Colorado § 4-3-110 - Identification of person to whom instrument is payable.

§ 4-3-110. Identification of person to whom instrument is payable.

(a) The person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument. The instrument is payable to the person intended by the signer even if that person is identified in the instrument by a name or other identification that is not that of the intended person. If more than one person signs in the name or behalf of the issuer of an instrument and all the signers do not intend the same person as payee, the instrument is payable to any person intended by one or more of the signers.

(b) If the signature of the issuer of an instrument is made by automated means, such as a check-writing machine, the payee of the instrument is determined by the intent of the person who supplied the name or identification of the payee, whether or not authorized to do so.

(c) A person to whom an instrument is payable may be identified in any way, including by name, identifying number, office, or account number. For the purpose of determining the holder of an instrument, the following rules apply:

(1) If an instrument is payable to an account and the account is identified only by number, the instrument is payable to the person to whom the account is payable. If an instrument is payable to an account identified by number and by the name of a person, the instrument is payable to the named person, whether or not that person is the owner of the account identified by number.

(2) If an instrument is payable to:

(i) A trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative, or a successor of either, whether or not the beneficiary or estate is also named;

(ii) A person described as agent or similar representative of a named or identified person, the instrument is payable to the represented person, the representative, or a successor of the representative;

(iii) A fund or organization that is not a legal entity, the instrument is payable to a representative of the members of the fund or organization; or

(iv) An office or to a person described as holding an office, the instrument is payable to the named person, the incumbent of the office, or a successor to the incumbent.

(d) If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

Source: L. 94: Entire article R&RE, p. 845, § 1, effective January 1, 1995.

Editor's note: This section is similar to former §§ 4-3-116 and 4-3-117 as they existed prior to 1994.

ANNOTATION

I. General Consideration.

II. In Alternative.

III. Not in Alternative.

I. GENERAL CONSIDERATION.

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

This section implies an exception to the parol evidence rule even if a negotiable instrument is clear on its face as to whom the payee is. Electrical Distribs., Inc. v. SFR, Inc., 166 F.3d 1074 (10th Cir. 1999).

A promissory note drawn to the order of "A or B" creates alternative and not joint payees. Reese v. Lietzan, 160 Colo. 253, 419 P.2d 959 (1966).

While there are cases in which the disjunctive "or" has been construed as the conjunctive "and" so as to create a joint rather than an alternative interest, unique and exceptional circumstances have always accompanied the result. Reese v. Leitzan, 160 Colo. 253, 419 P.2d 959 (1966).

Effect of treating order paper as bearer paper. When a drawer of a check names a specific payee, the check becomes order rather than bearer paper. If a bank chooses to treat such checks as bearer paper, it acts at its own peril and may be liable for negligence if it misapplies the proceeds of the check. Arvada Hardwood Floor Co. v. James, 638 P.2d 828 (Colo. App. 1981).

II. IN ALTERNATIVE.

The phrase "and/or" in written instruments means either "and" or "or", or both. Denver-Metro Collections, Inc. v. Kleeman, 30 Colo. App. 218, 491 P.2d 64 (1971).

Where the payees of notes are listed as A "and/or" B, under the provisions of this section there would be no question of the authority of a singular payee to assign the notes, since where the phrase "and/or" is used, then either payee, or both, may enforce the note as written. Denver-Metro Collections, Inc. v. Kleeman, 30 Colo. App. 218, 491 P.2d 64 (1971).

III. NOT IN ALTERNATIVE.

Law reviews. For comment on Am. Nat'l Bank v. First Nat'l Bank appearing below, see 32 Dicta 185 (1955) and 27 Rocky Mt. L. Rev. 347 (1955).

Under common law and N.I.L. the negotiable instruments law adopted the common-law rule providing that where a check is payable to the order of two or more persons who are not partners, all of them had to indorse unless the one so doing had authority to indorse for the other payees, and this joint indorsement was necessary for a complete negotiation; where one of the payees failed to indorse, the negotiability of the check was completely destroyed. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557, 277 P.2d 951 (1954).

In the absence of a necessary indorsement by a co-payee the instrument is nonnegotiable and not subject to cashing. F. R. Orr Constr. Co. v. Ready Mixed Concrete Co., 28 Colo. App. 273, 472 P.2d 193 (1970).

Holder acquires only a chose in action. The failure of one of two joint payees to indorse destroys the negotiability of a check, and the holder of the check acquires only as an assignee of a nonnegotiable chose in action the interest of the payee who did indorse; as such an assignee, his interest in the proceeds of the check is to be determined. Skinner v. Mortgage Inv. Co., 165 Colo. 241, 438 P.2d 504 (1968). See Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557, 277 P.2d 951 (1954).

The drawee bank is authorized to pay out funds belonging to its depositor when, and only when, the check is indorsed by the payees therein, or by persons who have satisfied it or the bank to which the check is presented for payment of their right to the proceeds. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557, 277 P.2d 951 (1954).

In the absence of actual fault on the part of the drawee, its failure to observe the fact of the absence of the indorsement of one of the payees, due entirely to the fault or neglect of the holder, will not preclude its recovery. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557, 277 P.2d 951 (1954).

As a greater duty is imposed on the holder. The absence of an indorsement by the holder is as serious, if not more so, than a forged indorsement; the first is easily discernible while the other is the result of an error in the identification of the payee. Consequently, if it is the duty of the bank cashing the check to know to a positive certainty the identity of the payee named therein and its failure so to do imposes a duty of reimbursing the drawee, it seems clear that the failure to secure the indorsement of all of the payees imposes an even greater duty on the holder. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557, 277 P.2d 951 (1954).