- Consolidated Laws - Uniform Commercial Code
PART 2
TRANSFER AND NEGOTIATION
Section 3--201. Transfer: Right to Indorsement.
(1) Transfer of an instrument vests in the transferee such rights as
the transferor has therein, except that a transferee who has himself
been a party to any fraud or illegality affecting the instrument or who
as a prior holder had notice of a defense or claim against it cannot
improve his position by taking from a later holder in due course.
(2) A transfer of a security interest in an instrument vests the
foregoing rights in the transferee to the extent of the interest
transferred.
(3) Unless otherwise agreed any transfer for value of an instrument
not then payable to bearer gives the transferee the specifically
enforceable right to have the unqualified indorsement of the transferor.
Negotiation takes effect only when the indorsement is made and until
that time there is no presumption that the transferee is the owner.
Section 3--202. Negotiation.
(1) Negotiation is the transfer of an instrument in such form that the
transferee becomes a holder. If the instrument is payable to order it is
negotiated by delivery with any necessary indorsement; if payable to
bearer it is negotiated by delivery.
(2) An indorsement must be written by or on behalf of the holder and
on the instrument or on a paper so firmly affixed thereto as to become a
part thereof.
(3) An indorsement is effective for negotiation only when it conveys
the entire instrument or any unpaid residue. If it purports to be of
less it operates only as a partial assignment.
(4) Words of assignment, condition, waiver, guaranty, limitation or
disclaimer of liability and the like accompanying an indorsement do not
affect its character as an indorsement.
Section 3--203. Wrong or Misspelled Name.
Where an instrument is made payable to a person under a misspelled
name or one other than his own he may indorse in that name or his own or
both; but signature in both names may be required by a person paying or
giving value for the instrument.
Section 3--204. Special Indorsement; Blank Indorsement.
(1) A special indorsement specifies the person to whom or to whose
order it makes the instrument payable. Any instrument specially indorsed
becomes payable to the order of the special indorsee and may be further
negotiated only by his indorsement.
(2) An indorsement in blank specifies no particular indorsee and may
consist of a mere signature. An instrument payable to order and indorsed
in blank becomes payable to bearer and may be negotiated by delivery
alone until specially indorsed.
(3) The holder may convert a blank indorsement into a special
indorsement by writing over the signature of the indorser in blank any
contract consistent with the character of the indorsement.
Section 3--205. Restrictive Indorsements.
An indorsement is restrictive which either
(a) is conditional; or
(b) purports to prohibit further transfer of the instrument; or
(c) includes the words "for collection", "for deposit", "pay any
bank", or like terms signifying a purpose of deposit or collection; or
(d) otherwise states that it is for the benefit or use of the indorser
or of another person.
Section 3--206. Effect of Restrictive Indorsement.
(1) No restrictive indorsement prevents further transfer or
negotiation of the instrument.
(2) An intermediary bank, or a payor bank which is not the depositary
bank, is neither given notice nor otherwise affected by a restrictive
indorsement of any person except the bank`s immediate transferor or the
person presenting for payment.
(3) Except for an intermediary bank, any transferee under an
indorsement which is conditional or includes the words "for collection",
"for deposit", "pay any bank", or like terms (subparagraphs (a) and (c)
of Section 3--205) must pay or apply any value given by him for or on
the security of the instrument consistently with the indorsement and to
the extent that he does so he becomes a holder for value. In addition
such transferee is a holder in due course if he otherwise complies with
the requirements of Section 3--302 on what constitutes a holder in due
course.
(4) The first taker under an indorsement for the benefit of the
indorser or another person (subparagraph (d) of Section 3--205) must pay
or apply any value given by him for or on the security of the instrument
consistently with the indorsement and to the extent that he does so he
becomes a holder for value. In addition such taker is a holder in due
course if he otherwise complies with the requirements of Section 3--302
on what constitutes a holder in due course. A later holder for value is
neither given notice nor otherwise affected by such restrictive
indorsement unless he has knowledge that a fiduciary or other person has
negotiated the instrument in any transaction for his own benefit or
otherwise in breach of duty (subsection (2) of Section 3--304).
Section 3--207. Negotiation Effective Although It May Be Rescinded.
(1) Negotiation is effective to transfer the instrument although the
negotiation is
(a) made by an infant, a corporation exceeding its powers, or any
other person without capacity; or
(b) obtained by fraud, duress or mistake of any kind; or
(c) part of an illegal transaction; or
(d) made in breach of duty.
(2) Except as against a subsequent holder in due course such
negotiation is in an appropriate case subject to rescission, the
declaration of a constructive trust or any other remedy permitted by
law.
Section 3--208. Reacquisition.
Where an instrument is returned to or reacquired by a prior party he
may cancel any indorsement which is not necessary to his title and
reissue or further negotiate the instrument, but any intervening party
is discharged as against the reacquiring party and subsequent holders
not in due course and if his indorsement has been cancelled is
discharged as against subsequent holders in due course as well.
