70A-3-206 - Restrictive indorsement.
70A-3-206. Restrictive indorsement.
(1) An indorsement limiting payment to a particular person or otherwise prohibitingfurther transfer or negotiation of the instrument is not effective to prevent further transfer ornegotiation of the instrument.
(2) An indorsement stating a condition to the right of the indorsee to receive paymentdoes not affect the right of the indorsee to enforce the instrument. A person paying theinstrument or taking it for value or collection may disregard the condition, and the rights andliabilities of that person are not affected by whether the condition has been fulfilled.
(3) If an instrument bears an indorsement described in Subsection 70A-4-201(2), or inblank or to a particular bank using the words "for deposit," "for collection," or other wordsindicating a purpose of having the instrument collected by a bank for the indorser or for aparticular account, the following rules apply:
(a) A person, other than a bank, who purchases the instrument when so indorsed convertsthe instrument unless the amount paid for the instrument is received by the indorser or appliedconsistently with the indorsement.
(b) A depositary bank that purchases the instrument or takes it for collection when soindorsed converts the instrument unless the amount paid by the bank with respect to theinstrument is received by the indorser or applied consistently with the indorsement.
(c) A payor bank that is also the depositary bank or that takes the instrument forimmediate payment over the counter from a person other than a collecting bank converts theinstrument unless the proceeds of the instrument are received by the indorser or appliedconsistently with the indorsement.
(d) Except as otherwise provided in Subsection (3)(c), a payor bank or intermediary bankmay disregard the indorsement and is not liable if the proceeds of the instrument are not receivedby the indorser or applied consistently with the indorsement.
(4) Except for an indorsement covered by Subsection (3), if an instrument bears anindorsement 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 rulesapply:
(a) Unless there is notice of breach of fiduciary duty as provided in Section 70A-3-307, aperson who purchases the instrument from the indorsee or takes the instrument from the indorseefor collection or payment may pay the proceeds of payment or the value given for the instrumentto the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.
(b) A subsequent transferee of the instrument or person who pays the instrument isneither given notice nor otherwise affected by the restriction in the indorsement unless thetransferee or payor knows that the fiduciary dealt with the instrument or its proceeds in breach offiduciary duty.
(5) The presence on an instrument of an indorsement to which this section applies doesnot prevent a purchaser of the instrument from becoming a holder in due course of the instrumentunless the purchaser is a converter under Subsection (3) or has notice or knowledge of breach offiduciary duty as stated in Subsection (4).
(6) In an action to enforce the obligation of a party to pay the instrument, the obligor hasa defense if payment would violate an indorsement to which this section applies and the paymentis not permitted by this section.
Amended by Chapter 324, 2010 General Session