Banking Basics

How to Endorse a Check to someone else



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Learning how to properly endorse checks in certain situations is very important. A person endorses a check by signing his or her name on the back of the check. This signature allows the check to be transferred to another party. How that transfer takes place is determined, in part, by the type of endorsement used.

A blank endorsement is the simplest form of transferring the funds referred to in a check. You make a blank endorsement of a check by signing your name on the back of the check as it is written on the front of the check. If the name is misspelled on the front of the check you first write it as it was misspelled and then write it again the proper way. A check with a blank endorsement has no limitation on the transfer. Any holder of an endorsed check is able to receive the amount on the face of the check from the check issuer's bank account. You can endorse a check to someone else simply by making a blank endorsement and giving the check to that person to deposit in his or her bank account. This should not be done, however, unless the check is about to be cashed or deposited in the bank to prevent someone else from taking possession of the check and depositing it himself. A blank endorsement should never be done on a check that will be mailed to a third party or bank for the same reason.

You can also make a restrictive endorsement of a check. To do this, you give the bank specific instructions such as "For deposit only" prior to endorsing your name as it is written on the front of the check. Providing the bank with these instructions restricts what actions the bank can take regarding the check and prevents someone from cashing the check and walking off with the cash.

The most common way to endorse a check to someone else is by making a special endorsement. As with a restrictive endorsement, you make a special endorsement by giving the bank special instructions about who is entitled to the transfer of funds. To make a special endorsement you should write "Pay to the order of" on the back of the check and insert the name of the person you are endorsing the check to. You then sign your name as in the other forms of endorsement. A special endorsement such as this is often called a third party check. The check writer is the first party, and the person the check was originally made out to is the second party. When the second party makes a special endorsement to another person, that person becomes a third party to a check. Banks may or may not accept third party checks because they have no way of proving that the endorsement to that third party is valid. Third party checks are often found to be fraudulent or counterfeit and nothing requires a bank to honor such an endorsement. The bank might require the second party endorser to be present for the third party to cash the check. For this reason the utility of a third party check is extremely limited.

 

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