§ 25-3-206. Restrictive indorsement. - North Carolina Statutes

§25‑3‑206.  Restrictive indorsement.

(a)        An indorsementlimiting payment to a particular person or otherwise prohibiting furthertransfer or negotiation of the instrument is not effective to prevent furthertransfer or negotiation of the instrument.

(b)        An indorsementstating a condition to the right of the indorsee to receive payment does notaffect 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 and liabilities of that person are not affected by whether thecondition has been fulfilled.

(c)        If an instrumentbears an indorsement (i) described in G.S. 25‑4‑201(b), or (ii) inblank or to a particular bank using the words "for deposit","for collection", or other words indicating a purpose of having theinstrument collected by a bank for the indorser or for a particular account,the following rules apply:

(1)        A person, other thana bank, who purchases the instrument when so indorsed converts the instrumentunless the amount paid for the instrument is received by the indorser orapplied consistently with the indorsement.

(2)        A depositary bankthat purchases the instrument or takes it for collection when so indorsedconverts the instrument unless the amount paid by the bank with respect to theinstrument is received by the indorser or applied consistently with theindorsement.

(3)        A payor bank that isalso the depositary bank or that takes the instrument for immediate paymentover the counter from a person other than a collecting bank converts theinstrument unless the proceeds of the instrument are received by the indorseror applied consistently with the indorsement.

(4)        Except as otherwiseprovided in subdivision (3), a payor bank or intermediary bank may disregardthe indorsement and is not liable if the proceeds of the instrument are notreceived by the indorser or applied consistently with the indorsement.

(d)        Except for anindorsement covered by subsection (c) of this section, if an instrument bearsan indorsement using words to the effect that payment is to be made to theindorsee as agent, trustee, or other fiduciary for the benefit of the indorseror another person, the following rules apply:

(1)        Unless there isnotice of breach of fiduciary duty as provided in G.S. 25‑3‑307, aperson who purchases the instrument from the indorsee or takes the instrumentfrom the indorsee for collection or payment may pay the proceeds of payment orthe value given for the instrument to the indorsee without regard to whetherthe indorsee violates a fiduciary duty to the indorser.

(2)        A subsequenttransferee of the instrument or person who pays the instrument is neither givennotice nor otherwise affected by the restriction in the indorsement unless thetransferee or payor knows that the fiduciary dealt with the instrument or itsproceeds in breach of fiduciary duty.

(e)        The presence on aninstrument of an indorsement to which this section applies does not prevent apurchaser of the instrument from becoming a holder in due course of theinstrument unless the purchaser is a converter under subsection (c) of thissection or has notice or knowledge of breach of fiduciary duty as stated insubsection (d) of this section.

(f)         In an action toenforce the obligation of a party to pay the instrument, the obligor has adefense if payment would violate an indorsement to which this section appliesand the payment is not permitted by this section. (1899, c. 733, ss. 36, 37,39, 47, 137; Rev., ss. 2185, 2186, 2188, 2196, 2287; C.S., ss. 3017, 3018,3020, 3028, 3119; 1949, c. 954; 1965, c. 700, s. 1; 1995, c. 232, s. 1.)