Colorado § 4-3-406 - Negligence contributing to forged signature or alteration of instrument.

§ 4-3-406. Negligence contributing to forged signature or alteration of instrument.

(a) A person whose failure to exercise ordinary care contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.

(b) Under subsection (a) of this section, if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.

(c) Under subsection (a) of this section, the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subsection (b) of this section, the burden of proving failure to exercise ordinary care is on the person precluded.

Source: L. 94: Entire article R&RE, p. 865, § 1, effective January 1, 1995.

Editor's note: This section is similar to former § 4-3-406 as it existed prior to 1994.

ANNOTATION

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). For article, "Commercial Law", which discusses a Tenth Circuit decision dealing with bank liability on forged commercial paper, see 62 Den. U. L. Rev. 84 (1985). For article, "Civil Liability for Check Forgeries in Colorado", see 16 Colo. Law. 959 (1987).

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

For discussion of the standard of a bank's liability for payments made on forged withdrawal slips, see Bill Manning, Inc. v. Denver West Bank and Trust, 697 P.2d 403 (Colo. App. 1984).

Where undisputed evidence established that collecting bank failed to make inquiries as to the authority of a corporate treasurer to deposit checks payable to corporation into the personal account of the treasurer, the court properly determined that the bank had not acted according to reasonable commercial standards. Central Inc. v. Cache Nat'l Bank, 748 P.2d 351 (Colo. App. 1987).

Where bank fails to establish that payment of an altered instrument was in good faith and in accordance with reasonable commercial standards, plaintiff's negligence is irrelevant. Central Inc. v. Cache Nat'l Bank, 748 P.2d 351 (Colo. App. 1987).

Effect of stop-payment order on postdated check. Although a stop-payment order on a postdated check forbids payment by the bank to the payee or endorser, the maker remains liable on the instrument. Esecson v. Bushnell, 663 P.2d 258 (Colo. App. 1983).

While a payor bank's issuance of a cashier's check based on a forged power of attorney may have been a lax and even negligent business practice, it did not induce the collecting bank to accept and pay on the fraudulently endorsed checks and, therefore, was not the proximate cause of the improper payment of the checks. Vectra Bank of Englewood v. Bank Western, 890 P.2d 259 (Colo. App. 1995).