Colorado § 4-3-602 - Payment.

§ 4-3-602. Payment.

(a) Subject to subsection (b) of this section, an instrument is paid to the extent payment is made (i) by or on behalf of a party obliged to pay the instrument, and (ii) to a person entitled to enforce the instrument. To the extent of the payment, the obligation of the party obliged to pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under section 4-3-306 by another person.

(b) The obligation of a party to pay the instrument is not discharged under subsection (a) of this section if:

(1) A claim to the instrument under section 4-3-306 is enforceable against the party receiving payment and (i) payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction, or (ii) in the case of an instrument other than a cashier's check, teller's check, or certified check, the party making payment accepted, from the person having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument; or

(2) The person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession of the instrument.

Source: L. 94: Entire article R&RE, p. 876, § 1, effective January 1, 1995.

Editor's note: This section is similar to former § 4-3-603 as it existed prior to 1994.

ANNOTATION

I. General Consideration.

II. Payment or Satisfaction.

III. By Party Secondarily Liable.

I. GENERAL CONSIDERATION.

Law reviews. For article, "Payee v. Depository Bank: What is the UCC Defense to Handling Checks Bearing Forged Indorsements?", see 45 U. Colo. L. Rev. 281 (1974).

Annotator's note. The following annotations include cases decided under former provisions similar to this section.

II. PAYMENT OR SATISFACTION.

A negotiable instrument may be discharged by any act which will discharge a simple contract for the payment of money. Adams v. White, 173 Colo. 51, 476 P.2d 36 (1970).

Accord and satisfaction is a proper defense that can be asserted. Adams v. White, 173 Colo. 51, 476 P.2d 36 (1970).

Payment is an affirmative defense and must be specially pleaded. Florence Oil & Ref. Co. v. First Nat'l Bank, 38 Colo. 119, 88 P. 182 (1906).

Where payments are made to a payee of a note as agent for the noteholder, then, if the latter acquiesces in such a method of payment, he is thereby bound and has no recourse against the maker if he fails to receive payments as made. Burck v. Hubbard, 104 Colo. 83, 88 P.2d 955 (1939).

A bank holding a note as collateral security, but without knowledge of the maker, which permits the pledgor to represent himself as the ostensible owner and to make collections thereon, makes such pledgor its agent for collection, and payment to him operates as a bar to an action by the bank. Colo. Nat'l Bank v. Rebbein, 88 Colo. 547, 298 P. 952 (1931); Gioso v. DiBell, 88 Colo. 287, 295 P. 919 (1931); Stockyards Nat'l Bank v. Neugebauer, 97 Colo. 246, 48 P.2d 813 (1935).

Maker of check not exposed to double liability where he was required to pay the holder since, upon payment of the checks, its liability is completely discharged. Once the obligor is discharged on the instruments, he is also discharged on the underlying obligation. Lamson v. Commercial Credit Corp., 187 Colo. 382, 531 P.2d 966 (1975).

However, payment by a borrower to a loan company of his note, which has been transferred with possession by the company before maturity, is not a payment of the note, unless an actual agency for collection on the part of the company is proven, or facts are shown which would estop the holder of the note from denying such agency. John Stuart & Co. v. Asher, 15 Colo. App. 403, 62 P. 1051 (1900).

Where notes are payable at a place and to a person specifically designated, then, if payment is made to the designated party who does not have possession of the notes, any conclusion that such party is the agent of the maker may be overcome by parol evidence showing that he is, in fact, an agent for indorsee and holder of the note to receive payment. Stark v. Stevens, 76 Colo. 550, 233 P. 619 (1925).

Although partial payment to agent bounds holder. Where a note which is payable in five years provides for an option in the maker to pay after three years and an agent is authorized to collect the note, partial payment to the agent after three, but before five years, bounds the holder. Frost v. Fisher, 13 Colo. App. 322, 58 P. 872 (1899).

III. BY PARTY SECONDARILY LIABLE.

When the guarantor of a promissory note discharges his secondary liability he is entitled to the note under the doctrine of subrogation; the essence of the doctrine of subrogation is the right of him who has paid to be put in place of one who has received payment while the primary obligation still exists. Cobbey v. Peterson, 89 Colo. 350, 3 P.2d 298 (1931).

The guarantor may sue maker. The discharge of the contract of guaranty by the guarantor does not extinguish or satisfy the obligation to which the contract of guaranty relates; consequently, it is universally held that upon payment of a note by a guarantor, when only secondarily liable, he becomes entitled to the possession of such note and may maintain an action upon it against the maker. Cone v. Eldridge, 51 Colo. 564, 119 P. 616 (1911).

Where the guarantor of a note pays the indebtedness to the holder who has transferred the paper to a third party, thus putting it out of his power to surrender the evidence of indebtedness to the guarantor, equity will afford appropriate relief to the latter even if by so doing it awards relief ordinarily cognizable only in courts of law. Cobbey v. Peterson, 89 Colo. 350, 3 P.2d 298 (1931).

Where several guarantors of promissory notes, of which a testator and another are the makers, have become assignees of, they are entitled to maintain a joint action thereon against the administrator; and what proportion they had contributed to the payment or purchase of the notes is of no concern to the administrator. Cone v. Eldridge, 51 Colo. 564, 119 P. 616 (1911).