CO Code § 4-3-110 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 1 - General Provisions and Definitions|§ 4-3-110. Identification of Person to Whom Instrument Is Payable

  The person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument. The instrument is payable to the person intended by the signer even if that person is identified in the instrument by a name or other identification that is not that of the intended person. If more than one person signs in the name or behalf of the issuer of an instrument and all the signers do not intend the same person as payee, the instrument is payable to any person intended by one or more of the signers.    If the signature of the issuer of an instrument is made by automated means, such as a check-writing machine, the payee of the instrument is determined by the intent of the person who supplied the name or identification of the payee, whether or not authorized to do so.    A person to whom an instrument is payable may be identified in any way, including by name, identifying number, office, or account number. For the purpose of determining the holder of an instrument, the following rules apply:   If an instrument is payable to an account and the account is identified only by number, the instrument is payable to the person to whom the account is payable. If an instrument is payable to an account identified by number and by the name of a person, the instrument is payable to the named person, whether or not that person is the owner of the account identified by number.    If an instrument is payable to:   A trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative, or a successor of either, whether or not the beneficiary or estate is also named;    A person described as agent or similar representative of a named or identified person, the instrument is payable to the represented person, the representative, or a successor of the representative;    A fund or organization that is not a legal entity, the instrument is payable to a representative of the members of the fund or organization; or    An office or to a person described as holding an office, the instrument is payable to the named person, the incumbent of the office, or a successor to the incumbent.    For the purposes of this paragraph (2), “student loan” means a loan to finance higher education opportunities that is made, originated, disbursed, guaranteed, or serviced by the department of higher education, collegeinvest, an agency of another state, the federal government, or an institution of higher education, including, but not limited to, a loan that is secured pursuant to part 2 of article 3.1 of title 23, C.R.S., and a loan authorized by title IV, part B of the federal “Higher Education Act of 1965”, as amended.          If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.     History. Source: L. 94: Entire article R&RE, p. 845, § 1, effective January 1, 1995.    Editor's note:   This section is similar to former §§ 4-3-116 and 4-3-117 as they existed prior to 1994.   OFFICIAL COMMENT   1. Section 3-110 states rules for determining the identity of the person to whom an instrument is initially payable if the instrument is payable to an identified person. This issue usually arises in a dispute over the validity of an indorsement in the name of the payee. Subsection (a) states the general rule that the person to whom an instrument is payable is determined by the intent of “the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument.” “Issuer” means the maker or drawer of the instrument. Section 3-105(c). If X signs a check as drawer of a check on X's account, the intent of X controls. If X, as President of Corporation, signs a check as President in behalf of Corporation as drawer, the intent of X controls. If X forges Y's signature as drawer of a check, the intent of X also controls. Under Section 3-103(a)(3), Y is referred to as the drawer of the check because the signing of Y's name identifies Y as the drawer. But since Y's signature was forged Y has no liability as drawer (Section 3-403(a)) unless some other provision of Article 3 or Article 4 makes Y liable. Since X, even though unauthorized, signed in the name of Y as issuer, the intent of X determines to whom the check is payable.   In the case of a check payable to “John Smith,” since there are many people in the world named “John Smith” it is not possible to identify the payee of the check unless there is some further identification or the intention of the drawer is determined. Name alone is sufficient under subsection (a), but the intention of the drawer determines which John Smith is the person to whom the check is payable. The same issue is presented in cases of misdescriptions of the payee. The drawer intends to pay a person known to the drawer as John Smith. In fact that person's name is James Smith or John Jones or some other entirely different name. If the check identifies the payee as John Smith, it is nevertheless payable to the person intended by the drawer. That person may indorse the check in either the name John Smith or the person's correct name or in both names. Section 3-204(d). The intent of the drawer is also controlling in fictitious payee cases. Section 3-404(b). The last sentence of subsection (a) refers to rare cases in which the signature of an organization requires more than one signature and the persons signing on behalf of the organization do not all intend the same person as payee. Any person intended by a signer for the organization is the payee and an indorsement by that person is an effective indorsement.   Subsection (b) recognizes the fact that in a large number of cases there is no human signer of an instrument because the instrument, usually a check, is produced by automated means such as a check-writing machine. In that case, the relevant intent is that of the person who supplied the name of the payee. In most cases that person is an employee of the drawer, but in some cases the person could be an outsider who is committing a fraud by introducing names of payees of checks into the system that produces the checks. A check-writing machine is likely to be operated by means of a computer in which is stored information as to name and address of the payee and the amount of the check. Access to the computer may allow production of fraudulent checks without knowledge of the organization that is the issuer of the check. Section 3-404(b) is also concerned with this issue. See Case #4 in Comment 2 to Section 3-404.   2. Subsection (c) allows the payee to be identified in any way including the various ways stated. Subsection (c)(1) relates to instruments payable to bank accounts. In some cases the account might be identified by name and number, and the name and number might refer to different persons. For example, a check is payable to “X Corporation Account No. 12345 in Bank of Podunk.” Under the last sentence of subsection (c)(1), this check is payable to X Corporation and can be negotiated by X Corporation even if Account No. 12345 is some other person's account or the check is not deposited in that account. In other cases the payee is identified by an account number and the name of the owner of the account is not stated. For example, Debtor pays Creditor by issuing a check drawn on Payor Bank. The check is payable to a bank account owned by Creditor but identified only by number. Under the first sentence of subsection (c)(1) the check is payable to Creditor and, under Section 1-201(20), Creditor becomes the holder when the check is delivered. Under Section 3-201(b), further negotiation of the check requires the indorsement of Creditor. But under Section 4-205(a), if the check is taken by a depositary bank for collection, the bank may become a holder without the indorsement. Under Section 3-102(b), provisions of Article 4 prevail over those of Article 3. The depositary bank warrants that the amount of the check was credited to the payee's account.   3. Subsection (c)(2) replaces former Section 3-117 and subsections (1)(e), (f), and (g) of former Section 3-110. This provision merely determines who can deal with an instrument as a holder. It does not determine ownership of the instrument or its proceeds. Subsection (c)(2)(i) covers trusts and estates. If the instrument is payable to the trust or estate or to the trustee or representative of the trust or estate, the instrument is payable to the trustee or representative or any successor. Under subsection (c)(2)(ii), if the instrument states that it is payable to Doe, President of X Corporation, either Doe or X Corporation can be holder of the instrument. Subsection (c)(2)(iii) concerns informal organizations that are not legal entities such as unincorporated clubs and the like. Any representative of the members of the organization can act as holder. Subsection (c)(2)(iv) applies principally to instruments payable to public offices such as a check payable to County Tax Collector.   4. Subsection (d) replaces former Section 3-116. An instrument payable to X or Y is governed by the first sentence of subsection (d). An instrument payable to X and Y is governed by the second sentence of subsection (d). If an instrument is payable to X or Y, either is the payee and if either is in possession that person is the holder and the person entitled to enforce the instrument. Section 3-301. If an instrument is payable to X and Y, neither X nor Y acting alone is the person to whom the instrument is payable. Neither person, acting alone, can be the holder of the instrument. The instrument is “payable to an identified person.” The “identified person” is X and Y acting jointly. Section 3-109(b) and Section 1-102(5)(a). Thus, under Section 1-201(20) X or Y, acting alone, cannot be the holder or the person entitled to enforce or negotiate the instrument because neither, acting alone, is the identified person stated in the instrument.   The third sentence of subsection (d) is directed to cases in which it is not clear whether an instrument is payable to multiple payees alternatively. In the case of ambiguity persons dealing with the instrument should be able to rely on the indorsement of a single payee. For example, an instrument payable to X and/or Y is treated like an instrument payable to X or Y.   ANNOTATION   I.GENERAL CONSIDERATION.   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   This section implies an exception to the parol evidence rule even if a negotiable instrument is clear on its face as to whom the payee is. Electrical Distribs., Inc. v. SFR, Inc., 166 F.3d 1074 (10th Cir. 1999).   A promissory note drawn to the order of “A or B” creates alternative and not joint payees. Reese v. Lietzan, 160 Colo. 253 , 419 P.2d 959.   While there are cases in which the disjunctive “or” has been construed as the conjunctive “and” so as to create a joint rather than an alternative interest, unique and exceptional circumstances have always accompanied the result. Reese v. Leitzan, 160 Colo. 253 , 419 P.2d 959 (1966).   Effect of treating order paper as bearer paper. When a drawer of a check names a specific payee, the check becomes order rather than bearer paper. If a bank chooses to treat such checks as bearer paper, it acts at its own peril and may be liable for negligence if it misapplies the proceeds of the check. Arvada Hardwood Floor Co. v. James, 638 P.2d 828 (Colo. App. 1981).   II.IN ALTERNATIVE.   The phrase “and/or” in written instruments means either “and” or “or”, or both. Denver-Metro Collections, Inc. v. Kleeman, 30 Colo. App. 218, 491 P.2d 64 (1971).   Where the payees of notes are listed as A “and/or” B, under the provisions of this section there would be no question of the authority of a singular payee to assign the notes, since where the phrase “and/or” is used, then either payee, or both, may enforce the note as written. Denver-Metro Collections, Inc. v. Kleeman, 30 Colo. App. 218, 491 P.2d 64 (1971).   III.NOT IN ALTERNATIVE.   Law reviews. For comment on Am. Nat'l Bank v. First Nat'l Bank appearing below, see 32 Dicta 185 (1955) and 27 Rocky Mt. L. Rev. 347 (1955).   Under common law and N.I.L. the negotiable instruments law adopted the common-law rule providing that where a check is payable to the order of two or more persons who are not partners, all of them had to indorse unless the one so doing had authority to indorse for the other payees, and this joint indorsement was necessary for a complete negotiation; where one of the payees failed to indorse, the negotiability of the check was completely destroyed. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).   In the absence of a necessary indorsement by a co-payee the instrument is nonnegotiable and not subject to cashing. F. R. Orr Constr. Co. v. Ready Mixed Concrete Co., 28 Colo. App. 273, 472 P.2d 193 (1970).   Holder acquires only a chose in action. The failure of one of two joint payees to indorse destroys the negotiability of a check, and the holder of the check acquires only as an assignee of a nonnegotiable chose in action the interest of the payee who did indorse; as such an assignee, his interest in the proceeds of the check is to be determined. Skinner v. Mortgage Inv. Co., 165 Colo. 241 , 438 P.2d 504 (1968). See Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).   The drawee bank is authorized to pay out funds belonging to its depositor when, and only when, the check is indorsed by the payees therein, or by persons who have satisfied it or the bank to which the check is presented for payment of their right to the proceeds. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).   In the absence of actual fault on the part of the drawee, its failure to observe the fact of the absence of the indorsement of one of the payees, due entirely to the fault or neglect of the holder, will not preclude its recovery. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).   As a greater duty is imposed on the holder. The absence of an indorsement by the holder is as serious, if not more so, than a forged indorsement; the first is easily discernible while the other is the result of an error in the identification of the payee. Consequently, if it is the duty of the bank cashing the check to know to a positive certainty the identity of the payee named therein and its failure so to do imposes a duty of reimbursing the drawee, it seems clear that the failure to secure the indorsement of all of the payees imposes an even greater duty on the holder. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).