§ 4-3-206 — Restrictive indorsement

Colorado § 4-3-206

• Jurisdiction: Colorado
• Title 04: Uniform
• Art.: Negotiable Instruments

Text

(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 section 4-4-201 (b),
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) of this subsection (c), 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 subsection (c) of this 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 section 4-3-307, 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.

(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 subsection
(c) of this section or has notice or knowledge of breach of fiduciary duty as stated in
subsection (d) of this section.

(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.

Legislative History

Source: L. 94: Entire article R&RE, p. 852, � 1, effective January 1, 1995.