CO Code § 4-3-303 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 3 - Enforcement of Instruments|§ 4-3-303. Value and Consideration

  An instrument is issued or transferred for value if:   The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;    The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;    The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;    The instrument is issued or transferred in exchange for a negotiable instrument; or    The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.       “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subsection (a) of this section, the instrument is also issued for consideration.     History. Source: L. 94: Entire article R&RE, p. 855, § 1, effective January 1, 1995.    Editor's note:   This section is similar to former § 4-3-303 as it existed prior to 1994.   OFFICIAL COMMENT   1. Subsection (a) is a restatement of former Section 3-303 and subsection (b) replaces former Section 3-408. The distinction between value and consideration in Article 3 is a very fine one. Whether an instrument is taken for value is relevant to the issue of whether a holder is a holder in due course. If an instrument is not issued for consideration the issuer has a defense to the obligation to pay the instrument. Consideration is defined in subsection (b) as “any consideration sufficient to support a simple contract.” The definition of value in Section 1-201(44), which doesn't apply to Article 3, includes “any consideration sufficient to support a simple contract.” Thus, outside Article 3, anything that is consideration is also value. A different rule applies in Article 3. Subsection (b) of Section 3-303 states that if an instrument is issued for value it is also issued for consideration.   Case #1. X owes Y $1,000. The debt is not represented by a note. Later X issues a note to Y for the debt. Under subsection (a)(3) X's note is issued for value. Under subsection (b) the note is also issued for consideration whether or not, under contract law, Y is deemed to have given consideration for the note.   Case #2. X issues a check to Y in consideration of Y's promise to perform services in the future. Although the executory promise is consideration for issuance of the check it is value only to the extent the promise is performed. Subsection (a)(1).   Case #3. X issues a note to Y in consideration of Y's promise to perform services. If at the due date of the note Y's performance is not yet due, Y may enforce the note because it was issued for consideration. But if at the due date of the note, Y's performance is due and has not been performed, X has a defense. Subsection (b).   2. Subsection (a), which defines value, has primary importance in cases in which the issue is whether the holder of an instrument is a holder in due course and particularly to cases in which the issuer of the instrument has a defense to the instrument. Suppose Buyer and Seller signed a contract on April 1 for the sale of goods to be delivered on May 1. Payment of 50% of the price of the goods was due upon signing of the contract. On April 1 Buyer delivered to Seller a check in the amount due under the contract. The check was drawn by X to Buyer as payee and was indorsed to Seller. When the check was presented for payment to the drawee on April 2, it was dishonored because X had stopped payment. At that time Seller had not taken any action to perform the contract with Buyer. If X has a defense on the check, the defense can be asserted against Seller who is not a holder in due course because Seller did not give value for the check. Subsection (a)(1). The policy basis for subsection (a)(1) is that the holder who gives an executory promise of performance will not suffer an out-of-pocket loss to the extent the executory promise is unperformed at the time the holder learns of dishonor of the instrument. When Seller took delivery of the check on April 1, Buyer's obligation to pay 50% of the price on that date was suspended, but when the check was dishonored on April 2 the obligation revived. Section 3-310(b). If payment for goods is due at or before delivery and the buyer fails to make the payment, the seller is excused from performing the promise to deliver the goods. Section 2-703. Thus, Seller is protected from an out-of-pocket loss even if the check is not enforceable. Holder-in-due-course status is not necessary to protect Seller.   3. Subsection (a)(2) equates value with the obtaining of a security interest or a nonjudicial lien in the instrument. The term “security interest” covers Article 9 cases in which an instrument is taken as collateral as well as bank collection cases in which a bank acquires a security interest under Section 4-210. The acquisition of a common-law or statutory banker's lien is also value under subsection (a)(2). An attaching creditor or other person who acquires a lien by judicial proceedings does not give value for the purposes of subsection (a)(2).   4. Subsection (a)(3) follows former Section 3-303(b) in providing that the holder takes for value if the instrument is taken in payment of or as security for an antecedent claim, even though there is no extension of time or other concession, and whether or not the claim is due. Subsection (a)(3) applies to any claim against any person; there is no requirement that the claim arise out of contract. In particular the provision is intended to apply to an instrument given in payment of or as security for the debt of a third person, even though no concession is made in return.   5. Subsection (a)(4) and (5) restate former Section 3-303(c). They state generally recognized exceptions to the rule that an executory promise is not value. A negotiable instrument is value because it carries the possibility of negotiation to a holder in due course, after which the party who gives it is obliged to pay. The same reasoning applies to any irrevocable commitment to a third person, such as a letter of credit issued when an instrument is taken.   ANNOTATION   I.GENERAL CONSIDERATION.   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   The giving of credit without more is not giving of value. Atkinson v. Englewood State Bank, 141 Colo. 436 , 348 P.2d 702 (decided under repealed § 95-1-52, C.R.S. 1963, negotiable instruments law). The giving of credit without more is not giving of value. Atkinson v. Englewood State Bank, 141 Colo. 436 , 348 P.2d 702 (decided under repealed § 95-1-52, C.R.S. 1963, negotiable instruments law).   II.WANT OF CONSIDERATION AS A DEFENSE.   One cannot recover amount of a draft given without consideration, there being no question of the rights of an innocent holder. Moise Bros. Co. v. Jamison, 89 Colo. 278 , 1 P.2d 925 (1931).   Partial failure of consideration is a defense pro tanto only to an action on a promissory note. Gillett v. Cheairs, 79 Colo. 20 , 243 P. 1112 (1926).   Though vendor who is unable to convey title cannot recover on note given in part payment of the purchase price of the property, but having delivered possession, he is, in equity, entitled to protection. Gillett v. Cheairs, 79 Colo. 20 , 243 P. 1112 (1926).   Where a guaranteed renewal note is given in payment of, or as security for an antecedent obligation to pay loan that maker obtained from bank, want of consideration is no defense to suit by bank against guarantors of note which is not paid by insolvent maker. State Bank v. Owens, 31 Colo. App. 351, 502 P.2d 965 (1972).   The validity of consideration created by antecedent debt is not affected by fact that the old note is not surrendered, provided there is no agreement to return the old note, which has not been transferred to one other than the payee of the new note. Wolf v. Larimer County Bank Trust Co., 79 Colo. 376 , 246 P. 285 (1926).   Nonperformance constitutes defense. Where the directors and stockholders of an insolvent state bank gave their individual notes to the bank which took over the assets on the promise of the latter to perform certain conditions, nonperformance of conditions constituted a defense to liability on the notes. Weicker v. Bromfield, 34 F.2d 377 (10th Cir. 1929).   Where the purpose is served. Where defendant executed notes in payment of his share of the expense of building a drain ditch the ditch being built and serving its purpose, he could not avoid payment of his notes because the ditch was not placed on a certain section line as provided in the agreement, under the contention that this constituted a failure of consideration. Fort v. Roberts, 82 Colo. 572 , 261 P. 664 (1927).   III.PRESUMPTION OF CONSIDERATION.   Promissory note which shows on its face that it is given for value imports consideration. Neal v. Wilson County Bank, 83 Colo. 118 , 263 P. 18 (1927).   Maker must overcome presumption of consideration. Since a note is prima facie presumed to be based on a valuable consideration and that one whose signature is placed thereon is presumed to have become a party for value, the maker, when sued by the payee, must overcome the presumption by showing, as an affirmative defense, that there was an absence or failure of consideration. Luby v. Jefferson County Bank, 28 Colo. App. 441, 476 P.2d 292 (1970).   Burden is on party pleading such. In an action on a promissory note, the burden of proving want or failure of consideration is on the party pleading it. James v. Ward, 80 Colo. 293 , 250 P. 1097 (1926).   Absence of failure of consideration is an affirmative defense. Luby v. Jefferson County Bank, 28 Colo. App. 441, 476 P.2d 292 (1970).   Defense must be established by fair preponderance of evidence. Under this section a defendant who affirmatively pleads absence or failure of consideration has the burden of establishing his defense by a fair preponderance of the evidence, which burden remains with him throughout the trial. Hickman-Lunbeck Grocery Co. v. Hager, 75 Colo. 554 , 227 P. 829 (1924).   Defense fails where no evidence. A duly executed promissory note imports consideration, and no evidence to the contrary being introduced, a defensive allegation of no consideration, fails. Viles v. Jackson, 105 Colo. 68 , 94 P.2d 1085 (1939).   Failure of consideration for a promissory note may be shown by parol where the action is between the original parties to the note. Berta v. Rocchio, 149 Colo. 325 , 369 P.2d 51 (1962).   Where agreement recites payment in full. Where notes are given in accordance with an agreement which recites they are payment in full for rights conveyed thereby, parol evidence cannot be introduced to prove there was to be additional consideration for the notes. Collins v. Shaffer, 66 Colo. 84 , 179 P. 152 (1919).   Notwithstanding, presumption does not apply where fiduciary relationship. The general presumption of consideration of promissory notes is overcome by the specific presumption arising out of where there is a fiduciary relationship, in which case the claimant must overcome, by evidence, the presumption of undue influence with which the transaction is tainted because of the existence of the fiduciary relationship. Arnold v. Abernethy, 134 Colo. 573 , 307 P.2d 1106 (1957).   IV.WHAT CONSTITUTES CONSIDERATION.   A.Adequate.   A benefit to the promisor or a detriment to the promisee can constitute consideration, however slight. Luby v. Jefferson County Bank, 28 Colo. App. 441, 476 P.2d 292 (1970).   A promise for a promise is a valid consideration. Denver Indus. Corp. v. Kesselring, 90 Colo. 295 , 8 P.2d 767 (1932).   A single consideration which moves to any one of two or more comakers of a note will be adequate or sufficient to support the undertaking of them all. Luby v. Jefferson County Bank, 28 Colo. App. 441, 476 P.2d 292 (1970).   The fact that the proceeds of the loan go to a comaker of the note or to his designee does not constitute a lack or failure of consideration. Luby v. Jefferson County Bank, 28 Colo. App. 441, 476 P.2d 292 (1970).   Extension of the time for the payment of a sum of money is a sufficient consideration for the execution of a promissory note. Wheelock v. Hondius, 74 Colo. 400 , 222 P. 404 (1924).   Extension of the time for the payment of a sum of money does not promise to continue paying interest. An extension for time of payment is not invalid for lack of consideration where such extension does not promise to continue to pay interest, for in such circumstances the promise to pay interest is implied. Adamson v. Bosick, 82 Colo. 309 , 259 P. 513 (1927).   Where unpaid interest due after maturity is added to the past due principal and an extension of time is granted on the new amount, there is a valid consideration for the extension. Foote v. Larimer County Bank Trust Co., 82 Colo. 323 , 259 P. 1031 (1927).   Between the immediate parties, payment in advance of installment and interest payments on a promissory note are sufficient consideration for an extension agreement that future payments each year will be postponed until receipt of money from the annual sale of crops. Kuhlman v. McCormick, 116 Colo. 300 , 180 P.2d 863 (1947).   For extension of time for payment of obligation constitutes consideration. State Bank v. Owens, 31 Colo. App. 351, 502 P.2d 965 (1972).   Including for attorney's fees. An extension of time for payment of an account is sufficient consideration for a provision for attorney's fees in notes taken. Taylor v. Continental Supply Co., 16 F.2d 578 (8th Cir. 1926).   Where a maker of a note makes a partial payment on it by a check of another which is dishonored and then subsequently makes another note for the amount of the check, the debt due the bank is sufficient consideration for the second note. Peterson v. First State Bank, 79 Colo. 494 , 246 P. 784 (1926).   A preexisting debt is sufficient consideration for a promissory note. Beaman v. Stewart, 19 Colo. App. 226, 74 P. 344 (1903).   Preexisting debt sufficient consideration for check. Georg v. Metro Fixtures Contractors, Inc., 178 P.3d 1209 (Colo. 2008).   The debt of another. Where a promissory note of an individual is executed and received in satisfaction of the debt of another in whole, there is sufficient consideration for the new indebtedness. Lomax v. Colo. Nat'l Bank, 46 Colo. 229 , 104 P. 85 (1909).   Settlement of a disputed claim is in itself sufficient consideration for the execution of a promissory note. Tisdel v. Central Sav. Bank Trust Co., 90 Colo. 114 , 6 P.2d 912 (1931). But see Moise Bros. Co. v. Jamison, 89 Colo. 278 , 1 P.2d 925 (1931).   Even though the claim be of doubtful value. A note given in consideration of the settlement of a claim made in good faith, even though the claim be of doubtful value, is based on a valid consideration. Dixon v. Retallic, 80 Colo. 78 , 249 P. 2 (1926). But see Moise Bros. Co. v. Jamison, 89 Colo. 278 , 1 P.2d 925 (1931).   Forbearance in not suing on a promissory note is a valid consideration for the execution of a new note. James v. Ward, 80 Colo. 293 , 250 P. 1097 (1926). But see Moise Bros. Co. v. Jamison, 89 Colo. 278 , 1 P.2d 925 (1931).   The relinquishment of a void homestead entry whereby the entrant surrenders the land, thereby saving the expense of a contest, is sufficient consideration to support a note given in payment for the relinquishment. Huff v. Geis, 71 Colo. 7 , 203 P. 677 (1922).   An agreement to convey land is a sufficient consideration for a promissory note. Gillett v. Cheairs, 79 Colo. 20 , 243 P. 1112 (1926).   A promissory note executed by a judgment debtor to his creditor is sufficient consideration for the release and satisfaction of the judgment. Blythe v. Cordingly, 20 Colo. App. 580, 80 P. 495 (1905).   Note signed by officer and stockholder to procure money for corporation is based on valid consideration. James v. Ward, 80 Colo. 293 , 250 P. 1097 (1926). See Hunt v. Central Sav. Bank Trust Co., 76 Colo. 480 , 231 P. 60 (1925).   Note given to reduce excess loan to corporation. A promissory note given to a bank by an individual stockholder and officer of a corporation for the purpose of reducing the amount of an excess loan to his company, to which the state bank examiner had objected, is based upon a valid consideration. Rogers v. First State Bank, 79 Colo. 84 , 243 P. 637 (1926). But see Cripple Creek State Bank v. Rollestone, 70 Colo. 434 , 202 P. 115 (1921).   A stockholder who gives a note for money advanced by another to pay for a pro rata share of an anticipated assessment to restore impaired capital cannot allege lack of consideration for such note, as payment of the money discharged a liability as a stockholder. Campbell v. Hoch, 88 Colo. 303 , 295 P. 798 (1931).   Where a party, after the discounting of a note, indorses it pursuant to a previous agreement, his act in signing relates back to the original contract and is supported by the same consideration. It is not necessary that he agreed to sign the note; rather, it is sufficient that the original maker promised to procure his signature and that he signed pursuant to such promise. Loveland v. Sigel-Campion Live Stock Co., 77 Colo. 22 , 234 P. 168 (1925).   Where maker executes a note without consideration and the payee indorses it “without recourse”, leaving such with the maker who credits payment thereon to reduce an amount equal to a loan from another to him by indorsing the note to this individual, the fact of no consideration as to the original transaction does not avail the maker as against this third party who took under an unqualified indorsement. Beach v. Bennett, 16 Colo. App. 459, 66 P. 567 (1901).   B.Inadequate.   A note given to a store for indebtedness is void for lack of consideration where the store does not credit the account for the amount of the note; since the indebtedness exists both prior and subsequent to the payment of the note there is no consideration. Daniels Fisher Co. v. Allen, 66 Colo. 83 , 179 P. 152 (1919).   Where a sales agreement gives the seller an election to terminate the agreement in the event of default and retain the payments made by the buyer as liquidated damages, and the seller so elects, a note given subsequent thereto by the buyer for defaulted payments is without consideration. Saunders v. Akers, 128 Colo. 100 , 260 P.2d 596 (1953).   Where the cashier of a bank guarantees by indorsement a note held by the bank to maintain its capital and satisfy a bank examiner, the bank cannot maintain an action against the cashier, there being no consideration for the guarantee. Cripple Creek State Bank v. Rollestone, 70 Colo. 434 , 202 P. 115 (1921). But see Rogers v. First State Bank, 79 Colo. 84 , 243 P. 637 (1926).   Where a note is given to a corporation for corporate stock which will entitle the owner to purchase merchandise at the company's store at a reduced price, the subsequent failure of the company to build such a store invalidates the note for lack of consideration. Investors Fin. Co. v. Bodnar, 87 Colo. 498 , 289 P. 599 (1930).   One who is induced to purchase stock in a corporation then being organized by the representation that the corporation is to limit its operations to the shipment of fruit grown by its stockholders, and that only by uniting with it will he be able to secure its service in the shipment of his fruit, may defeat an action upon a promissory note given for the stock by proof that, in fact, the corporation engaged in a general commission business and has refused and confessed itself unable to ship his fruit. Divine v. Western Slope Fruit Growers' Ass'n, 27 Colo. App. 368, 149 P. 841 (1915).   A note given by the maker to assist the payee in a scheme of the latter to defraud a creditor is void and unenforceable as between the parties, there being no other consideration. Abernethy v. Wright, 27 Colo. App. 239, 148 P. 277 (1915).   Agreement is void between executor and legatees. Since an agreement between an executor of a will and certain of the legatees for payment of certain sums as compensation, expenses, and attorney's fees is void, a promissory note given to effectuate the same is without consideration. Currier v. Clark, 15 Colo. App. 6, 60 P. 958 (1900).   Debt founded upon gambling consideration. Even in the hands of bona fide purchasers, negotiable paper founded in whole or in part upon a gambling or gaming consideration is utterly void. Western Nat'l Bank v. State Bank, 18 Colo. App. 128, 70 P. 439 (1902).   If a draft is given one in settlement of a dispute, he cannot recover thereon where the disputed claim is wholly without foundation. Moise Bros. Co. v. Jamison, 89 Colo. 278 , 1 P.2d 925 (1931). But see Dixon v. Retallic, 80 Colo. 78 , 249 P. 2 (1926); Tisdel v. Central Sav. Bank Trust Co., 90 Colo. 114 , 6 P.2d 912 (1931).   No cause of action. If a draft is given for staying, discontinuing or dismissing litigation, one cannot recover thereon when he knows he has no cause of action. Moise Bros. Co. v. Jamison, 89 Colo. 278 , 1 P.2d 925 (1931). But see James v. Ward, 80 Colo. 293 , 250 P. 1097 (1926).   In addition, indorsement of a note pursuant to an arrangement after it has been executed, delivered, and discounted is without consideration, and judgment against the indorser erroneous. Loveland v. Sigel-Campion Live Stock Co., 77 Colo. 22 , 234 P. 168 (1925).