                                 CODE OF VIRGINIA

RESTRICTIVE ENDORSEMENT (§ 8.3A-206)

a. An endorsement 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 endorsement stating a condition to the right of the endorsee to receive
payment does not affect the right of the endorsee 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 endorsement (i) described in § 8.4-201 (b), or
(ii) in blank or to a particular bank using the words &#8220;for deposit,&#8221;
&#8220;for collection,&#8221; or other words indicating a purpose of having the
instrument collected by a bank for the endorser or for a particular account, the
following rules apply:

   1. A person, other than a bank, who purchases the instrument when so endorsed
   converts the instrument unless the amount paid for the instrument is received
   by the endorser or applied consistently with the endorsement.

   2. A depositary bank that purchases the instrument or takes it for collection
   when so endorsed converts the instrument unless the amount paid by the bank
   with respect to the instrument is received by the endorser or applied
   consistently with the endorsement.

   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 endorser or applied consistently with the endorsement.

   4. Except as otherwise provided in paragraph (3), a payor bank or intermediary
   bank may disregard the endorsement and is not liable if the proceeds of the
   instrument are not received by the endorser or applied consistently with the
   endorsement.

d. Except for an endorsement covered by subsection (c), if an instrument bears
an endorsement using words to the effect that payment is to be made to the
endorsee as agent, trustee, or other fiduciary for the benefit of the endorser
or another person, the following rules apply:

   1. Unless there is notice of breach of fiduciary duty as provided in &#xA7;
   8.3A-307, a person who purchases the instrument from the endorsee or takes the
   instrument from the endorsee for collection or payment may pay the proceeds of
   payment or the value given for the instrument to the endorsee without regard
   to whether the endorsee violates a fiduciary duty to the endorser.

   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
   endorsement 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 endorsement 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 endorsement to which this
section applies and the payment is not permitted by this section.

HISTORY: Code 1950, §§ 6-388, 6-389, 6-391, 6-399, 6-490; 1964, c. 219, §§
8.3-205, 8.3-206, 8.3-419; 1992, c. 693.