Elements of Negotiability
What makes a check negotiable?
A check or a share draft is an order, payable on demand to make payment, or a negotiable instrument. A negotiable instrument is a written order or promise a demand
To be negotiable a check or share draft should contain the following:
4. 5. 6.
Date Payee Amount Signature Financial Institution MICR Encoding Numbers
Date: Every check or share draft should have the current, definite date. Payee: Every check or draft should contain the words “Pay to the order of.”
Amount: A check or draft must be made out for a definite amount of money.
Signature: must be genuine and authorized. Financial Institution: must be indicated clearly on the face of the check MICR Encoding Numbers: Includes the transit routing number (ABA number), account number and check number
If one of these elements are missing, the check should not be negotiated!
Dorothy Norwood 222 Anhouster Drive Anywhere, GA 77789
1525 Date 06/30/04
$150.00______ Pay to the order of Sears Dept. Store Written Amount One Hundred Fifty and 00/100**************
Decatur, Georgia 30033
Signature of Maker
An endorsement is nothing more than the Signature of a payee on the back of a check
It serves to transfer ownership of the check It is an implied promise that the check is genuine (not forged or fictitious) It guarantees all, if any, previous endorsements
Types of Endorsements
Blank Restrictive Special Conditional Qualified
The mere writing of the payee's name on the back of the check
This type of endorsement restricts the right of the party to whom the check is endorsed
For Deposit Only
Ima Member -Pay to the order of
Transferal of the negotiable instrument to someone else.
What should be done next?
Now, Precious Dollar must endorse the check in order for the check to be further negotiated
Ima Member –Pay to the order of Precious Dollar Precious Dollar
Pay to Precious Dollar when she graduates
Requires something to be done before the check is negotiable Rarely seen
Ex. "Pay to Precious Dollar when she graduates."
The endorser refuses to Take responsibility for the validity of the check
Pay to the order of Precious Dollar without recourse
Single Payee Multi-Payee checks - AND - OR - No indication Checks or share drafts payable to “cash”, “self”, “myself” or “bearer”
Single Payee Endorsement
The check is endorsed as drawn
More than one name listed besides “pay to the order of” May be payable…
Jointly Alternatively Ambiguously
These checks are considered to be joint checks
Endorsement of each payee Verify identification when cashing check
Member’s signature must be last on the back of check
Either payee may endorse the check as drawn
If the check does not state
“AND” nor “OR” or has a COMMA(,)
The check is considered to be ambiguous Either payee may endorse the check as drawn and negotiate the check Exception to the rule
“Cash”, “Self”, “Myself” or “Bearer”
The check belongs to whomever endorses the check on the back
The member’s account number MUST be written on the back of each check and legible
Endorsement Ink Color
What questions do you have?