Legal Definitions - special indorsement

A special indorsement is a signature on a negotiable instrument, such as a check or promissory note, that specifically names the person or entity to whom the instrument is now payable. This means the instrument can only be cashed, deposited, or further transferred by the party named in the indorsement.

Unlike a blank indorsement (which simply involves a signature and makes the instrument payable to whoever possesses it), a special indorsement restricts payment to a specific individual or organization, thereby controlling who can receive the funds or enforce the rights associated with the instrument.

Here are some examples to illustrate this concept:

• Example 1: Transferring a Check to a Specific Person

  Imagine Sarah receives a check for $750 from a client. Instead of depositing it herself, she wants to use this specific check to pay her graphic designer, Alex. To ensure only Alex can receive the funds, Sarah turns the check over and writes on the back: "Pay to the order of Alex Chen" above her own signature. This act is a special indorsement, making Alex the new payee. Now, only Alex can deposit or cash the check, or further indorse it to someone else.

• Example 2: Transferring Rights to a Promissory Note

  A small business, "Bright Ideas Inc.," owes money to "First National Bank" through a promissory note. First National Bank decides to sell this debt to another financial institution, "Global Capital Group." To legally transfer the right to collect the debt, an authorized representative of First National Bank writes on the back of the promissory note: "Pay to the order of Global Capital Group" and signs it. This special indorsement ensures that Global Capital Group is now the sole entity entitled to receive payments from Bright Ideas Inc. under that note.

• Example 3: Donating a Refund Check to an Organization

  Mr. Henderson receives a refund check for $150 from his internet provider. He decides he wants to donate this exact amount to his local animal shelter, "Paws & Claws Sanctuary." To make sure the funds go directly to the shelter, Mr. Henderson writes on the back of the check: "Pay to the order of Paws & Claws Sanctuary" and signs his name below it. This special indorsement ensures that only the animal shelter can deposit or cash the check, preventing anyone else from claiming the funds.