CO Code § 4-3-204 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 2 - Negotiation, Transfer, and Indorsement|§ 4-3-204. Indorsement

  “Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser's liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.    “Indorser” means a person who makes an indorsement.    For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.    If an instrument is payable to a holder under a name that is not the name of the holder, indorsement may be made by the holder in the name stated in the instrument or in the holder's name or both, but signature in both names may be required by a person paying or taking the instrument for value or collection.     History. Source: L. 94: Entire article R&RE, p. 851, § 1, effective January 1, 1995.    Editor's note:   This section is similar to former §§ 4-3-201 , 4-3-202 , and 4-3-203 as they existed prior to 1994.   OFFICIAL COMMENT   1. Subsection (a) is a definition of “indorsement,” a term which was not defined in former Article 3. Indorsement is defined in terms of the purpose of the signature. If a blank or special indorsement is made to give rights as a holder to a transferee the indorsement is made for the purpose of negotiating the instrument. Subsection (a)(i). If the holder of a check has an account in the drawee bank and wants to be sure that payment of the check will be made by credit to the holder's account, the holder can indorse the check by signing the holder's name with the accompanying words “for deposit only” before presenting the check for payment to the drawee bank. In that case the purpose of the quoted words is to restrict payment of the instrument. Subsection (a)(ii). If X wants to guarantee payment of a note signed by Y as maker, X can do so by signing X's name to the back of the note as an indorsement. This indorsement is known as an anomalous indorsement (Section 3-205(d)) and is made for the purpose of incurring indorser's liability on the note. Subsection (a)(iii). In some cases an indorsement may serve more than one purpose. For example, if the holder of a check deposits it to the holder's account in a depositary bank for collection and indorses the check by signing the holder's name with the accompanying words “for deposit only” the purpose of the indorsement is both to negotiate the check to the depositary bank and to restrict payment of the check.   The “but” clause of the first sentence of subsection (a) elaborates on former Section 3-402. In some cases it may not be clear whether a signature was meant to be that of an indorser, a party to the instrument in some other capacity such as drawer, maker or acceptor, or a person who was not signing as a party. The general rule is that a signature is an indorsement if the instrument does not indicate an unambiguous intent of the signer not to sign as an indorser. Intent may be determined by words accompanying the signature, the place of signature, or other circumstances. For example, suppose a depositary bank gives cash for a check properly indorsed by the payee. The bank requires the payee's employee to sign the back of the check as evidence that the employee received the cash. If the signature consists only of the initials of the employee it is not reasonable to assume that it was meant to be an indorsement. If there was a full signature but accompanying words indicated that it was meant as a receipt for the cash given for the check, it is not an indorsement. If the signature is not qualified in any way and appears in the place normally used for indorsements, it may be an indorsement even though the signer intended the signature to be a receipt. To take another example, suppose the drawee of a draft signs the draft on the back in the space usually used for indorsements. No words accompany the signature. Since the drawee has no reason to sign a draft unless the intent is to accept the draft, the signature is effective as an acceptance. Custom and usage may be used to determine intent. For example, by long-established custom and usage, a signature in the lower right hand corner of an instrument indicates an intent to sign as the maker of a note or the drawer of a draft. Any similar clear indication of an intent to sign in some other capacity or for some other purpose may establish that a signature is not an indorsement. For example, if the owner of a traveler's check countersigns the check in the process of negotiating it, the countersignature is not an indorsement. The countersignature is a condition to the issuer's obligation to pay and its purpose is to provide a means of verifying the identify of the person negotiating the traveler's check by allowing comparison of the specimen signature and the countersignature. The countersignature is not necessary for negotiation and the signer does not incur indorser's liability. See Comment 2 to Section 3-106.   The last sentence of subsection (a) is based on subsection (2) of former Section 3-202. An indorsement on an allonge is valid even though there is sufficient space on the instrument for an indorsement.   2. Assume that Payee indorses a note to Creditor as security for a debt. Under subsection (b) of Section 3-203 Creditor takes Payee's rights to enforce or transfer the instrument subject to the limitations imposed by Article 9. Subsection (c) of Section 3-204 makes clear that Payee's indorsement to Creditor, even though it mentions creation of a security interest, is an unqualified indorsement that gives to Creditor the right to enforce the note as its holder.   3. Subsection (d) is a restatement of former Section 3-203. Section 3-110(a) states that an instrument is payable to the person intended by the person signing as or in the name or behalf of the issuer even if that person is identified by a name that is not the true name of the person. In some cases the name used in the instrument is a misspelling of the correct name and in some cases the two names may be entirely different. The payee may indorse in the name used in the instrument, in the payee's correct name, or in both. In each case the indorsement is effective. But because an indorsement in a name different from that used in the instrument may raise a question about its validity and an indorsement in a name that is not the correct name of the payee may raise a problem of identifying the indorser, the accepted commercial practice is to indorse in both names. Subsection (d) allows a person paying or taking the instrument for value or collection to require indorsement in both names.   ANNOTATION   Law reviews. For article, “One Year Review of Contracts”, see 36 Dicta 19.   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   Under the negotiable instruments law an indorsement must have been written on the instrument or upon a paper attached thereto, and the signature of the indorser without additional words was a sufficient indorsement. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).   Stapling indorsement to negotiable instrument is permanent attachment to checks so that it becomes “a part thereof”. Lamson v. Commercial Credit Corp., 187 Colo. 382 , 531 P.2d 966 (1975).   It is not the written name of the payee on the note, but his “signature” which constitutes an indorsement. Marks v. Munson, 59 Colo. 440 , 149 P. 440 (1915).   In an action on a note where an indorsement is denied by the answer, the mere production of the note by the plaintiff is insufficient; rather both the execution and indorsement must be proved. Marks v. Munson, 59 Colo. 440 , 149 P. 440 (1915); Myrick v. Garcia, 138 Colo. 298 , 332 P.2d 900 (1958).   Production of a note by the plaintiff is a prima facie title under a general denial. In an action on a promissory note by the indorsee, possession and production of the note by the plaintiff with an indorsement of the payee's name is prima facie evidence of title in the plaintiff where the title is at issue under a general denial. Gumaer v. Sowers, 31 Colo. 164 , 71 P. 1103 (1903).   Indorsement must be written on behalf of holder. La Junta State Bank v. Travis, 727 P.2d 48 (Colo. 1986).   The term “indorsement” is generally understood to mean the indorser's writing of his or her signature on the instrument or some designation identifying the indorsement on the instrument. A check simply inscribed “For deposit only” to an account other than the payee's account and without the payee's signature is not an effective “indorsement.” Kelly v. Ctr. Bank & Trust Co., 794 P.2d 1037 (Colo. App. 1989).   A negotiable instrument may be indorsed by an authorized representative on behalf of the holder. First Nat. Bank v. Lohman, 827 P.2d 583 (Colo. App. 1992).   Former § 4-3-202 applied in Barclay Receivables v. Mtn. Majesty, Ltd., 903 P.2d 37 (Colo. App. 1995).   Allonge reflecting indorsement that was affixed to note constitutes an indorsement for purposes of subsection (a). In re Sandrin, 536 B.R. 309 (Bankr. D. Colo. 2015 ).   Where joint payees fail to indorse a check and a bank accepts such for deposit to the credit of one indorsing payee only, the negotiability of the check is destroyed, and subsequent holders are not holders in due course, but rather the relation of all parties thereafter is governed by rules of assignment. Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954) (decided under repealed CSA, C. 112, § 32, negotiable instruments law).   Transferee for value, whether under transaction denoted an “assignment” or otherwise, was entitled to unqualified indorsement by the payee of the instrument transferred in absence of agreement to the contrary. Pierce v. DeZeeuw, 824 P.2d 97 (Colo. App. 1991).   Transferee for value, whether under transaction denoted an “assignment” or otherwise, was entitled to unqualified indorsement by the payee of the instrument transferred in absence of agreement to the contrary. Pierce v. DeZeeuw, 824 P.2d 97 (Colo. App. 1991).   A negotiable instrument may be indorsed by an authorized representative on behalf of the holder. First Nat. Bank v. Lohman, 827 P.2d 583 (Colo. App. 1992).   In an action on a note where an indorsement is denied by the answer, the mere production of the note by a party is insufficient; both the execution and indorsement must be proved. Marks v. Munson, 59 Colo. 440 (1915); Myrick v. Garcia, 138 Colo. 298 , 332 P.2d 900 (1958).   Purported assignments of a note did not constitute negotiations of the note because the indorsements were not “made on” or “affixed to” the original note as required by subsection (a). In re Sandrin, 536 B.R. 309 (Bankr. D. Colo. 2015 ).   Indorsement “Demand, notice and protest waived. Payment guaranteed” held to be a surety or accommodation party. See Winton v. Sullivan, 104 Colo. 450 , 91 P.2d 996 (1939).