3201-3207

COMMERCIAL CODE
SECTION 3201-3207




3201.  (a) "Negotiation" means a transfer of possession, whether
voluntary or involuntary, of an instrument by a person other than the
issuer to a person who thereby becomes its holder.
   (b) Except for negotiation by a remitter, if an instrument is
payable to an identified person, negotiation requires transfer of
possession of the instrument and its indorsement by the holder. If an
instrument is payable to bearer, it may be negotiated by transfer of
possession alone.


3202.  (a) Negotiation is effective even if obtained (1) from an
infant, a corporation exceeding its powers, or a person without
capacity, (2) by fraud, duress, or mistake, or (3) in breach of duty
or as part of an illegal transaction.
   (b) To the extent permitted by other law, negotiation may be
rescinded or may be subject to other remedies, but those remedies may
not be asserted against a subsequent holder in due course or a
person paying the instrument in good faith and without knowledge of
facts that are a basis for rescission or other remedy.



3203.  (a) An instrument is transferred when it is delivered by a
person other than its issuer for the purpose of giving to the person
receiving delivery the right to enforce the instrument.
   (b) Transfer of an instrument, whether or not the transfer is a
negotiation, vests in the transferee any right of the transferor to
enforce the instrument, including any right as a holder in due
course, but the transferee cannot acquire rights of a holder in due
course by a transfer, directly or indirectly, from a holder in due
course if the transferee engaged in fraud or illegality affecting the
instrument.
   (c) Unless otherwise agreed, if an instrument is transferred for
value and the transferee does not become a holder because of lack of
indorsement by the transferor, the transferee has a specifically
enforceable right to the unqualified indorsement of the transferor,
but negotiation of the instrument does not occur until the
indorsement is made.
   (d) If a transferor purports to transfer less than the entire
instrument, negotiation of the instrument does not occur. The
transferee obtains no rights under this division and has only the
rights of a partial assignee.



3204.  (a) "Indorsement" means a signature, other than that of a
signer as maker, drawer, or acceptor, that alone or accompanied by
other words is made on an instrument for the purpose of (1)
negotiating the instrument, (2) restricting payment of the
instrument, or (3) incurring indorser's liability on the instrument,
but regardless of the intent of the signer, a signature and its
accompanying words is an indorsement unless the accompanying words,
terms of the instrument, place of the signature, or other
circumstances unambiguously indicate that the signature was made for
a purpose other than indorsement. For the purpose of determining
whether a signature is made on an instrument, a paper affixed to the
instrument is a part of the instrument.
   (b) "Indorser" means a person who makes an indorsement.
   (c) For the purpose of determining whether the transferee of an
instrument is a holder, an indorsement that transfers a security
interest in the instrument is effective as an unqualified indorsement
of the instrument.
   (d) If an instrument is payable to a holder under a name that is
not the name of the holder, indorsement may be made by the holder in
the name stated in the instrument or in the holder's name or both,
but signature in both names may be required by a person paying or
taking the instrument for value or collection.



3205.  (a) If an indorsement is made by the holder of an instrument,
whether payable to an identified person or payable to bearer, and
the indorsement identifies a person to whom it makes the instrument
payable, it is a "special indorsement." When specially indorsed, an
instrument becomes payable to the identified person and may be
negotiated only by the indorsement of that person. The principles
stated in Section 3110 apply to special indorsements.
   (b) If an indorsement is made by the holder of an instrument and
it is not a special indorsement, it is a "blank indorsement." When
indorsed in blank, an instrument becomes payable to bearer and may be
negotiated by transfer of possession alone until specially indorsed.
   (c) The holder may convert a blank indorsement that consists only
of a signature into a special indorsement by writing, above the
signature of the indorser, words identifying the person to whom the
instrument is made payable.
   (d) "Anomalous indorsement" means an indorsement made by a person
who is not the holder of the instrument. An anomalous indorsement
does not affect the manner in which the instrument may be negotiated.



3206.  (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
subdivision (b) of Section 4201, 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), 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 subdivision (c), 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 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 subdivision (c) or has notice or
knowledge of breach of fiduciary duty as stated in subdivision (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
indorsement to which this section applies and the payment is not
permitted by this section.



3207.  Reacquisition of an instrument occurs if it is transferred to
a former holder, by negotiation or otherwise. A former holder who
reacquires the instrument may cancel indorsements made after the
reacquirer first became a holder of the instrument. If the
cancellation causes the instrument to be payable to the reacquirer or
to bearer, the reacquirer may negotiate the instrument. An indorser
whose indorsement is canceled is discharged, and the discharge is
effective against any subsequent holder.