{"data":{"id":"us-ky/krs-355.3-206","jurisdiction":"us-ky","citation":"KRS 355.3-206","heading":"Restrictive indorsement.","body":"(1) An indorsement limiting payment to a particular person or otherwise prohibiting\nfurther transfer or negotiation of the instrument is not effective to prevent further\ntransfer or negotiation of the instrument.\n(2) An indorsement stating a condition to the r ight of the indorsee to receive payment\ndoes not affect the right of the indorsee to enforce the instrument. A person paying\nthe instrument or taking it for value or collection may disregard the condition, and\nthe rights and liabilities of that person are not affected by whether the condition has\nbeen fulfilled.\n(3) (a) If an instrument bears an indorsement:\n1. Described in KRS 355.4-201(2); or\n2. In blank or to a particular bank using the words \"for deposit,\" \"for\ncollection,\" or other words indicating a purpose of having the instrument\ncollected by a bank for the indorser or for a particular account,\nthe rules set out in paragraph (b) of this subsection apply.\n(b) 1. A person, other than a bank, who purchases the instrument when so\nindorsed converts the i nstrument unless the amount paid for the\ninstrument is received by the indorser or applied consistently with the\nindorsement.\n2. A depositary bank that purchases the instrument or takes it for collection\nwhen so indorsed converts the instrument unless the amount paid by the\nbank with respect to the instrument is received by the indorser or applied\nconsistently with the indorsement.\n3. A payor bank that is also the depositary bank or that takes the instrument\nfor immediate payment over the counter from a per son other than a\ncollecting bank converts the instrument unless the proceeds of the\ninstrument are received by the indorser or applied consistently with the\nindorsement.\n4. Except as otherwise provided in subparagraph 3. of this paragraph, a\npayor bank or intermediary bank may disregard the indorsement and is\nnot liable if the proceeds of the instrument are not received by the\nindorser or applied consistently with the indorsement.\n(4) Except for an indorsement covered by subsection (3) of this section, if a n\ninstrument bears an indorsement using words to the effect that payment is to be\nmade to the indorsee as agent, trustee, or other fiduciary for the benefit of the\nindorser or another person, the following rules apply:\n(a) Unless there is notice of breach of fiduciary duty as provided in KRS 355.3 -\n307, a person who purchases the instrument from the indorsee or takes the\ninstrument from the indorsee for collection or payment may pay the proceeds\nof payment or the value given for the instrument to the indorsee without\nregard to whether the indorsee violates a fiduciary duty to the indorser.\n(b) A subsequent transferee of the instrument or person who pays the instrument\nis neither given notice nor otherwise affected by the restr iction in the\nindorsement unless the transferee or payor knows that the fiduciary dealt with\nthe instrument or its proceeds in breach of fiduciary duty.\n(5) The presence on an instrument of an indorsement to which this section applies does\nnot prevent a pu rchaser of the instrument from becoming a holder in due course of\nthe instrument unless the purchaser is a converter under subsection (3) of this\nsection or has notice or knowledge of breach of fiduciary duty as stated in\nsubsection (4) of this section.\n(6) In an action to enforce the obligation of a party to pay the instrument, the obligor\nhas a defense if payment would violate an indorsement to which this section applies\nand the payment is not permitted by this section.","path":[],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=33456","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:58:44Z","sha256":"940b5e86c5feebc07d4b7e03224d31f57177dc705d0f81dbdc7a09a8f0962b58","source_id":"us-ky","stale":false,"prev":"us-ky/krs-355.3-205","next":"us-ky/krs-355.3-207"},"notice":"GroundRules: Original legal text. Not legal advice."}