What is Order Paper?
An order paper also known as order instrument refers to a negotiable instrument which is issued or payable to a certain person or to the person to whom it is assigned. An instrument like order paper is negotiable only when it is payable to the order of a certain person that means an order paper must appoint a specific name of a person to be paid out. An order instrument is opposite of a bearer instrument, in which no specific name of a person is needed to appoint in order to be paid out.Summary
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Understanding Order Paper
An order paper or order instrument state that the phrase “pays to the order of” means it is paid out to the designated individual. On the other side, a bearer instrument state that the phrase “pay to the bearer of” means it is payable to anyone who hold the instrument. An instrument with the phrase “pay to the order of” specifies the name of the person to whom the instrument is assigned or who is only liable person to collect the payment.
A bearer instrument does not specify a name of an individual because the payment on the bearer instrument can collect by any person who holds the instrument. An order paper must look for the name of the person (payee) on the payee line of an order paper. On the contrary side, a bearer instrument doesn’t include a specific name of the person (payee) on the instrument and usually may not have a payee line on the instrument. Personal check is one of the most common examples of an order paper. When an individual writes a personal check, they write a particular name on the check which states the phrase “pay to the order of”. And on the person whose name is written on the payee line is entitled to get the payment in the form of amount of money written on the check. Other order paper instruments are bills of exchange, registered bonds and promissory notes.
Frequently Asked Questions (FAQs)
What Makes an Order Paper?
There are some specific requirements which have to be fulfilled by an instrument to be considered as an order instrument, it includes:
What does it mean by Endorsing Order Papers?
If an order paper is endorsed, it will become a bearer instrument. For instance, if a person collects a payment through check and endorses that check, the check that holds by the person was an order paper before the endorsement, convert into a bearer instrument. Once the check is endorsed, any person who possesses or bears the check is entitled to cash it; even the person is not the same person to whom the check is written. That is the reason the users are advised to prevent endorsing checks until the users are depositing them.
Though, a person can also prevent from changing an order paper into a bearer instrument even after endorsement by using a special endorsement. Through which a person (payee) can sign the instrument over to another person (payee). For instance, a payee may write the phrase “pay to the order of” with the specific name of a person or entity on the back side of the check in the endorsement space with its signature. And a payee also restricts the endorsement through using restrictive endorsement to make sure the instrument will deposit into a certain account.