8.3A-206 - A-206. Restrictive endorsement.
§ 8.3A-206. Restrictive endorsement.
(a) An endorsement limiting payment to a particular person or otherwiseprohibiting further transfer or negotiation of the instrument is noteffective to prevent further transfer or negotiation of the instrument.
(b) An endorsement stating a condition to the right of the endorsee toreceive payment does not affect the right of the endorsee to enforce theinstrument. A person paying the instrument or taking it for value orcollection may disregard the condition, and the rights and liabilities ofthat person are not affected by whether the condition has been fulfilled.
(c) If an instrument bears an endorsement (i) described in § 8.4-201 (b), or(ii) in blank or to a particular bank using the words "for deposit," "forcollection," or other words indicating a purpose of having the instrumentcollected by a bank for the endorser or for a particular account, thefollowing rules apply:
(1) A person, other than a bank, who purchases the instrument when soendorsed converts the instrument unless the amount paid for the instrument isreceived by the endorser or applied consistently with the endorsement.
(2) A depositary bank that purchases the instrument or takes it forcollection when so endorsed converts the instrument unless the amount paid bythe bank with respect to the instrument is received by the endorser orapplied consistently with the endorsement.
(3) A payor bank that is also the depositary bank or that takes theinstrument for immediate payment over the counter from a person other than acollecting bank converts the instrument unless the proceeds of the instrumentare received by the endorser or applied consistently with the endorsement.
(4) Except as otherwise provided in paragraph (3), a payor bank orintermediary bank may disregard the endorsement and is not liable if theproceeds of the instrument are not received by the endorser or appliedconsistently with the endorsement.
(d) Except for an endorsement covered by subsection (c), if an instrumentbears an endorsement using words to the effect that payment is to be made tothe endorsee as agent, trustee, or other fiduciary for the benefit of theendorser or another person, the following rules apply:
(1) Unless there is notice of breach of fiduciary duty as provided in §8.3A-307, a person who purchases the instrument from the endorsee or takesthe instrument from the endorsee for collection or payment may pay theproceeds of payment or the value given for the instrument to the endorseewithout regard to whether the endorsee violates a fiduciary duty to theendorser.
(2) A subsequent transferee of the instrument or person who pays theinstrument is neither given notice nor otherwise affected by the restrictionin the endorsement unless the transferee or payor knows that the fiduciarydealt with the instrument or its proceeds in breach of fiduciary duty.
(e) The presence on an instrument of an endorsement to which this sectionapplies does not prevent a purchaser of the instrument from becoming a holderin due course of the instrument unless the purchaser is a converter undersubsection (c) or has notice or knowledge of breach of fiduciary duty asstated in subsection (d).
(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 endorsement to whichthis section applies and the payment is not permitted by this section.
(Code 1950, §§ 6-388, 6-389, 6-391, 6-399, 6-490; 1964, c. 219, §§ 8.3-205,8.3-206, 8.3-419; 1992, c. 693.)