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Figure 25.4INDORSE HEREDO NOT WRITE, STAMP, OR SIGN BELOW THIS LINERESERVED FOR FINANCIAL INSTITUTION USE*RESTRICTIVE INDORSEMENTA restrictive indorsement limits thesubsequent use of the instrument. Whatmust be done before this instrument canbe negotiated any further?Restrictive IndorsementA restrictive indorsement is one inwhich words have been added, in addition to thesignature of the transferor, to limit its use. Arestrictive indorsement does not prevent furthertransfer or negotiation of the instrument. However,prior to further transfer, it must be usedfor the purpose stated in the indorsement. Forexample, when a check is indorsed “for depositonly,” as in Figure 25.4, that amount of moneymust be added to the indorser’s bank accountbefore it is negotiated further. Retail storesoften stamp checks “for deposit only” whenthey are received. This provides protection inthe event that the checks are stolen.Example 5. Sharon Clausewitz received hermonthly paycheck at the end of the month.Because she knew she could not deposit itfor several days, she indorsed it, “For depositonly—Sharon Clausewitz.” This is a restrictive indorsement. Ifthe check were to be stolen or lost, the only way that it could benegotiated by someone else would be to deposit it into Sharon’sbank account.Figure 25.5INDORSE HEREDO NOT WRITE, STAMP, OR SIGN BELOW THIS LINERESERVED FOR FINANCIAL INSTITUTION USE*CONDITIONAL INDORSEMENTA conditional indorsement makes the rightsof the indorsee subject to a certain event orcondition. What event must occur for JamesIngram to have the right to cash this check?Banks often use restrictive indorsementswhen they send checks through the collectionprocess. They do this by stamping “Pay anybank” or “For collection only” on the back ofeach check.A conditional indorsement , a type of restrictiveindorsement, makes the rights of theindorsee subject to a specific event or condition(see Figure 25.5).Example 6. George Gallo wished to transfera dividend check to his grandson, JamesIngram, as a birthday gift. Because Georgedid not want James to cash the check beforehis 18th birthday, a conditional indorsementwas used. Until the condition presented in theindorsement was satisfied, James did not havethe right to cash the check.548 Unit 5: Using Your Purchasing Power