47-3206

47-3206. 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 described in section 47-4201, subsection B
or 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
47-3307, 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.