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(810 ILCS 5/3-206) (from Ch. 26, par. 3-206)
Sec. 3-206.
Restrictive indorsement.
(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 4-201(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.
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(2) A depositary bank that purchases the instrument
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| 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.
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(3) A payor bank that is also the depositary bank or
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| 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.
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(4) Except as otherwise provided in paragraph (3), a
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| 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.
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(d) Except for an indorsement covered by subsection (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
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| duty as provided in Section 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.
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(2) A later transferee of the instrument or person
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| 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.
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(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) or has notice or knowledge of breach of
fiduciary duty as stated in subsection (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.
(Source: P.A. 87-582; 87-1135.)
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