Colorado § 4-3-104 - Negotiable instrument.

§ 4-3-104. Negotiable instrument.

(a) Except as provided in subsections (c) and (d) of this section, "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) Is payable on demand or at a definite time; and

(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain: (i) an undertaking or power to give, maintain, or protect collateral to secure payment; (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral; (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor; (iv) a term that specifies the law that governs the promise or order; or (v) an undertaking to resolve in a specified forum a dispute concerning the promise or order.

(b) "Instrument" means a negotiable instrument.

(c) An order that meets all of the requirements of subsection (a) of this section, except paragraph (1), and otherwise falls within the definition of "check" in subsection (f) of this section is a negotiable instrument and a check.

(d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this article.

(e) An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft," a person entitled to enforce the instrument may treat it as either.

(f) "Check" means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank, (ii) a cashier's check or teller's check, or (iii) a demand draft. An instrument may be a check even though it is described on its face by another term, such as "money order."

(g) "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.

(h) "Teller's check" means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank.

(i) "Traveler's check" means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term "traveler's check" or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.

(j) "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.

(k) (i) "Demand draft" means a writing not signed by the customer that is created by a third party under the purported authority of the customer for the purpose of charging the customer's account with a bank. A demand draft shall contain the customer's account number and shall contain any or all of the following:

(1) The customer's printed or typewritten name;

(2) A notation that the customer authorized the draft; or

(3) The statement "No signature required" or words to that effect.

(ii) A demand draft shall not include a check purportedly drawn by and bearing the signature of a fiduciary, as defined in section 4-3-307 (a)(1).

Source: L. 94: Entire article R&RE, p. 843, § 1, effective January 1, 1995. L. 2001: (f) amended and (k) added, p. 866, § 3, effective August 8. L. 2023: (a)(3) amended, (SB 23-090), ch. 136, p. 530, § 20, effective August 7.

Editor's note: This section is similar to former § 4-3-104 as it existed prior to 1994.

Cross references: (1) For other agreements affecting instrument, see § 4-3-117.

(2) For the legislative declaration contained in the 2001 act amending subsection (f) and enacting subsection (k), see section 1 of chapter 244, Session Laws of Colorado 2001.

ANNOTATION

I. General Consideration.

II. Negotiable Instrument - Requirements.

III. Negotiable Instrument - Types.

IV. Attorney Fees.

I. GENERAL CONSIDERATION.

Law reviews. For comment on Steward v. Pub. Indus. Bank appearing below, see 2 Rocky Mt. L. Rev. 200 (1930). For article, "Setoff and Security Interests In Deposit Accounts", see 17 Colo. Law. 2107 (1988).

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

Conditional language in promissory note referencing conditions in the bill of sale and covenants not to compete renders it nonnegotiable but does not make the note unenforceable. DBA Enter., Inc. v. Findlay, 923 P.2d 298 (Colo. App. 1996).

A note authorizing confession of judgment in the event of nonpayment does not render the note nonnegotiable. Axelson v. Dailey Coop. Co., 88 Colo. 555, 298 P. 957 (1931).

The authority to confess judgment is construed strictly against the party in whose favor it is given. Stewart v. Pub. Indus. Bank, 85 Colo. 546, 277 P. 782 (1929).

"Owing" construed as "due". Where a note was made payable on or before 12 months after date, to be paid in monthly installments, a provision permitting a judgment for amounts then "owing", was construed to permit a judgment for amounts then "due". Stewart v. Pub. Indus. Bank, 85 Colo. 546, 277 P. 782 (1929).

Note payable in installments is negotiable. A promissory note made payable on or before 12 months after date to be paid in monthly installments is negotiable, inasmuch as principal of note payable one year from date is "owing" when note is given but is not then "due". Stewart v. Pub. Indus. Bank, 85 Colo. 546, 277 P. 782 (1929).

A line of credit is not a negotiable instrument because it does not meet the "fixed amount" requirement under this section. Because the credit agreement at issue allows the borrowers to draw below and above the credit limit by repaying and re-borrowing, the amount the borrowers promised to pay could not be determined from the credit agreement. Therefore, the credit agreement does not reflect a promise or order to pay a "fixed amount" and is not a negotiable instrument. CadleRock Joint Venture v. Esperanza, 2021 COA 119, 500 P.3d 402.

Where the holder of a note payable in installments agrees to postpone subsequent installments upon the payment of pending interim installments, thereby extending the time of the installments, there is an accord and satisfaction without regard to the question of consideration for an extension where the debtor fulfills the requirements. French v. Commercial Credit Co., 99 Colo. 447, 64 P.2d 127 (1936).

Principal not altered as basis of interest. Provision in note that upon a contingency a portion of the note should be cancelled does not alter the principal amount of the note as the basis of interest computation. Colo. Herald Publ'g Co. v. Neuhaus, 117 Colo. 172, 184 P.2d 1011 (1947).

Renewal notes given by administratrix held not to change character of original indebtedness. Haley v. Austin, 74 Colo. 571, 223 P. 43 (1924).

Applied in State ex rel. State Banking Bd. v. First Nat'l Bank, 394 F. Supp. 979 (D. Colo. 1975); W. Greeley Nat'l Bank v. Wygant, 650 P.2d 1339 (Colo. App. 1982).

II. NEGOTIABLE INSTRUMENT - REQUIREMENTS.

Construction of promissory note should be adopted which is favorable to validity of instrument. Metro. State Bank v. McNutt, 73 Colo. 291, 215 P. 151 (1923).

For a promissory note to be negotiable, and to pass to an indorsee thereof the protections afforded to a "holder in due course", it must contain both an unconditional promise to pay and a fixed or determinable date of payment. Bank of Kimball v. Rostek, 161 Colo. 584, 423 P.2d 579 (1967).

To be a negotiable instrument subject to the statutes governing such instruments, an instrument must contain an unconditional promise to pay a fixed amount of money on demand or at a definite time. If a written agreement makes an obligation to pay subject to an express condition, not payable on demand, the agreement is not a negotiable instrument, and the statutory provisions relating to negotiable instruments are inapplicable to the transaction. Reid v. Pyle, 51 P.3d 1064 (Colo. App. 2002).

Where plaintiff's obligation to pay was expressly conditioned on "the sale or transference" of the property, the promissory note was not a negotiable instrument. Reid v. Pyle, 51 P.3d 1064 (Colo. App. 2002).

A note conditioned on its face on services to be rendered and which is not to be paid until the object of the services is secured is nonnegotiable. Mulligan v. Smith, 13 Colo. App. 231, 57 P. 731 (1899).

Recitation that note is secured does not render a note nonnegotiable. A promissory note containing an unconditional promise to pay a definite amount on demand is not rendered nonnegotiable because it recites that it is secured by a quitclaim deed. First Nat'l Bank v. Mineral Farm Co., 17 Colo. App. 452, 68 P. 981 (1902).

Provisions for foreclosure. Where a negotiable note is secured by a deed of trust, provisions in the deed providing for foreclosure upon the grantor's failure to pay taxes and insurance do not render the note uncertain as to amount or time of payment. Frost v. Fisher, 13 Colo. App. 322, 58 P. 872 (1899).

Uncertainty as to time of payment of a note does not affect it as an enforceable contract between the parties thereto, although it makes it nonnegotiable. Simpson v. Baber, 74 Colo. 175, 220 P. 235 (1923).

The fact that a note does not contain the words "to order" or "to bearer" does not affect its negotiability. Patent Title Co. v. Stratton, 89 F. 174 (D. Colo. 1898).

III. NEGOTIABLE INSTRUMENT - TYPES.

A check is a species of bill of exchange, viz., that particular kind of a bill which is drawn on a bank and payable on demand. Van Buskirk v. State Bank, 35 Colo. 142, 83 P. 778 (1905).

A check is considered a thing of value. Updike v. People, 92 Colo. 125, 18 P.2d 472 (1933).

Where one issues a check there is an implied representation that there are sufficient funds in bank at the time to cover the check. Kilbourn v. W. Surety Co., 187 F.2d 567 (10th Cir. 1951).

A bank certificate of deposit is a negotiable instrument and subject to transfer. LeZotte v. Bank of Del Norte, 86 Colo. 136, 278 P. 606 (1929).

Instrument acknowledging existing debt is not promissory note. Shearer v. Shearer, 84 Colo. 234, 269 P. 19 (1928).

For purposes of a cashier's check, since the issuing bank is both the drawer and the drawee, the check becomes a promise by the bank to draw the amount of the check from its own resources and to pay the check upon demand. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).

Thus, the issuance of a cashier's check constitutes an acceptance by the issuing bank and the cashier's check itself becomes the primary obligation of the bank. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).

Once the bank issues and delivers the cashier's check to the payee, the transaction is complete as far as the payee is concerned. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).

Because the issuing bank is obligated to pay the cashier's check upon presentment, a cashier's check is essentially the same as cash. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).

Cashier's checks represent the unconditional obligation of the issuing bank to pay, and therefore, banks may not dishonor their cashier's checks once issued. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).

IV. ATTORNEY FEES.

A negotiable instrument is not rendered nonnegotiable by provisions for attorney fees if not paid at maturity. Cowing v. Cloud, 16 Colo. App. 326, 65 P. 417 (1901).

A stipulation for attorney's fees is intended to protect the holder against loss, if the maker fails to fulfill his undertaking, and there is no reason why the latter may not contract to bear the result occasioned by his own default. Florence Oil Ref. Co. v. Hiawatha Gas, Oil, & Ref. Co., 55 Colo. 378, 135 P. 454 (1913).

Indemnification for collection expenses. A provision for a fixed amount for attorney fees is an agreement to indemnify the holder against expenses incurred in the employing of an attorney for the enforcement of collection when the maker fails to keep his agreement. Florence Oil Ref. Co. v. Hiawatha Gas, Oil, & Ref. Co., 55 Colo. 378, 135 P. 454 (1913).

The holder can only recover such part thereof as will reimburse him for the reasonable and necessary attorney fees he has been compelled to pay, or has become liable for, in enforcing the collection of the note. Florence Oil Ref. Co. v. Hiawatha Gas, Oil, & Ref. Co., 55 Colo. 378, 135 P. 454 (1913).

Reasonableness of attorney fees is implicit in such an agreement. Where under the terms of a note, the holder is authorized to collect attorney fees for collection costs in case of default, implicit in such agreement is the recognition that such attorney fees will be reasonable, that is, commensurate with the actual labor and time expended by the attorney. Haffke v. Linker, 30 Colo. App. 61, 489 P.2d 1050 (1971).

Expenses incurred must be actual and bona fide expenses. Where a note provides for an attorney fee, and the holder of the note employs counsel, who successfully brings suit on the note, a reasonable fee fixed by the court may be included in the judgment. Such a provision amounts to an agreement to indemnify the holder of the note against expenses actually incurred, and the payment or obligation must be actual, bona fide, and reasonable. Luby v. Jefferson County Bank, 28 Colo. App. 441, 476 P.2d 292 (1970).

Attorney fees must be shown to have been incurred and reasonable. The holder of a note providing for the payment of reasonable attorney fees upon collection is entitled to the recovery of such a fee only upon a showing that the fee actually has been paid or incurred, and that the amount of the fee is reasonable. Haffke v. Linker, 30 Colo. App. 76, 489 P.2d 1047 (1971).

Necessity to prove that fees were actually incurred. Proof that attorney fees provided for by a promissory note have actually been paid or incurred is a material matter to be proven, because recompense is justified only as indemnity to the note holder; absent proof of payment or obligation, there is nothing to indemnify, and hence there can be no recovery. Reese v. Lietzan, 160 Colo. 253, 419 P.2d 959 (1966).

Fact of agreement does not establish reasonableness. Merely because there is an agreement as to a contingent fee between the holder and an attorney does not mean that the sum agreed upon is a reasonable fee to be assessed against the maker in an action to collect the balance due on default. Haffke v. Linker, 30 Colo. App. 61, 489 P.2d 1050 (1971).

Testimony of usual fee does not establish reasonableness. Testimony relating only to the usual fee arrangement between the holder of a note and an attorney employed by the holder to collect the note does not establish the reasonableness of an attorney fee which a holder is entitled to recover from the maker in a suit on a promissory note. Haffke v. Linker, 30 Colo. App. 76, 489 P.2d 1047 (1971).