Book Opener

Restrictive IndorsementsDelinquent debtors are sometimes desperate enough to try anything to getout of paying their debts. One trick is writing the restrictive endorsement “paidin full” when paying only a fraction of a debt. The debtor thinks that if thecreditor deposits the check, the debtor will be off the hook for the balanceowed. In most states this simply will not work.In many states, a debtor must first inform the creditor in writing that he orshe intends to send a check for less than the amount owed as payment in full.The creditor will then have a certain amount of time (usually 15–30 days) inwhich to object. If the creditor fails to object, the debtor can then send a checkwith the restrictive endorsement making reference to the written notification. Ifthe creditor cashes the check, then the debtor is relieved of having to pay thebalance.If the debtor sends a check with “paid in full” written on it without priornotification, then the creditor may simply cross out the restriction, cash thecheck, and collect on the balance owed.Conduct Research What is the law in your state with regard to using this type ofrestrictive indorsement?is a person who possesses a negotiable instrument payable to the orderof the person holding it, or to the bearer. You are a holder, for example,when you receive a check made out in your name. You may then transferthe instrument, as David does in The Opening Scene by signing hischeck from Aunt Mae and writing, “Pay to the order of Melanie Mueller”on the instrument. From this time forward, any transfer in the propermanner to a subsequent holder is a further negotiation of the instrument.A negotiation is better than an assignment because it gives greater rightsto a transferee than the transferor possessed.Negotiation of Order PaperIf an instrument says something like, “Pay to the order of,” it iscalled order paper . Nearly all checks feature the printed phrase “Payto the order of ” before the line on which you write the payee’s name.To be negotiated, order paper must be indorsed by the payee anddelivered to the party to whom it is transferred.Chapter 25: Transferring Negotiable Instruments 543