192 MODULE 25 COMMERCIAL PAPER

(1) Indicates specific person to whom endorsee wishes to negotiate instrument

EXAMPLE: On the back of a check payable to the order of M. Jordan he signs as follows: Pay to L. Smith,
. (signed) M. Jordan.

(a) Note that words "pay to the order of' are not required on back as endorsements-
instrument need be payable to order or to bearer on front only

(b) Also, note that if instrument is not payable to order or to bearer on its face, it cannot be
turned into a negotiable instrument by using these words in an endorsement on the back
EXAMPLE: A particular instrument would have been negotiable except that on the front it was payable
to A. On the back, A signed it. "Pay to the order of B, (signed) A." This does not convert it into a
negotiable instrument.

(2) Bearer paper may be converted into order paper by use of special endorsement
EXAMPLE: A check made out to cash is delivered to Carp. Carp writes on the back; Pay to Dum, (signed)
Carp. It was bearer paper until this special endorsement.

EXAM~LE: Continuing the previous example, Dum simply endorses it in blank. The check is bearer paper
again.

(3) Iflast (or only) endorsement on instrument is a blank endorsement, any holder may convert
that bearer paper into order paper bywriting "Pay to X," etc. above that
blank endorsement

c. Restrictive endorsement
(1) Requires endorsees to comply with certain conditions to be a holder
EXAMPLE: Endorsement reads "For deposit only,
(signed) A. Bell. "

EXAMPLE: Another endorsement reads "Pay to X only if X completes work to my satisfaction on my car
within three days of the date on this check, (signed) A." Neither X nor any subsequent holder can enforce
payment until: this condition has been met.

(2) Note that conditions in restrictive endorsements do not destroy negotiability even though con-
ditions placed on front of instruments do destroy negotiability because they create
conditional
promises or orders to pay

(3) Endorsements cannot prohibit subsequent negotiation

EXAMPLE: Above her endorsement, M wrote: "Pay to N only." This indicates that N is the new endorsee
but does not stop further negotiation after N when N endorses.

d. Qualified endorsement
(1) Normally, endorser, upon signing, promises automatically to pay holder or any subsequent en-
dorser amount of instrument if it is later dishonored .
(2) Qualified endorsement disclaims this liability
EXAMPLE: Ann Knolls endorses "Without recourse, (signed) Ann Knolls. "
(3) Qualified endorsements, otherwise, have same effects as other endorsements
(4) Combinations of endorsements occur

(a) Special qualified endorsement

EXAMPLE: "Pay to Pete Bell without recourse, (signed) Tom Lack." Tom Lack has limited his liability
and also Pete Bell's endorsement is needed to negotiate this instrument further.

(b) Blank qualified endorsement

EXAMPLE: "Without recourse, (signed) D. Hamilton."
(C) Endorsement that is re stricti ve, qualified, and blank
EXAMPLE: "For deposit only, without recourse, (signed) Bill Coffey."
(d) Endorsement that is restrictive, qualified, and special
EXAMPLE: "Pay to X if she completes work today, without recourse, (signed) D. Magee. "
3. If payee's name misspelled, s/he may endorse in proper spelling or misspelling or
 both
a, But endorsee may require both
4, Ifan order instrument is transferred for value without endorsement, transferee may require endorse-
ment from transferor

a, Upon obtaining endorsement, will become a holder