CO Code § 4-3-419 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 4 - Liability of Parties|§ 4-3-419. Instruments Signed for Accommodation

  If an instrument is issued for value given for the benefit of a party to the instrument (“accommodated party”) and another party to the instrument (“accommodation party”) signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party “for accommodation.”    An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser and, subject to subsection (d) of this section, is obliged to pay the instrument in the capacity in which the accommodation party signs. The obligation of an accommodation party may be enforced notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation.    A person signing an instrument is presumed to be an accommodation party and there is notice that the instrument is signed for accommodation if the signature is an anomalous indorsement or is accompanied by words indicating that the signer is acting as surety or guarantor with respect to the obligation of another party to the instrument. Except as provided in section 4-3-605, the obligation of an accommodation party to pay the instrument is not affected by the fact that the person enforcing the obligation had notice when the instrument was taken by that person that the accommodation party signed the instrument for accommodation.    If the signature of a party to an instrument is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the obligation of another party to the instrument, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument only if (i) execution of judgment against the other party has been returned unsatisfied, (ii) the other party is insolvent or in an insolvency proceeding, (iii) the other party cannot be served with process, or (iv) it is otherwise apparent that payment cannot be obtained from the other party.    An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. An accommodated party who pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party.     History. Source: L. 94: Entire article R&RE, p. 871, § 1, effective January 1, 1995.    Editor's note:   This section is similar to former § 4-3-415 as it existed prior to 1994.   OFFICIAL COMMENT   1. Section 3-419 replaces former Sections 3-415 and 3-416. An accommodation party is a person who signs an instrument to benefit the accommodated party either by signing at the time value is obtained by the accommodated party or later, and who is not a direct beneficiary of the value obtained. An accommodation party will usually be a co-maker or anomalous indorser. Subsection (a) distinguishes between direct and indirect benefit. For example, if X cosigns a note of Corporation that is given for a loan to Corporation, X is an accommodation party if no part of the loan was paid to X or for X's direct benefit. This is true even though X may receive indirect benefit from the loan because X is employed by Corporation or is a stockholder of Corporation, or even if X is the sole stockholder so long as Corporation and X are recognized as separate entities.   2. It does not matter whether an accommodation party signs gratuitously either at the time the instrument is issued or after the instrument is in the possession of a holder. Subsection (b) of Section 3-419 takes the view stated in Comment 3 to former Section 3-415 that there need be no consideration running to the accommodation party: “The obligation of the accommodation party is supported by any consideration for which the instrument is taken before it is due. Subsection (2) is intended to change occasional decisions holding that there is no sufficient consideration where an accommodation party signs a note after it is in the hands of a holder who has given value. The [accommodation] party is liable to the holder in such a case even though there is no extension of time or other concession.”   3. As stated in Comment 1, whether a person is an accommodation party is a question of fact. But it is almost always the case that a co-maker who signs with words of guaranty after the signature is an accommodation party. The same is true of an anomalous indorser. In either case a person taking the instrument is put on notice of the accommodation status of the co-maker or indorser. This is relevant to Section 3-605(h). But, under subsection (c), signing with words of guaranty or as an anomalous indorser also creates a presumption that the signer is an accommodation party. A party challenging accommodation party status would have to rebut this presumption by producing evidence that the signer was in fact a direct beneficiary of the value given for the instrument.   4. Subsection (b) states that an accommodation party is liable on the instrument in the capacity in which the party signed the instrument. In most cases that capacity will be either that of a maker or indorser of a note. But subsection (d) provides a limitation on subsection (b). If the signature of the accommodation party is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the instrument, liability is limited to that stated in subsection (d), which is based on former Section 3-416(2).   Former Article 3 was confusing because the obligation of a guarantor was covered both in Section 3-415 and in Section 3-416. The latter section suggested that a signature accompanied by words of guaranty created an obligation distinct from that of an accommodation party. Revised Article 3 eliminates that confusion by stating in Section 3-419 the obligation of a person who uses words of guaranty. Portions of former Section 3-416 are preserved. Former Section 3-416(2) is reflected in Section 3-419(d) and former Section 3-416(4) is reflected in Section 3-419(c).   5. Subsection (e) restates subsection (5) of present Section 3-415. Since the accommodation party that pays the instrument is entitled to enforce the instrument against the accommodated party, the accommodation party also obtains rights to any security interest or other collateral that secures payment of the instrument.   ANNOTATION   Law reviews. For article, “Augmenting the Anomalousness of the Anomalous Indorser”, see 16 Dicta 254.   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   Under the N.I.L. an accommodation party was one who signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person; such person was liable on the instrument to a holder for value, though the holder, at the time of taking the instrument, knew him to be only an accommodation party. Foothills Holding Corp. v. Tulsa Rig, Reel & Mfg. Co., 155 Colo. 232 , 393 P.2d 749 (1964).   One who signs a promissory note as surety is primarily liable on the instrument. Hall v. Farmers' Bank, 74 Colo. 165 , 220 P. 237 (1923).   As distinguished from secondary liability. So far as concerns the holder of a note, the liability of a surety is a primary, as distinguished from a secondary, liability. Hall v. Farmers' Bank, 74 Colo. 165 , 220 P. 237 (1923) (decided under repealed laws antecedent to CSA, C. 112, § 192, negotiable instruments law).   If one is an accommodation party lending his name, he is primarily liable to the holder, though he is merely a surety. Foothills Holding Corp. v. Tulsa Rig, Reel & Mfg. Co., 155 Colo. 232 , 393 P.2d 749 (1964).   Where loan would not have been made save for third person's indorsement. Where a third person writes his name on the back of a note before delivery to the payee, and without such indorsement the loan evidenced by the note would not have been made, such third person is an original promisor with a primary obligation in an action by the payee. Court Valhalla No. 16 Foresters of Am. v. Olson, 14 Colo. App. 243, 59 P. 883 (1900).   Where maker of note obtains extension of obligation to repay a bank as result of an accommodation party's indorsement of a renewal note, the mere fact that accommodation indorsement is made at request of bank does not alter maker's position as beneficiary of the accommodation indorsement and as the party accommodated in transaction; and the accommodation party is liable as an accommodation indorser to a holder of the renewal note. State Bank v. Owens, 31 Colo. App. 351, 502 P.2d 965 (1972).   Liability of party signing note as individual, without qualifying designation. Where parties sign a note as individuals, without any qualifying designations, they are individually liable as makers, and not as accommodation parties. Rink-A-Dinks v. TNT Motorcycles, Inc., 655 P.2d 431 (Colo. App. 1982).   One who executes a note for the purpose of obtaining money for another and who receives no part of the fund for his personal use, the entire amount going to the accommodated party, is an accommodation party. McGhee Inv. Co. v. Kirsher, 71 Colo. 137 , 204 P. 891 (1922). See Fleming v. Gamble, 37 F.2d 72 (10th Cir. 1929).   The term “value” as used in this section relates to value for the negotiable instrument and not to the loan of the name by way of accommodation. McGhee Inv. Co. v. Kirsher, 71 Colo. 137 , 204 P. 891 (1922).   Moreover, comaker's answer that he received nothing of value for signing is no defense. In an action against several makers of a promissory note, the answer of one of them that he received nothing of value for signing it does not constitute a defense, because the consideration may have been received by his comakers. Bloom v. State Bank, 75 Colo. 28 , 223 P. 750 (1924).   One who indorses a note prior to delivery: “Demand notice and protest waived. Payment guaranteed” is a surety or accommodation indorser within the meaning of this section. Winton v. Sullivan, 104 Colo. 450 , 91 P.2d 996 (1939) (decided also under repealed CSA, C. 112, § 192, negotiable instruments law).   Even if it is conceded that a party is an accommodation maker, that fact does not do away with his responsibility for payment as fixed by this section. Civic Fin. Co. v. Meintzer, 137 Colo. 572 , 328 P.2d 379 (1958).   Such an accommodation maker is liable as a maker upon the payee's suit. Torbit v. Heath, 11 Colo. App. 492, 53 P. 615 (1898).   Also, upon notes which one signs individually as an accommodation maker at the lender's request in order to obtain loans for a corporation of which he is an officer and principal stockholder, he is liable jointly and severally with the corporation for all amounts due upon the notes. Sec. Sav. & Loan Ass'n v. Colo. Real Estate Dev., Inc., 163 Colo. 155 , 429 P.2d 288 (1967).   Stockholders who execute a promissory note to raise corporate funds cannot claim to be accommodation makers; rather, they are principal makers upon a sufficient consideration. Reed v. First Nat'l Bank, 23 Colo. 380 , 48 P. 507 (1897).   An accommodation maker may proceed against principal maker. An accommodation maker or surety on a promissory note against whom a judgment has been rendered may, without making payment himself, proceed in equity against the principal makers, or their estate, for payment of the note so as to exonerate the surety. Woodward v. Hollis, 93 Colo. 17 , 22 P.2d 862 (1933); Nat'l City Bank of Denver v. Sather, 677 P.2d 432 (Colo. App. 1983).   Where one of several accommodation indorsers pays the note indorsed, he is entitled to contribution. Owens v. Greenlee, 68 Colo. 114 , 188 P. 721 (1920).   Though neither the law merchant nor the negotiable instruments act attempted to prescribe the rights of joint makers as between themselves; rather, these rights were left to be settled according to the principles of the common law and the equities between the parties. Owens v. Greenlee, 68 Colo. 114 , 188 P. 721 (1920).   A guaranty is to be reasonably interpreted according to the intention of the parties as disclosed by facts and circumstances surrounding its execution. Valley Nat'l Bank v. Foreign Car Rental, Inc., 404 P.2d 272 (1965); First Interstate Bank v. Colcott Partners, 833 P.2d 876 (Colo. App. 1992).   Guaranty agreements must be strictly construed in favor of the guarantor. Walter E. Heller & Co. v. Wilkerson, 627 P.2d 773 (Colo. App. 1980); First Interstate Bank v. Colcott Partners, 833 P.2d 876 (Colo. App. 1992).   Guarantor's liability is separate and independent of and not affected by validity of stipulated settlement agreement. Defendants' claim that the settlement agreement was based upon a mistake of fact and should be set aside had no bearing on the validity of the unconditional guaranty. First Interstate Bank v. Colcott Partners, 833 P.2d 876 (Colo. App. 1992).   Guarantor's liability is the same as that of principal debtor where there is no language to the contrary in the guaranty. First Interstate Bank v. Colcott Partners, 833 P.2d 876 (Colo. App. 1992).   Where a contract of guaranty provides that notice of default of the principal debtor must be given to the guarantor, such notice must be given for the guarantor to be liable. W. States Leasing Co. v. Adturn, Inc., 31 Colo. App. 256, 500 P.2d 1190 (1972).   However, where an unambiguous absolute guaranty is silent as to notice and the maximum amount guaranteed is determinable at the time the guarantee is entered into, there is no basis to imply a requirement of notice. W. States Leasing Co. v. Adturn, Inc., 31 Colo. App. 256, 500 P.2d 1190 (1972).   It is error to resort to another instrument for any limiting conditions. Where separate instrument guarantying lease payment is unambiguous, it is error to resort to the language of the lease to construe the guaranty as to any limiting conditions. W. States Leasing Co. v. Adturn, Inc., 31 Colo. App. 256, 500 P.2d 1190 (1972).   Same person may be both guarantor and indorser. Winton v. Sullivan, 104 Colo. 450 , 91 P.2d 996 (1939).   A guarantor of a note is not an indorser within the meaning of that term as used in a warrant of attorney in such note; hence, a judgment rendered upon confession thereunder is void for lack of jurisdiction of the person. Sidwell v. First Nat'l Bank, 76 Colo. 547 , 233 P. 153 (1925) (decided under repealed laws antecedent to CSA, C. 112, § 29, negotiable instruments law).   Guarantor is secondarily liable. For the one who after the execution and delivery of a promissory note signs it as guarantor to satisfy a subsequent purchaser, his liability thereon is secondary and not primary. Cobbey v. Peterson, 89 Colo. 350 , 3 P.2d 298 (1931) (decided under repealed laws antecedent to CSA, C. 112, § 192, negotiable instruments law).   Liability of a guarantor of negotiable paper was not fixed by the N.I.L. Winton v. Sullivan, 104 Colo. 450 , 91 P.2d 996 (1939).   Under subsection (c), the lack of qualifying words on promissory note cannot defeat accommodation party status. Accordingly, because no such qualifiers are present, court looks for evidence showing that individual defendants received a direct benefit from the value given for promissory note. Bd. of Cty. Comm'rs v. Sportsmen's Ranch, 271 P.3d 562 (Colo. App. 2011).   Because evidence does not show that individual defendants received a direct benefit from either original loan or subsequent promissory note, court of appeals must overturn jury's finding that defendants did not sign as accommodation parties. Here, individual defendants were accommodation parties. As accommodation parties, individual defendants were entitled to enforce note and their acquisition of the note did not extinguish underlying deed of trust. Bd. of Cty. Comm'rs v. Sportsmen's Ranch, 271 P.3d 562 (Colo. App. 2011).