CO Code § 4-3-201 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 2 - Negotiation, Transfer, and Indorsement|§ 4-3-201. Negotiation

  “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.    Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.     History. Source: L. 94: Entire article R&RE, p. 850, § 1, effective January 1, 1995.    Cross references:   For offenses relating to this title, see part 5 of article 5 of title 18.   Official Comments   Copyright by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. Reproduced with the permission of the Permanent Editorial Board for the Uniform Commercial Code. All rights reserved. —   Editor's note:   The Official Comments to the Uniform Commercial Code are available only in the printed book form of Colorado Revised Statutes. As noted above, the Official Comments are subject to copyright by the American Law Institute and the National Conference of Commissioners on Uniform State Laws. At this time, Colorado has a license to reprint the Official Comments in the printed book form.   Editor's note:   This article was numbered as article 3 of chapter 155, C.R.S. 1963. The provisions of this article were repealed and reenacted in 1994, resulting in the addition, relocation, and elimination of sections as well as subject matter. For amendments to this article prior to 1994, consult the Colorado statutory research explanatory note and the table itemizing the replacement volumes and supplements to the original volume of C.R.S. 1973 beginning on page vii in the front of this volume. Former C.R.S. section numbers are shown in editor's notes following those sections that were relocated.   Editor's note:   This section is similar to former § 4-3-202 as it existed prior to 1994.   OFFICIAL COMMENT   1. Subsections (a) and (b) are based in part on subsection (1) of former Section 3-202. A person can become holder of an instrument when the instrument is issued to that person, or the status of holder can arise as the result of an event that occurs after issuance. “Negotiation” is the term used in Article 3 to describe this post-issuance event. Normally, negotiation occurs as the result of a voluntary transfer of possession of an instrument by a holder to another person who becomes the holder as a result of the transfer. Negotiation always requires a change in possession of the instrument because nobody can be a holder without possessing the instrument, either directly or through an agent. But in some cases the transfer of possession is involuntary and in some cases the person transferring possession is not a holder. In defining “negotiation” former Section 3-202(1) used the word “transfer,” an undefined term, and “delivery,” defined in Section 1-201(14) to mean voluntary change of possession. Instead, subsections (a) and (b) use the term “transfer of possession” and, subsection (a) states that negotiation can occur by an involuntary transfer of possession. For example, if an instrument is payable to bearer and it is stolen by Thief or is found by Finder, Thief or Finder becomes the holder of the instrument when possession is obtained. In this case there is an involuntary transfer of possession that results in negotiation to Thief or Finder.   2. In most cases negotiation occurs by a transfer of possession by a holder or remitter. Remitter transactions usually involve a cashier's or teller's check. For example, Buyer buys goods from Seller and pays for them with a cashier's check of Bank that Buyer buys from Bank. The check is issued by Bank when it is delivered to Buyer, regardless of whether the check is payable to Buyer or to Seller. Section 3-105(a). If the check is payable to Buyer, negotiation to Seller is done by delivery of the check to Seller after it is indorsed by Buyer. It is more common, however, that the check when issued will be payable to Seller. In that case Buyer is referred to as the “remitter.” Section 3-103(a)(11). The remitter, although not a party to the check, is the owner of the check until ownership is transferred to Seller by delivery. This transfer is a negotiation because Seller becomes the holder of the check when Seller obtains possession. In some cases Seller may have acted fraudulently in obtaining possession of the check. In those cases Buyer may be entitled to rescind the transfer to Seller because of the fraud and assert a claim of ownership to the check under Section 3-306 against Seller or a subsequent transferee of the check. Section 3-202(b) provides for rescission of negotiation, and that provision applies to rescission by a remitter as well as by a holder.   3. Other sections of Article 3 may modify the rule stated in the first sentence of subsection (b). See for example, Sections 3-404, 3-405, and 3-406.   ANNOTATION   I.GENERAL CONSIDERATION.   Law reviews. For comment on Am. Nat'l Bank v. First Nat'l Bank appearing below, see 32 Dicta 185 and 27 Rocky Mt. L. Rev. 347 (1955). 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.   Former § 4-3-202 applied in Barclay Receivables v. Mtn. Majesty, Ltd., 903 P.2d 37 (Colo. App. 1995).   Applied in Pay Ctr., Inc. v. Milton, 632 P.2d 642 (Colo. App. 1981).   II.NEGOTIATION.   A promissory note payable to the order of a named person may be transferred by mere delivery; the assignee takes the legal title and may sue in his own name, but he takes subject to then-existing defenses of the maker. Best v. Rocky Mt. Nat'l Bank, 37 Colo. 149 , 85 P. 1124 (1906); Bank of Bromfield v. McKinlay, 53 Colo. 279 , 125 P. 493 (1912).   An allegation that the payee “indorsed and transferred” the note is a sufficient allegation of delivery. Louisville Coal Min. Co. v. Int'l Trust Co., 18 Colo. App. 345, 71 P. 898 (1903).   Where negotiated to third bank. Where one draws a check on a foreign bank and deposits it with his local bank, receiving credit therefor, and this bank in turn negotiates it to a third bank for a valuable consideration, there is a sale to the latter, and it can maintain suit on the check against the original drawer. See Union Nat'l Bank v. Maines-Hough Motor Co., 70 Colo. 132 , 197 P. 753 (1921); Manatee County State Bank v. Bruen-Fisher Fruit Co., 70 Colo. 342 , 201 P. 560 (1921); First Nat'l Bank v. Bruen-Fisher Fruit Co., 70 Colo. 345 , 201 P. 561 (1921). But see First Nat'l Bank v. Fleming State Bank, 74 Colo. 309 , 221 P. 891 (1923); Scully v. Denver Nat'l Bank, 76 Colo. 227 , 230 P. 610 (1924).   Applied in Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954); In re Miller, 666 F.3d 1255 (10th Cir. 2012).