Colorado § 4-3-310 - Effect of instrument on obligation for which taken.

§ 4-3-310. Effect of instrument on obligation for which taken.

(a) Unless otherwise agreed, if a certified check, cashier's check, or teller's check is taken for an obligation, the obligation is discharged to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the obligation. Discharge of the obligation does not affect any liability that the obligor may have as an indorser of the instrument.

(b) Unless otherwise agreed and except as provided in subsection (a) of this section, if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply:

(1) In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check.

(2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment.

(3) Except as provided in paragraph (4) of this subsection (b), if the check or note is dishonored and the obligee of the obligation for which the instrument was taken is the person entitled to enforce the instrument, the obligee may enforce either the instrument or the obligation. In the case of an instrument of a third person which is negotiated to the obligee by the obligor, discharge of the obligor on the instrument also discharges the obligation.

(4) If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not enforce the obligation to the extent the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no longer has possession of it because it was lost, stolen, or destroyed, the obligation may not be enforced to the extent of the amount payable on the instrument, and to that extent the obligee's rights against the obligor are limited to enforcement of the instrument.

(c) If an instrument other than one described in subsection (a) or (b) of this section is taken for an obligation, the effect is (i) that stated in subsection (a) of this section if the instrument is one on which a bank is liable as maker or acceptor, or (ii) that stated in subsection (b) of this section in any other case.

Source: L. 94: Entire article R&RE, p. 859, § 1, effective January 1, 1995.

ANNOTATION

Payment by cashier's check, certified funds, or certified check on debtor's account was "taken" for obligation under subsection (a) without regard to bank's internal administrative actions after receipt of payment. Fifth Third Bank v. Jones, 168 P.3d 1 (Colo. App. 2007).

Check was "taken" only while it was held without being cashed. When a homeowner tendered a check to a homeowners' association and the association subsequently returned the check to the homeowner, the check was "taken", and the homeowner's debt obligation to the association was suspended only while the association had possession of the check. Briargate at Seventeenth Ave. v. Nelson, 2021 COA 78M, 494 P.3d 1149.

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).

Rule that negotiable instrument constitutes conditional payment is subject to condition "unless otherwise agreed" is applied in Berardini v. Hart, 682 P.2d 519 (Colo. App. 1984).

Applied in Mtn. Stone Co. v. H.W. Hammond Co., 39 Colo. App. 58, 564 P.2d 958 (1977).