A restrictive endorsement is a special type of endorsement that restricts the way a check can be used or deposited. It is used to modify the payment rules governing the check and puts limitations on the endorser that regular endorsements do not. Examples of restrictions that can be placed on a check include requiring two signatures to make the check payable, requiring the bank to deposit the check into a certain account, or stating that the check can only be used for a specific purpose.
Examples of Restrictive Endorsement
The most common type of restrictive endorsement is when a check is made out to two parties and requires both of them to sign in order to cash or deposit the check. It might be worded as “I, John Doe, approve [x]. John Doe, Jane Doe” or “Pay to the order of John Doe and Jane Doe, jointly, or either.” This ensures that both recipients must agree on how the money from the check should be used.
Another example of a restrictive endorsement could be wording like “For school funds only” or “Refundable only if not used”. These are used in situations when money is being loaned out or placed into a certain bank account. This wording makes sure the recipient cannot use the funds for any other purpose that wasn’t originally intended.
The Benefits of a Restrictive Endorsement
The biggest benefit to having a restrictive endorsement is that it puts additional security measures in place. It ensures that if a check is stolen, it cannot be cashed without both signatures. This helps protect both the recipient and the person writing the check. It also ensures that the funds can only be used for the intended purpose and prevents the recipient from using the funds for something else.
Is a Restrictive Endorsement Legally Enforceable?
Yes, a restrictive endorsement is legally enforceable and banks should reject any attempts to cash a check with a restrictive endorsement without the correct signatures. Banks are required by the Uniform Commercial Code to reject requests to cash or deposit a check with a restrictive endorsement without following the restrictions stated on the check.
Conclusion
A restrictive endorsement is a special type of endorsement that is commonly used on checks that require two signatures or that need to be deposited into a certain account or used for a specific purpose. The benefit of having a restrictive endorsement is that it provides an additional layer of security and helps protect both the recipient and the person writing the check. It is legally enforceable and banks must reject attempts to cash or deposit a check with a restrictive endorsement without following the restrictions.