DEFINITION of 'Order Paper '

An order paper, or order instrument, is a negotiable instrument that is payable to a specified person or its assignee. An instrument such as an order paper is negotiable only if it is payable to the order of a specified person.

An order paper can also be defined as a list of all the items that may be brought forward on that day in the Parliament of Canada, the British House of Commons, or the United States Senate.

BREAKING DOWN 'Order Paper '

An order instrument is one that says “pay to the other of,” whereas as a bearer instrument says “pay to the bearer of.” When an instrument states “pay to the order of,” it’s naming a specific designee who can collect payment on that instrument. Bearer instruments, on the other hand, do not name a specific payee; anyone who bears the instrument can collect payment on it. An order instrument must identify a named payee on the payee line. A bearer instrument, on the other hand, does not include the name of the payee on the instrument, and will typically not have a payee line.

Examples of Order Instruments

A common example of an order instrument is a personal check. When a person writes a personal check, he or she names a specific payee on the payee line, which is preceded by the phrase “Pay to the Order Of.” Only the payee named on this line is entitled to receive payment in the dollar amount specified on the check.

Other order instruments could include registered bonds, bills of exchange (a kind of check without interest) and promissory notes (a written promise to pay). By contrast, a $20 bill would be an example of a bearer instrument. A $20 bill has no payee line and names no payee. Anyone who possesses (bears) the $20 bill can use it to obtain $20 worth of goods or services.

What Makes an Order Instrument

To be considered an order instrument, a negotiable instrument must have certain characteristics. It must:

  • Bear the drawer’s signature;
  • Be payable to the order of a named payee;
  • Make an unconditional promise of payment of a specific sum to a named payee;
  • Be payable at a specific time or on demand.

An order instrument must include the phrase “pay to the order of (named person or entity)” or “to (named person or entity) or order.” If the words “or order” are included on the order instrument, the named payee is permitted to designate another party to receive the payment therein ordered.

Endorsing Order Instruments

When an order instrument is endorsed, it becomes a bearer instrument. For example, when you receive a payment by check and endorse that check, your check, which was an order instrument prior to endorsement, becomes a bearer instrument. Once endorsed, anyone who bears, or possesses, your check can cash it, even if they’re not the person named on the payee line. It’s for this reason that consumers are advised to avoid endorsing checks until they are depositing them.

However, a payee can avoid turning an order instrument into a bearer instrument after endorsing it. The payee can use a special endorsement, which involves signing the instrument over to another payee. To do this with a check, for example, the payee can write the words “Pay to the Order Of (named person or entity)” in the endorsement space on the back of the check, and then sign it. Payees can also use a restrictive endorsement to ensure that an endorsed instrument is deposited to a specific account, for example.

  1. Payee

    A payee is the party in an exchange who receives payment.
  2. Negotiable Instrument

    A negotiable instrument is a document that promises payment to ...
  3. Loss Payable Clause

    A loss payable clause is an endorsement where an insurer pays ...
  4. Instrumentality

    An instrumentality is a government agency or corporation that ...
  5. Bill of Exchange

    A bill of exchange is a written order used primarily in international ...
  6. Bearer Form

    A bearer form is a security not registered in the issuing corporation's ...
Related Articles
  1. Retirement

    Managing Social Security Payments When the Beneficiary Can't

    Social Security Representative Payee program is for anyone who cares for a loved one who is unable to manage their own Social Security benefit checks.
  2. Investing

    When Using a Money Order Makes Sense

    Money orders are usually the least expensive way to send "cleared" funds to pay a bill (or traffic ticket). Here's how they work and what to watch out for.
  3. Investing

    Did Derivatives Cause The Recession?

    We may never come to a consensus on what caused the financial collapse, but derivatives definitely share a large part of the blame.
  4. Insights

    Texas Instruments Releases 150M Processors (TXN)

    In an effort to deliver better capabilities for ADAS systems, Texas Instruments launched 150 million new processors.
  5. Financial Advisor

    Why Cash is King When Markets are Volatile

    After the past several years, you might be addicted to equity. But when markets turn volatile, cash is the best option. Here's why.
  6. Trading

    Futures Fundamentals

    This tutorial explains what futures contracts are, how they work and why investors use them.
  7. Investing

    What Is A Municipal Bond?

    A municipal bond is a debt instrument used by a city, state, county or other local government authority to raise money for a project. Municipal bonds, often called munis, are considered a debt ...
  1. Why are insurance companies and pension funds considered financial instruments?

    Find out why insurance companies and pension funds are considered carriers of financial instruments, and what role they play ... Read Answer >>
  2. The difference between a market order and limit order

    Market orders execute a trade to buy or sell immediately at the best available price. A limit order only trades when the ... Read Answer >>
  3. What is the difference between a buy limit and a sell stop order?

    Understand the differences between the two order types, a buy limit order and a sell stop order, and the purposes each one ... Read Answer >>
Trading Center