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CandleFocus Glossary Editor
An Order Paper, or negotiable instrument, is any form of financial document that is used in the transfer of funds or goods from one party to another—most often from seller to buyer. The use of order papers may be employed in a variety of situations, from the purchase of a car or home to the repayment of a loan or the sale of a business. An order paper specifies the name of the party to whom payment of the instrument is to be made, known as the payee.
These documents require either an endorsement or signature from the original payee in order to transfer funds or goods. If the original payee’s endorsement is missing, the paper is considered a bearer instrument. This increases the risk of theft, as anyone in possession of the bearer instrument can cash it.
The most common example of an order paper is a personal check. By signing the back, the payee certifies that they are the rightful owner and the instrument can no longer be used without their signature. Other common order papers include money orders and cashier’s checks, which may be purchased from a bank or other financial institution. As with a personal check, cashing these instruments requires signatures from both the payer and the payee.
In order to protect order papers from being mistakenly or purposefully turned into bearer instruments, a payee can use a special endorsement. This endorsement states that the order paper may only be transferred to the specific payee or to a specified account, thus avoiding the risk associated with the bearer instrument. This serves to increase the security of the order paper and reduce the risk of theft.
In summary, an order paper is a negotiable instrument that is payable to a specified person or its assignee. It requires the payee’s endorsement or signature in order to be used, thus reducing the risk of theft associated with a bearer instrument. Common examples include personal checks, money orders, and cashier’s checks. A payee can further protect their order paper by using a special endorsement, which limits who the paper may be transferred to.
These documents require either an endorsement or signature from the original payee in order to transfer funds or goods. If the original payee’s endorsement is missing, the paper is considered a bearer instrument. This increases the risk of theft, as anyone in possession of the bearer instrument can cash it.
The most common example of an order paper is a personal check. By signing the back, the payee certifies that they are the rightful owner and the instrument can no longer be used without their signature. Other common order papers include money orders and cashier’s checks, which may be purchased from a bank or other financial institution. As with a personal check, cashing these instruments requires signatures from both the payer and the payee.
In order to protect order papers from being mistakenly or purposefully turned into bearer instruments, a payee can use a special endorsement. This endorsement states that the order paper may only be transferred to the specific payee or to a specified account, thus avoiding the risk associated with the bearer instrument. This serves to increase the security of the order paper and reduce the risk of theft.
In summary, an order paper is a negotiable instrument that is payable to a specified person or its assignee. It requires the payee’s endorsement or signature in order to be used, thus reducing the risk of theft associated with a bearer instrument. Common examples include personal checks, money orders, and cashier’s checks. A payee can further protect their order paper by using a special endorsement, which limits who the paper may be transferred to.