsement. It makes no specific restrictions on the use of the check, ordinarily it consists only of the name of the payee. If the check is payable “to the order of Mary”, she can indorse it in blank by simply writing or stamping her name on the back of the instrument.

Robert F. Liter  

Special indorsement. A special indorsement “specifies the person to whom or to whose order it makes the instrument payable. A typical special indorsement is “Pay to the order of “. To illustrate: a check is payable to the order of P. and he indorses it “ Pay to the order of B. (signed) P. an instrument indorsed in this manner remains an order instrument.

Pay to the order of Benjamine M. Compaine Robert F. Liter

Qualified indorsement. Blank and special indorsements are “unqualified” indorsements for the reason that indorsers who use them incur what is called conditional liability on the instruments negotiated in this manner. Such indorsers are promising to pay the instruments themselves if the holder is unable to obtain payment from the maker, acceptor or drawee at maturity. Actually, a blank or special indorser is guaranteeing payment of the instrument in addition to transferring title to it.

A qualified indorsement, by contrast, is one whose wording indicates that the indorser is not guaranteeing payment of the instrument. The usual qualified indorsement is without recourse, (signed) X. and the precise effect is illustrated as follows P. receives a check in the mail, drawn on an out-of-town bank and payable to his order. He indorsers it “without recourse” (signed) P. and negotiates it to N. N. deposits the check in his account at a local bank, but a week later the bank returns it to him because the drawer did not have sufficient funds in his account. Because P. indorsed the instrument qualifiedly N. cannot recover the amount of the dishonored check from him.

Without Recourse Robert F. Liter

Restrictive indorsement.

It is difficult to make broad generalization about restrictive indorsements because UCC recognizes four distinctly separate kinds. A restrictive indorsement limits the purpose for which a check can be used. A common restrictive indorsement is “For Deposit Only”.

For the Deposit Only Robert F. Liter

Дата добавления: 2015-09-07