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Endorsement Types
by John Burnett and Ken Golliher, BOL Gurus

QUESTION: What are the different types of endorsements?

ANSWER by John Burnett:
These endorsement/indorsement types are described in 3-204 and 3-205 of the UCC:
Blank endorsement: Simplest endorsement, consisting of only the holder's signature. It generally converts "order" paper to "bearer" form.

Restrictive endorsement: In addition to holder's signature, includes a restriction on how the paper may be used by transferee. Most common wording is "For Deposit Only." The transferee bank must apply the check to the holder's deposit account.

Special endorsement: This endorsement names the next holder and requires his/her/its endorsement for further negotiation. Usual wording is "Pay to [the order of] TRANSFEREE NAME."

Of course, there is a combination of the restrictive and special endorsement that bankers see often from their customers. It usually reads something like "Pay to the order of XYZ Bank, for deposit only, (signature)." Finally, you might run across an endorsement often referred to as a "qualified endorsement." It is an attempt by the endorser to escape general liability if the negotiable instrument is dishonored. Wording might include the words "without recourse." There is a legitimate purpose for this form, but if you see it on a check deposited by your customer, you should check with management before accepting the deposit.

If an insurance settlement draft is issued payable jointly to an automobile owner and the lienholder, the lienholder may use a qualified endorsement to permit negotiation, but insulate itself from liability if the draft is bounced.

Many banks include in their deposit contracts a provision that the bank is entitled to its customer's unqualified endorsement, and may provide same if the customer fails or refused to give it.

One added comment: 3-204 of the UCC makes it clear that a complete endorsement of whatever type includes the holder's signature. Simply placing "for deposit only" on the back of a check doesn't make for an endorsement, and it's only our sometimes overly relaxed attitude about endorsements that permits this kind of sloppiness. Of course, a signature is whatever the customer and bank agrees will be a signature, so that a rubber stamped endorsement with the name of the depositor is fine.

ANSWER by Ken Golliher:
Just want to reiterate John's last point; endorsement requires a signature.

"For Deposit Only" on the back of a check is not an endorsement. It is only the words of restriction which might accompany an endorsement. Without a signature, a check is handled as if the endorsement is missing.

First published on 6/3/02

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