Special indorsement

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  • #187514
    Anonymous
    Inactive

    West Corp. received a check that was originally made payable to the order of one of its customers, Ted Burns. The following indorsement was written on the back of the check:

    Ted Burns, without recourse, for collection only

    Which of the following describes the indorsement?

    A. Special

    B. Restrictive

    C. Both special and restrictive

    D. Neither special nor restrictive

    B. The indorsement that reads “Ted Burns, without recourse, for collection only” is a restrictive indorsement. This problem tests your understanding of the two different types of indorsements. A special indorsement identifies the person to whose order the instrument is further payable. A restrictive indorsement is one that in some way limits the rights of the next holder. In this case, West Corp. is limited to collecting payment and may not transfer or further indorse the instrument because of the phrase “for collection only.” The phrase “without recourse” makes the indorsement a “qualified” indorsement. A person who indorses using the phrase “without recourse,” in this case Ted Burns, is in effect saying that if the primary party does not pay on the instrument tough luck—the holder cannot seek payment from Ted.


    Why is this not also a special indorsement? It addressees Ted Burns as the recipient of the check.

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  • #585059
    Anonymous
    Inactive

    “A special indorsement identifies the person to whose order the instrument is further payable.” The key word here is “FURTHER payable” – it references the next person who it is payable to. So, this would mean it says “Ted Burns, without recourse, for collection only, pay to West Corp”, but since it doesn't name the next person, it doesn't count as special.

    Does that help?

    #585060
    Anonymous
    Inactive

    Thanks. Another doh moment, which isn't good with less than a week before the exam date.

    #585061
    Anonymous
    Inactive

    Doh moments happen 365 days a year…just try not to have them during the exam! lol.

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