CO Code § 4-4-205 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 4 - Bank Deposits and Collections|Part 2 - Collection of Items - Depositary and Collecting Banks|§ 4-4-205. Depositary Bank Holder of Unindorsed Item

 If a customer delivers an item to a depositary bank for collection:    The depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of section 4-3-302, it is a holder in due course; and    The depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer's account.     History. Source: L. 94: Entire article amended with relocations, p. 887, § 2, effective January 1, 1995.    OFFICIAL COMMENT   Section 3-201(b) provides that negotiation of an instrument payable to order requires indorsement by the holder. The rule of former Section 4-205(1) was that the depositary bank may supply a missing indorsement of its customer unless the item contains the words “payee's indorsement required” or the like. The cases have differed on the status of the depositary bank as a holder if it fails to supply its customer's indorsement. Marine Midland Bank, N.A. v. Price, Miller, Evans Flowers, 446 N.Y.S.2d 797 (N.Y.Apo. Div.4th Dept. 1981),rev'd,455 N.Y.S.2d 565 (N.Y. 1982). It is common practice for depositary banks to receive unindorsed checks under so-called “lock-box” agreements from customers who receive a high volume of checks. No function would be served by requiring a depositary bank to run these items through a machine that would supply the customer's indorsement except to afford the drawer and the subsequent banks evidence that the proceeds of the item reached the customer's account. Paragraph (1) provides that the depositary bank becomes a holder when it takes the item for deposit if the depositor is a holder. Whether it supplies the customer's indorsement is immaterial. Paragraph (2) satisfies the need for a receipt of funds by the depositary bank by imposing on that bank a warranty that it paid the customer or deposited the item to the customer's account. This warranty runs not only to collecting banks and to the payor bank or nonbank drawee but also to the drawer, affording protection to these parties that the depositary bank received the item and applied it to the benefit of the holder.   ANNOTATION   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   Liability of indorser where estoppel created. While the principle that an indorser is liable on his warranty is correctly stated, the rule has no application when an estoppel has been created which would preclude plaintiff from obtaining a refund of the amount paid to defendant. First Nat'l Bank v. Ulibarri, 38 Colo. App. 428, 557 P.2d 1221 .   Subsection (1) under former law held inapplicable where the depository bank did not in fact place a statement on the item to be collected, which statement would have been effective as its customer's indorsement. La Junta State Bank v. Travis, 727 P.2d 48 (Colo. 1986).   It was impossible for bank to provide indorsement on check because payee was not the bank's customer. The indorsement by the bank was unauthorized as a matter of law. Kelly v. Central Bank and Trust Co., 794 P.2d 1037 (Colo. App. 1989).   Subsection (1) under former law does not permit depository bank to evade duties imposed by § 4-3-206(3) under former law. Subsection (1) does not permit a depository bank to evade its duty to act consistently with restrictive endorsements as provided by § 4-3-206 (3) . La Junta State Bank v. Travis, 727 P.2d 48 (Colo. 1986).   The duty to examine a restrictive indorsement and follow its directions may require a bank to refuse to deposit an item in a particular account if such conduct would be inconsistent with the restrictive indorsement, or to investigate rather than accept an item as a matter of course. La Junta State Bank v. Travis, 727 P.2d 48 (Colo. 1986).   Subsection (2) under former law not in conflict with requirements of § 4-3-206 (2) under former law. The clear import of both subsection (2) and § 4-3-206 (2) is that while intermediary banks and nondepository payor banks may ignore all restrictive indorsements except those of the bank's immediate transferor, depository banks may not so ignore restrictive indorsements. La Junta State Bank v. Travis, 727 P.2d 48 (Colo. 1986).