§12A-3-206. Restrictive Indorsement.
608 words·~3 min read·
/ok/title-12a-uniform-commercial-code/12a-3-206·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
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 subsection
(b)of Section 4-201 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; and
(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; and
(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. Laws 1961, p. 107, § 3-206; Laws 1991, c. 117, § 50, eff. Jan. 1, 1992.