Endorse a Check
I didn’t even know you could do this. Welcome to the world of non-electronic banking. At least now I know why I keep writing “for deposit only” whenever I endorse a check. FWIW, I had a check signed over to me recently and was checking to see what else I needed to do to make sure it was legit. Now that I know, I still have one question. Your bank (where the check is deposited) verifies your signature. The issuing bank (where your bank gets the money from) checks the issuer’s signature. How does the initially intended recipient’s signature get checked? Neither of the two banks involved necessarily have access to that signature. This seems like a flaw in the system, or I have been spending too much time working on computer security problems.
December 26th, 2006 at 10:17
It doesn’t. But the check gets returned (eventually, or an image) to the original writer, who can investigate any part of the chain he thinks looks fishy. Note, the endorsee can endorse the check further, as many times as there is room for. So, if Adam writes a check to Bob, who endorses it to Charles, who endorses it to Dave, who endorses it to Ed, Who endorses it to Flo, who endorses it to George, and George cashes it, then only George’s bank and Adam’s bank ever really look at it. Note that by endorsing it, George is guaranteeing payment to his bank, Flo is guaranteeing payment to George, and Ed is guaranteeing to Flo, and so on. Each endorsement is essentially a guarantee that the check is good.
In other words, the recourse of each person in the chain if the check is no good is to sue the person in the chain before him (and if the endorsements are general, each person up the line to boot).
Anyway, there are a ton of other (and more specific) rules about the use of checks, but the basic rules are pretty much as that goes.
The ’safest ‘ way to endorse a check is to write ‘for deposit to account no. 123-456-789′ and then sign under that. Then the only entity to whom you are making a guarantee is your bank, and only to deposit it into your account.
Wil
January 2nd, 2007 at 20:49
I don’t know if you’ve ever heard the phrase “Third party check” but if you have, now you know what they’re talking about. The first party is the person whose account the check is drawn on, the second party is the person in the ‘pay to the order of’ spot on the front of the check, leaving someone that the check is endorsed to on the back of the check as the ‘third party’. The places that you would hear of saying they won’t take a third party check are essentially saying “We don’t want to run the risk of trusting the person the check is endorsed to, since we don’t want to have to hunt them down if the check is bad.” They’re fine with being the ‘pay to the order of’ since they know the bank will do the work for them if the check is bad, and they have more information than just the endorser’s name.
I don’t know when I learned that you could do this, but I know it was pretty early on, because while I was in college, I wound up endorsing my GI Bill checks to the school, to Amex and to a few other folks I owed money to.
January 3rd, 2007 at 10:57
Sweet! Thanks Wil, not only is that useful info, but it also answers another question I have been having which is what I should put on my business account endorsement stamps.
BOB!!, nice to see you around, I didn’t know you read this blog.