Restrictive Endorsement Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Restrictive Endorsement, written in plain English, along with examples of how it is used.
What is Restrictive Endorsement?
(n) Restrict endorsement is the restriction made in a financial instrument whereby its free transferability is restricted to a specific person noted in that endorsement. Restrictive endorsements are made by signing at the reverse of the instrument by noting the limitations effected there in.
History and Meaning of Restrictive Endorsement
A restrictive endorsement is a term used in finance to describe a limitation on the transferability of ownership of a financial instrument, such as a check or a stock. When an instrument has been restrictively endorsed, it means that the person who received the instrument can only transfer ownership to a specific individual or entity, as noted in the endorsement. For example, if a check has been restrictively endorsed "for deposit only," it can only be deposited into the account of the person or business named in the endorsement. This ensures that the check can't be cashed by anyone else.
In the U.S., restrictive endorsements are governed by the Uniform Commercial Code (UCC), which provides a framework for commercial transactions. UCC Article 3, which deals with negotiable instruments like checks, outlines the requirements for restrictive endorsements. These requirements include specifying the limitations of the endorsement, signing the endorsement, and including the name of the individual or entity to whom the instrument can be transferred.
Examples of Restrictive Endorsement
- A business owner restrictively endorses a check "for deposit only" to prevent employees from cashing it and to ensure that the funds are deposited into the business's account.
- A homeowner restrictively endorses a settlement check from their insurance company to ensure that the repair work is completed by a specific contractor.
- An investor restrictively endorses a stock certificate to ensure that it can only be transferred to a specific person or entity.
Legal Terms Similar to Restrictive Endorsement
- Blank endorsement: when a financial instrument is endorsed without any limitations or conditions.
- Qualified endorsement: when an endorsement contains the payer's signature along with specific conditions or limitations.
- Endorsement in full: when an endorsement includes the signature of the payee and the name of the person or entity to whom the instrument is being transferred.