What is an endorsement?

What is an endorsement?

• A. A stamp that says 'For Deposit Only'.
• B. A legal term that refers to signing of a document allowing transfer of a negotiable item from one party to another.
• C. A type of agreement between two banks.
• D. A tool to authorize cash withdrawal.

Answer: (B)

Endorsement is the act of signing the back of a negotiable instrument to transfer its ownership or negotiate its rights to someone else. This legal signing makes it possible for the instrument, like a check, to be passed along to another party who can then present it for payment. It establishes who is transferring the rights and to whom, turning the instrument into something the new holder can enforce. The option describing endorsement as the signing of a document that allows transfer of a negotiable item from one party to another best fits this idea, because it captures both the action (signing) and the result (transfer of rights) involved in endorsing. A stamp such as “For Deposit Only” is a specific, restrictive type of endorsement used to limit how the funds are handled, not the general concept. The other choices talk about bank agreements or tools to authorize withdrawals, which aren’t about transferring ownership of a negotiable instrument through endorsement.

Endorsement is the act of signing the back of a negotiable instrument to transfer its ownership or negotiate its rights to someone else. This legal signing makes it possible for the instrument, like a check, to be passed along to another party who can then present it for payment. It establishes who is transferring the rights and to whom, turning the instrument into something the new holder can enforce.

The option describing endorsement as the signing of a document that allows transfer of a negotiable item from one party to another best fits this idea, because it captures both the action (signing) and the result (transfer of rights) involved in endorsing. A stamp such as “For Deposit Only” is a specific, restrictive type of endorsement used to limit how the funds are handled, not the general concept. The other choices talk about bank agreements or tools to authorize withdrawals, which aren’t about transferring ownership of a negotiable instrument through endorsement.