Required endorsements: Overview, definition, and example
What are required endorsements?
Required endorsements refer to signatures, approvals, or certifications that must be obtained on a document, check, contract, or financial instrument to make it legally valid or enforceable. Endorsements may be required by regulatory authorities, financial institutions, or contractual agreements to authorize transactions, transfers, or obligations.
For example, when a business deposits a check made out to its name, a bank may require an authorized signature—known as an endorsement—on the back of the check before processing the deposit.
Why are required endorsements important?
Required endorsements are important because they confirm authorization, ensure legal compliance, and provide protection against fraud or unauthorized transactions. Without proper endorsements, documents or financial instruments may be considered invalid, delaying transactions or creating legal disputes.
For businesses, clearly defining required endorsements in contracts helps prevent unauthorized actions and ensures that all parties involved acknowledge and agree to specific terms. In financial transactions, endorsements act as verification that the rightful party has approved the transaction.
Understanding required endorsements through an example
Imagine a company signs a business loan agreement with a bank. The bank requires the signatures of both the company’s CEO and CFO as required endorsements before the loan can be finalized. If either signature is missing, the loan agreement is not legally binding, and funds will not be disbursed.
In another scenario, an insurance policyholder wants to transfer their life insurance benefits to a trust. The insurance company requires a required endorsement in the form of a signed beneficiary designation form before the transfer can take effect. Without this endorsement, the policy remains unchanged.
An example of a required endorsements clause
Here’s how a required endorsements clause might appear in a contract:
“All checks, contracts, and financial instruments issued under this Agreement shall require the endorsement of an authorized representative of each Party. Any document lacking the required endorsements shall be considered invalid and unenforceable until such endorsements are obtained.”
Conclusion
Required endorsements ensure that transactions, agreements, and financial instruments are properly authorized and legally enforceable. By establishing clear endorsement requirements, businesses and individuals can prevent unauthorized actions, reduce legal risks, and facilitate smooth financial and contractual transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.