## Facts

- From about 1986 to 1992, a Qatar employee, Bassam Salous, ran an embezzlement scheme using unauthorized checks drawn on Qatar’s accounts.
- The checks were issued in supposed payment of false or duplicate invoices and were made payable to various persons or entities other than Salous.
- Salous deposited the checks into his personal accounts at the defendant depositary banks.
- The checks bore forged payee indorsements and a stamped restrictive indorsement stating “for deposit only.”
- After discovery of the fraud in 1992, Qatar sued the depositary banks for conversion under the UCC as adopted in Virginia.
- Earlier proceedings resolved certain categories of checks in the banks’ favor; this opinion addressed a remaining legal issue concerning the effect of the “for deposit only” restrictive indorsement.

## Issues

1. Whether an unqualified restrictive indorsement “for deposit only,” following a payee indorsement, permits deposit into any account or instead requires deposit only into the named payee’s account.
2. Whether a depositary bank that credits such a check to an account other than the named payee’s violates the restrictive indorsement and thereby commits conversion.

## Decision

- The court held that “for deposit only” following an indorsement requires a depositary bank to place the check’s proceeds into the named payee’s account.
- The court held that a bank violates the restrictive indorsement when it credits the check to any other account.
- Under this interpretation, crediting the fraudulently indorsed checks to Salous’s personal accounts was inconsistent with the restrictive indorsement and supported conversion liability for the affected items.

## Legal Principles

- Under UCC Article 3 (as adopted in Virginia), “for deposit only” is a restrictive indorsement that directs the permissible application of a check’s proceeds.
- When “for deposit only” appears after a payee indorsement, it restricts deposit to the named payee’s account rather than merely requiring that the item be deposited somewhere.
- A depositary bank that applies proceeds contrary to a restrictive indorsement deals with the instrument in a manner inconsistent with the indorsement and may be liable for conversion under UCC § 3-419 (conversion provision applicable at the time).

## Conclusion

The court interpreted “for deposit only,” when used with a payee indorsement, as a direction to deposit the check solely into the named payee’s account; a depositary bank that credits another person’s account violates the restriction and faces conversion liability for handling the instrument inconsistently with the restrictive indorsement.


State of Qatar v. First Am. Bank of Va., 885 F. Supp. 849 (E.D. Va. 1995)