§ 3—206. Restrictive indorsement
(a) An indorsement limiting payment to a particular person or otherwise prohibiting further
transfer or negotiation of the instrument is not effective to prevent further transfer
or negotiation of the instrument.
(b) An indorsement stating a condition to the right of the indorsee to receive payment
does not affect the right of the indorsee to enforce the instrument. A person paying
the instrument or taking it for value or collection may disregard the condition, and
the rights and liabilities of that person are not affected by whether the condition
has been fulfilled.
(c) If an instrument bears an indorsement (i) described in section 4—201(b) of this title, or (ii) in blank or to a particular bank using the words “for deposit,” “for collection,”
or other words indicating a purpose of having the instrument collected by a bank for
the indorser or for a particular account, the following rules apply:
(1) A person, other than a bank, who purchases the instrument when so indorsed converts
the instrument unless the amount paid for the instrument is received by the indorser
or applied consistently with the indorsement.
(2) A depositary bank that purchases the instrument or takes it for collection when so
indorsed converts the instrument unless the amount paid by the bank with respect to
the instrument is received by the indorser or applied consistently with the indorsement.
(3) A payor bank that is also the depositary bank or that takes the instrument for immediate
payment over the counter from a person other than a collecting bank converts the instrument
unless the proceeds of the instrument are received by the indorser or applied consistently
with the indorsement.
(4) Except as otherwise provided in paragraph (3) of this subsection, a payor bank or
intermediary bank may disregard the indorsement and is not liable if the proceeds
of the instrument are not received by the indorser or applied consistently with the
indorsement.
(d) Except for an indorsement covered by subsection (c) of this section, if an instrument
bears an indorsement using words to the effect that payment is to be made to the indorsee
as agent, trustee, or other fiduciary for the benefit of the indorser or another person,
the following rules apply:
(1) Unless there is notice of breach of fiduciary duty as provided in section 3—307 of this title, a person who purchases the instrument from the indorsee or takes the instrument
from the indorsee for collection or payment may pay the proceeds of payment or the
value given for the instrument to the indorsee without regard to whether the indorsee
violates a fiduciary duty to the indorser.
(2) A subsequent transferee of the instrument or person who pays the instrument is neither
given notice nor otherwise affected by the restriction in the indorsement unless the
transferee or payor knows that the fiduciary dealt with the instrument or its proceeds
in breach of fiduciary duty.
(e) The presence on an instrument of an indorsement to which this section applies does
not prevent a purchaser of the instrument from becoming a holder in due course of
the instrument unless the purchaser is a converter under subsection (c) of this section
or has notice or knowledge of breach of fiduciary duty as stated in subsection (d)
of this section.
(f) In an action to enforce the obligation of a party to pay the instrument, the obligor
has a defense if payment would violate an indorsement to which this section applies
and the payment is not permitted by this section. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)