Restrictive Indorsement

  1. Law
  2. Georgia Code
  3. Commercial Code
  4. Negotiable Instruments
  5. Negotiation, Transfer, and Indorsement
  6. Restrictive Indorsement

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  1. 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.
  2. 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.
  3. If an instrument bears an indorsement which is described in subsection (b) of Code Section 11-4-201, an indorsement in blank, or an indorsement 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.
  4. Except for an indorsement covered by subsection (c) of this Code 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 Code Section 11-3-307, 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.
  5. The presence on an instrument of an indorsement to which this Code 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 Code section or has notice or knowledge of breach of fiduciary duty as stated in subsection (d) of this Code section.
  6. 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 Code section applies and the payment is not permitted by this Code section.

(Code 1981, §11-3-206, enacted by Ga. L. 1996, p. 1306, § 3.)

RESEARCH REFERENCES

Am. Jur. 2d.

- 11 Am. Jur. 2d, Bills and Notes, §§ 22, 230 et seq., 249, 296.

C.J.S.

- 10 C.J.S., Bills and Notes, § 154 et seq.

U.L.A.

- Uniform Commercial Code (U.L.A.) § 3-206.

ALR.

- Undertaking of one who endorses a note without recourse, 2 A.L.R. 216; 91 A.L.R. 399.

Endorsement of bill or note in form of guaranty of payment, 33 A.L.R. 97; 46 A.L.R. 1516.

Liability of endorser "for deposit" on the endorsement to original, or subsequent, endorsee, 60 A.L.R. 866.

Endorsement "for deposit only" as affecting right of holder of paper against drawer or maker who would have a good defense as against payee, 75 A.L.R. 1415.

Sale or negotiation for value of commercial paper after it has been endorsed by the holder with a restrictive endorsement, as waiver of the restriction so as to entitle the purchaser to recover thereon as a holder in due course, 149 A.L.R. 318.


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