Endorsement and Transfer of Checks

There are three ways to transfer a check:

• By Operation of Law: A transfer by operation of law takes place when the title to, or ownership of, a check passes to the executor, administrator, or other personal representative of the holder of the undeposited check on the occasion of the holder’s death. The law directs this transfer to the executor of a deceased person’s estate;
• By Assignment: A transfer by assignment takes place in any transaction where the holder of a check assigns their rights to it under the general law of contracts;
• By Negotiation: A transfer by negotiation takes place where the owner of the check agrees to transfer ownership of the check or the right to the money promised by the check, in exchangefor a benefit from the person to whom they transfer it.

What Is an Endorsement and What Makes the Endorsement of a Check Proper?

A check is a piece of paper that directs a bank or credit union to pay a specified sum of money to a particular person or other recipient. The recipient is called the “payee.”

To be valid, a check must include a date, the payee’s name, the amount and an authorized signature for the checking account from which the money to pay the check is to be withdrawn.
To receive the funds, the payee must sign the back of the check. This signature, called an “endorsement”, informs the bank or credit union to direct the funds to the bank of the payee.

The signature of the person who is to receive the funds from a check is one endorsement of the check. For example, when an employer issues a paycheck, it authorizes, or endorses, the transfer of money from the account of the employer to the employee. The act of signing the check by the employer, or its agent, is considered an endorsement. It serves as proof of the intent of the payer, the employer, to transfer funds to the payee, the employee.

In common transactions where one party pays another party with a check, the person who is to receive the funds must also endorse the check with their signature. A signature on the back of the check indicates that the transaction is complete and allows the transfer of money ordered by the check from one entity to the bank of the payee.
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If more than one person is listed as a payee on a check, then the endorsement requirements differ depending on how the names are written. For example, if the check is made out to John Doe and Jane Doe, both people must endorse the check with their signatures. If the check is written out to John Doe or Jane Doe, then only one of their signatures is required.

• Blank Endorsement: The signing of the back of a check by the payee, i.e. the person to be paid, is called a “blank endorsement.” This is because anyone can cash or deposit a check with a blank endorsement, even if the check is not made payable to that individual. This creates a risk of theft. If an endorsed check makes its way into the hands of someone other than the payee, that person can still collect the funds, because the check has been endorsed.
  • Because of this, a payee should limit the time between endorsing a check and having it processed by their bank. This is why it is a good idea to endorse a check only when the person making the endorsement is already at their bank. This would eliminate the opportunity for it to be stolen.
  • A payee endorses a check by signing the back of it. On the back of most checks, there is a box at the top containing lines with the heading “Endorse here,” and another, larger box beneath it with the heading “Do Not Write, Stamp, or Sign Below This Line.” A person should endorse the check in the top box on the back. If the payee endorsing a check looks carefully at the back, they should be able to recognize where to endorse it. If not, they can ask their bank teller for directions;
• Restrictive or Conditional Endorsement: A restrictive endorsement is the most secure way to endorse a check. A restrictive endorsement is an endorsement that prohibits further transfer of the check or the funds that pay it. It communicates that the purpose is the deposit of the funds in the bank account of the payee.
  • The most secure way to achieve this is called a “restrictive” endorsement. To make a restrictive endorsement, a person should write the following:
    • Write “For Deposit Only” on one line;
    • Write the account number of the account in which they want the funds to be deposited on another line;
    • Sign their name on another line.

There are other ways to endorse a check, but this is the most secure, because it instructs the payee’s bank to send funds to the account specified by the payee and only that account. The funds cannot be distributed as cash to anyone other than the payee, or deposited into any other account.

One slight problem with using this method is that the person who gave the payee the check might be able to see the payee’s bank account number. A copy of the endorsed and canceled check might make its way back to the payer via the payer’s bank. If a payee has worries on this score, it is possible to write “For Deposit Only.” However, the payee may want to present the check to their bank and receive their cash directly. If so, writing “for deposit only” below their endorsement is not an option.

• Special Endorsement: A special endorsement is one that specifies the person to whom the instrument is to be paid. For example, an endorsement of a check made payable to A, that says, “pay to the order of B,” and signed by “A” is a special endorsement. A special endorsement such as “Pay to the order of John Doe” and signed by an endorser is an effective special endorsement. The person chosen to receive the funds would then need to sign their name beneath the first payee before depositing or cashing the check.

This is how a check made payable to one person can be made payable to another.

If a check is payable to a particular person and an endorsement is needed to transfer the payable funds to another person, the endorsement must be in writing. The proper place to write it is on the back of the instrument. Legally, it may not be absolutely necessary for the endorsement to be placed on the back.

Instead, the endorsement may be written on the face, or front, of the check. Unless an instrument clearly indicates that a signature is made in some other capacity, a signature on the face of the check is an endorsement. However, nowadays, the custom is to sign on the back of the check. A bank might be reluctant to process a check with the payee’s signature in a location other than on the back of the check.

Do I Need a Lawyer’s Help for Problems with the Endorsing of Checks?

Although anyone may properly endorse or have a check endorsed over to them, problems may arise when checks are improperly endorsed or fraudulently endorsed to someone to whom they were not intended to be endorsed.

A good financial attorney may be able to help you in determining whether a check was properly endorsed by or to someone, and help you recover your money if you have suffered a loss because of an improper or fraudulent endorsement.