How to Sign Over a Third-Party Check to Someone Else
Navigate the precise methods for transferring a check to a different recipient. Gain insight into the conditions and considerations for successful endorsement.
A third-party check is a check originally written by one party (the drawer) to a specific individual or entity (the payee), which that payee then wishes to transfer to another person or entity (the third party). This process involves the original payee endorsing the check over to the new recipient.
When a Third-Party Check Can Be Signed Over
A check must be “negotiable” for it to be signed over to another person. Negotiability is a legal term under the Uniform Commercial Code (UCC), specifically Article 3, which governs negotiable instruments like checks. For a check to be negotiable, it must be a written, signed promise or order to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer.
The original payee, the person or entity whose name is on the “Pay to the Order of” line, is the only one who can initiate the endorsement process. The ability to sign over a check is generally permissible, but the ultimate acceptance of a third-party check rests with the bank where it is presented for deposit or cashing. Many banks and credit unions are not legally obligated to accept third-party checks and may have their own internal policies regarding them.
Some banks may have strict policies due to concerns about fraud, such as forgery or unauthorized endorsements. For example, a bank might refuse a third-party check if there are any questions about its legitimacy. Therefore, it is important for both the original payee and the new recipient to confirm with their respective banks about their policies on third-party checks before attempting the transfer.
Steps for Signing Over a Check
The physical act of signing over a check involves a specific process for the original payee. The endorsement should occur on the back of the check, typically in the area designated for endorsements.
The original payee must first sign their name exactly as it appears on the “Pay to the Order of” line on the front of the check. Directly below their signature, the original payee should write “Pay to the order of [New Payee’s Name]”. This specific wording, known as a special endorsement, clearly indicates the transfer of ownership of the check to the new recipient.
Ensuring legibility in both the signature and the written instruction is important for the bank’s processing. An unclear or incomplete endorsement can lead to delays or the check being rejected. Once endorsed in this manner, the check is transferred to the new payee, who then has the right to attempt to deposit or cash it.
Presenting the Endorsed Check at the Bank
When the new recipient presents the endorsed check at a bank, they will also need to endorse it. Their signature should be placed directly below the original payee’s endorsement. This second signature completes the chain of endorsements, allowing the new recipient to become the holder of the instrument.
Banks typically require the new recipient to provide government-issued identification, such as a driver’s license or passport, to verify their identity. Some financial institutions may even require the original payee to be present with the new recipient at the bank to authenticate their signature and identity. This measure helps banks mitigate the risk of fraud or unauthorized transactions.
Banks may decline to accept a third-party check for various reasons, even if properly endorsed. Common reasons include differing bank policies, which are not uniform across all institutions. Concerns about potential fraud, such as an irregular or unclear endorsement, can also lead to rejection. Additionally, a check that is stale-dated, meaning it is typically older than six months, may also be refused by a bank.