What is "Endorsing" a cheque and why do you do it in the US?

[Martini Enfield]

This thread on cheque endorsements (and a Simpsons episode I saw recently in which Krusty's off-shore bank account got rumbled due to some issue with an endorsed cheque) has prompted me to finally ask: What is "Endorsing" a cheque, and why is this done in the US?

Here in Australia (and NZ), both the people who still use cheques for things just do the usual "Pay to the order of Fred Bloggs & Co the sum of $100.00 (One Hundred Dollars and Zero Cents), signed Arthur Putey" thing. The cheque is usually crossed "Not Negotiable" (ie, it can't be used for any purpose except paying Fred Bloggs $100), and that's it.

Fred Bloggs then takes the cheque to his bank and deposits it, and three days later the money comes out of your account and goes to his, with no further action required either from Fred or Arthur. I don't understand how "Endorsement" works, especially since it seems un-necessary given that a cheque is basically a written instruction from you to transfer money from your account to somewhere else, and you've already signed it as proof of identity and as authorisation for the transaction. You've already signed off on it and the payee only has to take the cheque to the bank and put it in their account to get the money, Why the need for a further endorsement?

[beowulff]

It's endorsed by the payee as a modicum of proof that they are the actual one receiving the money, and not a thief.

[Richard Pearse]

How does that prove anything? Doesn't the proof come from it being deposited into a bank with the payees name?

[The Hamster King]

On the back of the check is a separate signature line for the payee. You take it to the bank, sign your name, and then the teller deposits it in your account ... or gives you cash. Endorsing prevents someone from cashing a check and then turning around and claiming it was stolen.

If you're super-careful you write "For Deposit Only" on the back of the check as soon as you receive it. This is an instruction to the teller that the check must be deposited in an account belonging to the payee, not exchanged for cash.

Can you cash a check in Australia? Or do you always have to deposit it in an account?

[TheLoadedDog]

Originally Posted by Pochacco

Can you cash a check in Australia? Or do you always have to deposit it in an account?

Generally, you have to put it into an account. However, there are exceptions. In many places, the local pub will be able to bank cheques made out to names other than their own, effectively making the pub a kind of bank branch for the regulars there (this is moreso in small places). But cheques are used less here overall these days than they are in the US. They're mostly used by businesses (sometimes) and people over 50 or so. The rest of us do everything electronically. My own banking has been electronic since 1990 - I just withdraw a little "beer money" from the hole in the wall, but other than that all in-comings and out-goings are just numbers on a screen.

Martini Enfield, Australian tax refund cheques need endorsement. These are the only ones I've ever noticed needing it though.

[beowulff]

Originally Posted by 1920s Style "Death Ray"

How does that prove anything? Doesn't the proof come from it being deposited into a bank with the payees name?

No.
In the US, you can walk into a brach of the bank that the check is drawn on, sign the back of the check (endorse it), and they will cash it for you. The endorsement is really for the check-writer's protection - if a check is stolen, you can complain to the bank that they gave your money to the wrong person. Back in the old days, the signatures were compared, but I don't think that's really done anymore.

[Richard Pearse]

Originally Posted by beowulff

In the US, you can walk into a brach of the bank that the check is drawn on, sign the back of the check (endorse it), and they will cash it for you. The endorsement is really for the check-writer's protection - if a check is stolen, you can complain to the bank that they gave your money to the wrong person. Back in the old days, the signatures were compared, but I don't think that's really done anymore.

So what happens when someone steals a cheque and endorses it themselves and has it cashed? What process occurs that wouldn't if cheques weren't endorsed?

[beowulff]

Originally Posted by 1920s Style "Death Ray"

So what happens when someone steals a cheque and endorses it themselves and has it cashed? What process occurs that wouldn't if cheques weren't endorsed?

Well, you can go to the bank's fraud department and say that they screwed up, by not matching the signatures correctly. I think this is a holdover from the good old days, when everyone had a signature card, and there weren't branch banks, but we still do it. Also, having a signature makes it forgery, which is an additional charge that can be thrown at the criminal.

[MLS]

Originally Posted by 1920s Style "Death Ray"

So what happens when someone steals a cheque and endorses it themselves and has it cashed? What process occurs that wouldn't if cheques weren't endorsed?

Most banks, businesses, and people won't cash a check at all unless they are assured that the person who's cashing it is the person it's made out to. They would probably at least want to see some other identification, preferably something else that has a matching signature. If they do accept it, and it turns out that the signature is a forgery, then the check is no good. Theoretically, the bank it eventually gets to could refuse to honor it.

If the check isn't endorsed, it can only be deposited into the account of the person or business it's written to. When my daughter was away at school I would often write her a check, payable to Daughter MLS, take that check to her bank and deposit it in her account. Five hundred miles away, after the check has cleared, Daughter can withdraw the money. A few times I've had the clerk ask me to endorse it, and I simply said I was not Daughter. Once or twice an inexperienced clerk balked, but a supervisor quickly straightened the matter out.

[Martini Enfield]

Originally Posted by Pochacco

On the back of the check is a separate signature line for the payee. You take it to the bank, sign your name, and then the teller deposits it in your account ... or gives you cash. Endorsing prevents someone from cashing a check and then turning around and claiming it was stolen.

If you're super-careful you write "For Deposit Only" on the back of the check as soon as you receive it. This is an instruction to the teller that the check must be deposited in an account belonging to the payee, not exchanged for cash.

Can you cash a check in Australia? Or do you always have to deposit it in an account?

The short answer is "No", but TheLoadedDog has mentioned the major exception- small town country pubs/general stores; where the proprietor/owner generally knows you anyway.

The idea of "cashable cheques" in Australia have largely been replaced with Money Orders, from what I gather. If you want to send a family member in, say, Perth money, rather than write them a cheque, you'd go to the post office, get a money order for the appropriate amount, then mail it to them. They take the Money Order into the post office and redeem it for hard currency.

FWIW, from what I gather, even when you could cash cheques here, they still weren't required to be endorsed- you'd just show your driver's licence (or be known to the bank staff) and that was enough. Different times, though.

We still get cheques from businesses through work, but they're an inconvenient pain in the ass to deal with and try to encourage people to either use a Corporate Credit Card or Petty Cash where possible.

From what I've seen so far, cheque endorsements seem to serve no real useful purpose anymore, and are only maintained Because That's How It's Done...

Originally Posted by TheLoadedDog

Australian tax refund cheques need endorsement. These are the only ones I've ever noticed needing it though.

Tax refund cheques? What are these "tax refunds" of which you speak?

[PBear42]

Going back to the OP, endorsement is essentially a transfer. A writes a check to B. B deposits check in bank. For things to balance, B's bank submits the check to A's bank for payment. Meanwhile, B's bank may have credited B's account for the funds, but this is really a loan. If the check is dishonored, the funds are debited. The endorsement can be specific (to B's bank) or blank (to bearer). Either way, endorsement is what gives B's bank the power to present the check (through a clearing house) for payment.

I'm describing the US system. No idea what Oz does. I presume there's a stature or regulation which effects the transfer without endorsement. But I'd guess the old rule is what the pub owners are relying on when "cashing" a customer's check. IOW, they get an endorsement, which entitles them to present the check to the paying bank. Or deposit it to their bank, which presents it.

[Martini Enfield]

Originally Posted by PBear42

Going back to the OP, endorsement is essentially a transfer. A writes a check to B. B deposits check in bank. For things to balance, B's bank submits the check to A's bank for payment. Meanwhile, B's bank may have credited B's account for the funds, but this is really a loan. If the check is dishonored, the funds are debited. The endorsement can be specific (to B's bank) or blank (to bearer). Either way, endorsement is what gives B's bank the power to present the check (through a clearing house) for payment.

That's what happens here, minus the "essentially a loan" part- you don't get the money until the cheque has cleared, so that US scam of "Send you more money than the purchase price, you cash it, send the difference back, then discover the cheque has bounced" doesn't work here. Even if it did bounce, it would be the bank's problem, not yours, assuming the cheque had been presented in good faith by you.

Thus, I still don't see what endorsing a cheque made out in your name actually achieves...

I'm describing the US system. No idea what Oz does. I presume there's a stature or regulation which effects the transfer without endorsement. But I'd guess the old rule is what the pub owners are relying on when "cashing" a customer's check. IOW, they get an endorsement, which entitles them to present the check to the paying bank. Or deposit it to their bank, which presents it.

I'm not entirely sure how it works in those cases, to be honest- I suspect the cheques are simply either made out to cash, or the system relies on the bank teller at the nearest bank simply knowing that Bob Smith is a regular at the Coach Hotel, or, more likely, the local pub/general store is also a sort of branch for one of the banks.
The thing is that, as TLD and I have both mentioned, no-one really uses cheques here anymore. They've been supplanted by EFT, and cheques are mainly used by businesses to pay accounts and so on.

[Richard Pearse]

Originally Posted by MLS

Most banks, businesses, and people won't cash a check at all unless they are assured that the person who's cashing it is the person it's made out to. They would probably at least want to see some other identification, preferably something else that has a matching signature. If they do accept it, and it turns out that the signature is a forgery, then the check is no good. Theoretically, the bank it eventually gets to could refuse to honor it.

If the check isn't endorsed, it can only be deposited into the account of the person or business it's written to.

Yeah that's normally what happens here. Write someone a cheque and they deposit it in their bank so there's no real need for further identity checks (it's made out to Bill Bobberton and is being deposited into Bill Bobberton's account.)

[PBear42]

As for the main point, sorry but I can't think of any clearer way to explain this. Endorsement is what enables B's bank, a stranger to the check, to present it for payment. Rereading the OP, maybe this will help. You characterize a check as authorization to transfer money to B's account. This isn't quite right. It directs A's bank to pay B a certain sum. If B presents the check personally at A's bank, that's what happens. If B deposits the check to another bank, that bank needs the right to present it for payment. Endorsement is what gives it this right.

The same analysis applies to business checks. If A pays by check for office supplies furnished by B, there still has to be a mechanism for B's bank to present the check for payment. In the US, that's an endorsement. In Oz, apparently it's something else. But something has to fill the gap.

As for the loan point, what happens in the US is that an overnight electronic process confirms that A's account has the funds, which are then provisionally debited. B's bank is then confident enough to credit B's account. But, full clearance of the check can take weeks. For example, it may not be until A sees a bank statement that fraud is discovered. Even if B is an innocent victim of this fraud, the check will be dishonored and B's bank gets the money back. I'm not saying it's impossible Oz uses a different rule, but I doubt it.

As for pubs cashing checks, the scenario described was cashing checks payable to the customer. For this, the endorsement point I made should apply. If the check is payable to the pub (or cash), we're back the the original A writes a check in favor of B scenario. In any event, describing the pub as a branch of any bank is only true in a loose, colloquial sense.

BTW, third party checks raise a second issue, to wit, whether the endorsement to the person presenting or depositing the check is valid, but it is not a different kind of issue. When banks or businesses decline to accept such checks, it's not because they're not valid. It's because the risk of fraud is harder to assess. A valid endorsement to a third party, though, is perfectly enforcable. As is the further endorsement of the third party to the presenting bank.

[clairobscur]

AFAIK, there's another reason for endorsing a cheque. It must be done here too, even though you can't cash a cheque (well, theorically, you could, but all cheques are preprinted in a way making them non-transferable and non-cashable. You have to order specifically cheques without these preprinted mentions and signs, and in fact pay for them in order to be able to write a cashable and/or transferable cheque. I've never seen one or heard of someone using them).

So, as I said, besides making sure that someone else won't get the money, it would be (once again AFAIK) done also to make sure that the beneficiary actually allows the cheque to be deposited. Generally people are of course happy to see money deposited on their account, and most problems arise when money is undully *taken away* but there might be cases when you wouldn't want someone to deposit money without your knowledge/ against your will, for instance with the intent of creating a proof that you accepted a payment for something.

[ed]

Endorsing a check allows me give that check to my wife to deposit in her own account or to have it cashed without me present. This can be very handy.

[yabob]

If the check isn't endorsed, it can only be deposited into the account of the person or business it's written to.

Which means it's required when you write a check to cash. Recently, I had BofA claim I hadn't endorsed such a check when I had. It was a check for cash, written on my brokerage account, and deposited through the ATM. They claimed I hadn't endorsed it, when I could even see my signature in the photostat that accompanied the letter, on the line that said "endorse here". I will grant that the "endorse here" printed on those checks is so light as to be largely invisible, but I signed it in felt tip, for crying out loud - the signature was hardly invisible.

[Nunavut Boy]

I haven't endorsed any cheques, ever. I always deposit them in the ATM. They're always honoured though. (BTW, this is Canada I'm talking about. And not just Nunavut, either. All over the place). Should the bank not be cashing my cheques?

[Canadjun]

I had thought it was a requirement that you endorse a cheque, but given the occasional time I've forgotten without problems you're probably right. Nonetheless, out of habit I always (unless I forget ) endorse cheques, and I also add "For Deposit Only" (North Americans don't "cross" cheques like Brits and Aussies do).

[scrambledeggs]

Because of legal liability for the payor bank under US law.

So if you write a check to a plumber, and they have their wallet stolen, the thief can then cash the check. (Assuming you couldn't stop payment in time). When your own bank charges your account, you will protest because after all, you will be stuck having to pay twice (since your plumber never got the original check cashed).

Because it wasn't really your fault that the check was lost, your bank cannot charge you, and must credit your account back. See UCC §4-401 (properly payable rule).

So your own bank is basically stuck with the check -- but your bank can recover the lost payment from the other bank (the thief's bank) because when one bank presents a check to another, that bank is responsible for the accuracy of the indorsement.

So in other words, they make you endorse it, because otherwise the bank the check is written on will refuse to honor it, as it will be 'screwed' if the check was stolen. The signature protects the check signer's bank.

http://www.law.cornell.edu/ucc/4/article4.htm#s4-401

[UncleFred]

(I'm not sure if this was covered in the other ref'd thread.)

Most of this thread seems to be on why/if endorsing is required for the recipient/payee.

Endorsement is good for me, as the issuer, because it serves as a proof a payment. My bank sends processed checks back to me and, with the payees signature or stamp on the back, serves as proof of payment and also affixes a date to it.

A few times we have had utilities deny we made a payment, and producing the cashed check, with their endorsement on the back, served to convince them we had made the payment.

[Cunctator]

People do endorse cheques in Australia. I've done it.

Originally Posted by Martini Enfield

Thus, I still don't see what endorsing a cheque made out in your name actually achieves...

Because I can then pay the cheque on to a third party e.g.

Person A writes a cheque to me for $100. I also owe $100 to person C.

Instead of depositing A's cheque into my account, awaiting its clearance, and then writing another cheque to C, I can endorse the cheque to C. C then deposits the cheque straight into his account. It never goes anywhere near my bank account.

[PBear42]

clarobscur, I'm curious. What does the restrictive language say (translated to English, please) which makes the cheque non-transferable and non-cashable? Not doubting this is done, by any means. Honestly, just curious how they do it. And why, if you know.

As for whether endorsements are required, the answer is yes. But only a small fraction of small checks are scrutinized for compliance. That some slip through without endorsements is not surprising. Incidentally, the bank managers in the scenario MLS described also were mistaken. What they should have asked is that s/he write a check to cash (which doesn't require an endorsement) and deposit that to his/her daughter's account. Perhaps they were bending the rule because (a) they didn't know any better, (b) they knew their customer and/or (c) the check was never going to leave the bank.

[Martini Enfield]

Originally Posted by UncleFred

(I'm not sure if this was covered in the other ref'd thread.)

Most of this thread seems to be on why/if endorsing is required for the recipient/payee.

Endorsement is good for me, as the issuer, because it serves as a proof a payment. My bank sends processed checks back to me and, with the payees signature or stamp on the back, serves as proof of payment and also affixes a date to it.

A few times we have had utilities deny we made a payment, and producing the cashed check, with their endorsement on the back, served to convince them we had made the payment.

This also confuses me- they send the processed cheques back to you??? Why? (Presumably you get a payment receipt from the company, right?) I can see so many opportunities for fraud there I don't even know where to begin.

Cuncator, I asked at the bank the other day about endorsing a cheque using the scenario you outlined, and they said they wouldn't allow it. If your name wasn't on the cheque, you couldn't cash it or deposit it (unless you were depositing it into the appropriately named account). So, in the scenario you were describing, person C would just have to wait until your cheque from Person A cleared, then you could either give them the cash or write a new cheque/money order.

Maybe different banks have different rules? I've certainly never come across a cheque that needed endorsing in the years I've been living here.

[Cunctator]

Originally Posted by Martini Enfield

Cuncator, I asked at the bank the other day about endorsing a cheque using the scenario you outlined, and they said they wouldn't allow it. If your name wasn't on the cheque, you couldn't cash it or deposit it (unless you were depositing it into the appropriately named account). So, in the scenario you were describing, person C would just have to wait until your cheque from Person A cleared, then you could either give them the cash or write a new cheque/money order.

Maybe different banks have different rules? I've certainly never come across a cheque that needed endorsing in the years I've been living here.

It's not up to an individual bank to make decisions about this sort of thing. It's all covered by the Cheques Act (Cth) 1986.

[Martini Enfield]

Originally Posted by Cunctator

It's not up to an individual bank to make decisions about this sort of thing. It's all covered by the Cheques Act (Cth) 1986.

That doesn't surprise me, but I think it says quite a bit that the bank staff were unfamiliar with the procedure; it's clearly not something that's done much anymore.

[TheLoadedDog]

Originally Posted by PBear42

clarobscur, I'm curious. What does the restrictive language say (translated to English, please) which makes the cheque non-transferable and non-cashable? Not doubting this is done, by any means. Honestly, just curious how they do it. And why, if you know.

I don't know about the French situation, but Australian cheques are preprinted as:

Pay name of person or company OR BEARER
the sum of amount in written longhand, amount in numerals.

The "OR BEARER" part is the tricky bit. Theoretically, anybody could cash it, but I've never seen this done - most people who want this to happen just make out the cheque with the word CASH where the person's name would normally be. If the cheque is to be deposited into a bank account only, then we strike it through with two vertical lines, and the words "NOT NEGOTIABLE" written between the lines. For handwritten cheques the two lines alone without the wording have the same meaning.

[ed]

Originally Posted by Martini Enfield

This also confuses me- they send the processed cheques back to you??? Why? (Presumably you get a payment receipt from the company, right?) I can see so many opportunities for fraud there I don't even know where to begin.

I don't think many banks actually bother with sending the actual physical checks back any more, although that used to be the way it was done. These days I just view images of them online, but I can always print them if I need a physical copy. I also get copies of the images mailed to me in my monthly statement.

The checks or check images are handy for resolving disputes where you've mailed a check but never got a receipt, either because the company doesn't issue them or because they should have but managed to "lose" your payment.

I can't think of any form of fraud that it would lead to, though, and I've never heard of any scams using them. The processed check is being returned to the person who issued it, and I guess I don't see how that would be useful for fraud.

[TheLoadedDog]

Here's an Australian cheque crossed not negotiable. This one's a "bank cheque" which means it's drawn from the bank itself and can be cashed straight away (a bit like a money order). There's also a thing on this one that might make the Americans giggle (it makes Australians not from Melbourne giggle too).

[chowder]

[quote=TheLoadedDog]Generally, you have to put it into an account. However, there are exceptions. In many places, the local pub will be able to bank cheques

My local has a sign:

I don't cash cheques and my bank doesn't sell booze, this suits us both just fine

[TheLoadedDog]

Originally Posted by chowder

I don't cash cheques and my bank doesn't sell booze, this suits us both just fine

Yeah, I've seen that one. My favourite of those is the one at the local swimming pool:

"We don't swim in your toilet...."

[Cub Mistress]

Originally Posted by TheLoadedDog

I don't know about the French situation, but Australian cheques are preprinted as:

Pay name of person or company OR BEARER
the sum of amount in written longhand, amount in numerals.

The "OR BEARER" part is the tricky bit. Theoretically, anybody could cash it, but I've never seen this done - most people who want this to happen just make out the cheque with the word CASH where the person's name would normally be. If the cheque is to be deposited into a bank account only, then we strike it through with two vertical lines, and the words "NOT NEGOTIABLE" written between the lines. For handwritten cheques the two lines alone without the wording have the same meaning.

I think this bit "OR BEARER" is where we are not understanding each other. My checks in the USA do not have this. If I write a check to Bob, he can deposit it in his account with or without endorsement. If he cashes it, he must endorse it on the back which is saying I, Bob have presented this check for cash. He will probably have to show ID, give a fingerprint or both. If he wants to hand off my check to Charlie, he endorses it and hands it to Charlie. This is risky for Charlie, because if the check is bad, he'll have to go after Bob and, ultimately, me for the money ( I think). If Charlie wants to deposit my check, he can endorse it or not, but he'll need to endorse it if he wants to present it for cash. If the check is made out to Bob, Charlie cannot deposit (into Charlie's own account) or cash the check without Bob's signature.

The only time I have seen "or Bearer" on a check is on a small rebate check, from a manufacturer.

Is it the Batman street part that makes people giggle?

[TheLoadedDog]

Originally Posted by Cub Mistress

Is it the Batman street part that makes people giggle?

Yup.

[Cub Mistress]

Originally Posted by TheLoadedDog

Yup.

I live near Nashville which has The Batman Building I disagree with this website's characterization of it as an eyesore, though.

[mbh]

by The Loaded Dog

I don't know about the French situation, but Australian cheques are preprinted as:

Pay name of person or company OR BEARER
the sum of amount in written longhand, amount in numerals.

The "OR BEARER" part is the tricky bit. Theoretically, anybody could cash it, but I've never seen this done -

That is the tricky bit. American checks don't have that bit.

In America, I write a check to Thomas Atkins, payable at my bank.

It is a "bearer instrument". Only Thomas Atkins can cash it, and only at my bank.

When he endorses it, it becomes a "negotiable instrument", essentially the same as cash. Anyone can cash it, including his bank.

So he endorses it, and his bank trades it for cash. Then his bank takes it to my bank, and my bank pays his bank. My bank then cancels the check, and returns the cancelled check to me.

[yabob]

Or, we can make out the check to "cash" to achieve the "or bearer" effect. Apparently, Australians do this, too, which seemingly makes the "BEARER" part redundant.

BTW, if checks made out to "cash" don't require endorsement, that's apparently news to BofA, since I had that one made out to cash bounced from ATM deposit because they thought I hadn't endorsed it. Logically, an endorsement on a check made out to cash gives you some idea of who the money was forked over to. Pre-ATM, writing a check to "cash" was the SOP for withdrawing money from your account, and people did it a lot more.

[PBear42]

We've strayed a bit from the OP and, unfortunately, I don't have time to comment on all responses. What I'd like to point out, though, is that some folks are using the terms almost-but-not-quite correctly. For example, a bearer check (at least in the US) does not require endorsement to be paid. It's transferred by delivery, the same as cash. OTOH, a check payable to a named person can be transferred only by assignment, usually an endorsement. Endorsement is not a receipt or acknowledgment. It's a transfer. Perhaps the confusion arises because a check payble to a named person endorsed "in blank" becomes a bearer instrument, i.e., can be presented by anyone having possession.

Non-negotiable, btw, is not the same as non-transferable. The distinction has to do with the defenses available to payment. To simplify, a negotiable instrument is treated more-or-less as cash, subject mainly to defenses related to fraud. An instrument merely transferable is subject to whatever defenses the payer may have in the underlying transaction. For this reason, US banks are hesitant to accept non-negotiable checks. It greatly increases their risk of making funds available to the person depositing the check.

[Martini Enfield]

Originally Posted by mbh

That is the tricky bit. American checks don't have that bit.

In America, I write a check to Thomas Atkins, payable at my bank.

It is a "bearer instrument". Only Thomas Atkins can cash it, and only at my bank.

When he endorses it, it becomes a "negotiable instrument", essentially the same as cash. Anyone can cash it, including his bank.

So he endorses it, and his bank trades it for cash. Then his bank takes it to my bank, and my bank pays his bank. My bank then cancels the check, and returns the cancelled check to me.

In Australia, a cheque from one bank made out to Fred Bloggs can be deposited at any bank that Mr. Bloggs has an account with. It doesn't matter that the drawer might be writing the cheque from an account at WestPac while Fred banks with ANZ; all Fred has to do is deposit the cheque into his account and 3 working days later the money is his.

This does explain why you might need to endorse cheques in the US, though- especially if the cheque is drawn from an obscure bank and the payee has an account with Wells Fargo or Bank of America or someone like that.

[TheLoadedDog]

So let me get this straight...

An Idiot's Guide:

An American check is a non-negotiable instrument by default, which is made negotiable by the endorsement of the payee.

An Australian cheque is a negotiable instrument by default, which can be made non-negotiable by the payer.

In other words, both countries have both types of checks/cheques. It is just a difference in procedure as to how a check/cheque is made one type or the other.

[TheLoadedDog]

Originally Posted by PBear42

Non-negotiable, btw, is not the same as non-transferable. The distinction has to do with the defenses available to payment. To simplify, a negotiable instrument is treated more-or-less as cash, subject mainly to defenses related to fraud. An instrument merely transferable is subject to whatever defenses the payer may have in the underlying transaction. For this reason, US banks are hesitant to accept non-negotiable checks. It greatly increases their risk of making funds available to the person depositing the check.

Can you please expand on this (ie. explain it in simple terms for me, Joe Idiot, because I don't get it):

We are both in the US for the purposes of this. I install a new widget in your house, and you pay me for my services with a non-negotiable check. Now to my mind, this just means that I have to put it into my bank account, rather than give it to my flatmate Dave to spend up on booze. Fine, I was going to do that anyway. But how does it put the bank at risk? If I'm going there myself to deposit it in person, then it's my account anyway, so no drama. If I send a friend to deposit it ito my account, is there a problem?

[Billdo]

Originally Posted by TheLoadedDog

So let me get this straight...

I think you have it a little backwards.

In the U.S., a negotiable instrument (which includes checks, promissory notes, negotiable bills of lading and all sorts of other instruments) is one which may be transferred [i]by endorsement[/b].

A negotiable instrument has the language "pay to the order of" a named person (or business). That means the bank it is drawn on will pay the named person or anyone the named person "orders" the bank to pay.

How does that named person "order" the bank to pay another person? The named person "endorses" the check on the back. For instance, if the check is payable to Adam, Adam can write on the back "Pay to Bob, [signed] Adam", and now Adam will likely be the "holder in due course" of the check, who can, if he likes, endorse it over to Carol by signing below Adam's endorsement "Pay to Carol, [signed] Bob."

Normally, someone holding a check doesn't want to go to the bank the check is drawn on, but rather wants to deposit it in his or her bank. However, the check has to be endorsed to "order" the bank it drawn on to pay it to the bank it deposited in. One way this is sometimes done (usually not, but in some corporate endorsements) is to write on the back "Pay to Deposit Bank, [signed]Depositor." Before electronic clearing, the bank it was deposited would transfer the physical check to a "clearing house" which would sort the checks and sent them to the banks they were drawn on, and along the way there would be all sorts of stamps directing banks and other institutions along the way who to pay the funds to.

Now we get into bearer instruments. These are instruments that are transferred by simply physically transferring the instrument. The ways that this can be done are writing the instrument as "Pay to the order of CASH", "Pay to the order of BEARER" or "Pay to the order of [name] or BEARER." With a bearer instrument, no endorsement is needed. You just have to present the actual instrument.

You can convert an instrument into a bearer instrument by "unrestrictively" endorsing it. The easiest way to do this is just signing the back of the instrument with nothing more than your name. It is an "order" to the bank to pay the check to whoever is the bearer.

A slight variation is a "restrictive" endorsement, which is "For deposit only, [signed]Depositor." With this endorsement, you can deposit it into a bank (or similar depository institution) for credit to the account of the signer, but not transfer it to anyone else other another depository institution for clearing.

It sounds like the Australian system is to have all checks made out as bearer instruments, but with the words "non-negotiable" restricting the transfer to the payee (or, I guess to depository institutions for the account of the payee).

[Acsenray]

Originally Posted by Pochacco

If you're super-careful you write "For Deposit Only" on the back of the check as soon as you receive it. This is an instruction to the teller that the check must be deposited in an account belonging to the payee, not exchanged for cash.

And this is absolutely worthless.

A check/cheque is a draft instrument and it is an unconditional order to pay the payee. The payee is completely free to cross out the "for deposit only" when he or she endorses it. In fact, I have done this. My dad is of the "for deposit only" school and he once wrote me a cheque from which I wanted some of the amount in cash. The teller said, "It says 'for deposit only.' You have to cross that out when you endorse it."

Here's the issue with endorsement. Once you endorse a cheque, it becomes a negotiable instrument. That means anyone can cash it. If A writes a cheque to B for $50, B can then endorse it and hand it over to C, who can either deposit/cash it, or endorse it and hand it over to D, etc. That's why you shouldn't endorse a cheque until you're standing at the teller's window.

That's the law with regard to cheques. For security reasons, any individual bank might have a policy regarding how they will handle endorsed checks from third parties.

[PBear42]

What Billdo said. So, in the US at least, a check is a negotiable instrument. Otherwise, sorry but, as mentioned in my last post, I'm kind of short on time at the moment. If it helps, the Wiki on negotiable instruments makes no mistakes that I noticed in a quick reading.

[GreedySmurf]

Originally Posted by Cunctator

It's not up to an individual bank to make decisions about this sort of thing. It's all covered by the Cheques Act (Cth) 1986.

As a techinical matter, it's not up to the individual bank, and any properly endorsed cheque should technically be accepted into the appropriate third parties account.

However as a matter of practice it is entirely up to the Bank's discretion whether they'll do this. As it leaves the Bank wide open for fraud. While I haven't been in the retail side of a Bank for 10 years or so, as far back as when I started in a branch in 1993 you'd generally have Buckley's and none of having a teller accept a third party cheque unless you were well known to the staff of that branch, and/or the third party cheque was drawn on an account domiciled with that branch of that Bank, so the endorsing signature could be confirmed to records.

The one proviso to this is if you deposit the cheque via an ATM, or with a big wad of other cheques, to the extent that the branch staff didn't notice that the cheque wasn't made out to you, it would go through, as a cheque payee wasn't checked once it got past the "front line" of the branch.

[clairobscur]

Originally Posted by PBear42

clarobscur, I'm curious. What does the restrictive language say (translated to English, please) which makes the cheque non-transferable and non-cashable? Not doubting this is done, by any means. Honestly, just curious how they do it. And why, if you know.

It's the preprinted mention "non endorsable except in favor of a bank or an assimilated establishment" (sorry for this broken sentence, but I'm very bad at translating, especially technical terms) and two small oblique bars preprinted on a side of the check (before cheques were preprinted in this way, you would "bar" it yourself by crossing it with a pen. Now, the preprinted bars are small and barely noticeable. And I've no clue how two oblique bars originally came to mean "this cheque isn't transferable".)


As for why, I've absolutely no clue. But quickly looking around, I read that when you order transferable check, the fee you pay is actually paid to the state, not to the bank( apparently, it's around €1 per cheque). And that the bank has to give to the French equivalent of the IRS the name of the person ordering them and the cheques' serial numbers. So it might have something to do with preventing tax-evasion or money-laundering. Or maybe it was originally done to solve the issue of stolen cheques. I don't know.


There's currently no habit of cashing cheques in France, and I don't think there ever was. The alternative would have been money orders that used to be very frequently used by everybody to pay for a lot of things or to transfer money, though it became rare since. And people aren't paid (by their employers, I mean) with cheques. So, I suspect that cheques were rarely cashed or transfered, and only for peculiar and possibly often legally dubious purposes. It might be the reason why it became the norm to provide only such non-transferable cheques, and it's certainly the reason why nobody cared. Or it might be the banks that insisted on it to avoid a liability. Or all the above. Or something else.


I'm not sure for how long it has been this way. I have the vague idea that when I was a small kid, my parents still "barred" their cheques. In which case, it might have been implemented during the 70s. But I really don't know for sure.

[clairobscur]

Reading the thread, I notice that the two bars have an equivalent meaning in Australia. So, it seems to be or to have been an universal norm.

[Nametag]

Originally Posted by acsenray

And this is absolutely worthless.

A check/cheque is a draft instrument and it is an unconditional order to pay the payee. The payee is completely free to cross out the "for deposit only" when he or she endorses it. In fact, I have done this. My dad is of the "for deposit only" school and he once wrote me a cheque from which I wanted some of the amount in cash. The teller said, "It says 'for deposit only.' You have to cross that out when you endorse it."

Here's the issue with endorsement. Once you endorse a cheque, it becomes a negotiable instrument. That means anyone can cash it. If A writes a cheque to B for $50, B can then endorse it and hand it over to C, who can either deposit/cash it, or endorse it and hand it over to D, etc. That's why you shouldn't endorse a cheque until you're standing at the teller's window.

That's the law with regard to cheques. For security reasons, any individual bank might have a policy regarding how they will handle endorsed checks from third parties.

You're confused, ascenray. Pochacco is talking about the payee endorsing a check with the notation "for deposit only." No one suggested (and I'm boggled by the notion) that the author of a check might write such a thing -- that would, indeed, be meaningless. I myself endorse checks "for deposit only" with my account number; the idea being that this expressly states that I do not intend to transfer the check to anyone, signifying that anyone who attempts to deposit the check to a different account may have stolen it. This is a prudent precaution when banking by mail, and it was recommended by my bank over 30 years ago.

[chowder]

[quote=mbh]That is the tricky bit. American checks don't have that bit.

In America, I write a check to Thomas Atkins, payable at my bank.

It is a "bearer instrument". Only Thomas Atkins can cash it, and only at my bank.

You do realise that any UK soldier can cash your cheques don't you?

[PBear42]

Thanks, clairobscur. I think I followed that.

[MikeS]

Originally Posted by chowder

You do realise that any UK soldier can cash your cheques don't you?

On any other message board, this would likely be a coincidence.