CO Code § 4-3-415 (2021)
2021 Colorado Code|Title 4 - Uniform Commercial Code|Article 3 - Negotiable Instruments|Part 4 - Liability of Parties|§ 4-3-415. Obligation of Indorser

  Subject to subsections (b), (c), (d) and (e) of this section and to section 4-3-419 (d), if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument (i) according to the terms of the instrument at the time it was indorsed, or (ii) if the indorser indorsed an incomplete instrument, according to its terms when completed, to the extent stated in sections 4-3-115 and 4-3-407. The obligation of the indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section.    If an indorsement states that it is made “without recourse” or otherwise disclaims liability of the indorser, the indorser is not liable under subsection (a) of this section to pay the instrument.    If notice of dishonor of an instrument is required by section 4-3-503 and notice of dishonor complying with that section is not given to an indorser, the liability of the indorser under subsection (a) of this section is discharged.    If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under subsection (a) of this section is discharged.    If an indorser of a check is liable under subsection (a) of this section and the check is not presented for payment, or given to a depositary bank for collection, within thirty days after the day the indorsement was made, the liability of the indorser under subsection (a) of this section is discharged.     History. Source: L. 94: Entire article R&RE, p. 868, § 1, effective January 1, 1995.    Editor's note:   This section is similar to former § 4-3-414 as it existed prior to 1994.   OFFICIAL COMMENT   1. Subsection (a) and (b) restate the substance of former Section 3-414(1). Subsection (2) of former Section 3-414 has been dropped because it is superfluous. Although notice of dishonor is not mentioned in subsection (a), it must be given in some cases to charge an indorser. It is covered in subsection (c). Regulation CC § 229.35(b) provides that a bank handling a check for collection or return is liable to a bank that subsequently handles the check to the extent the latter bank does not receive payment for the check. This liability applies whether or not the bank incurring the liability indorsed the check.   2. Section 3-503 states when notice of dishonor is required and how it must be given. If required notice of dishonor is not given in compliance with Section 3-503, subsection (c) of Section 3-415 states that the effect is to discharge the indorser's obligation.   3. Subsection (d) is similar in effect to Section 3-414(c) if the draft is accepted by a bank after the indorsement is made. See Comment 3 to Section 3-414. If a draft is accepted by a bank before the indorsement is made, the indorser incurs the obligation stated in subsection (a).   4. Subsection (e) modifies former Sections 3-503(2)(b) and 3-502(1)(a) by stating a 30-day rather than a seven-day period, and stating it as an absolute rather than a presumptive period.   ANNOTATION   I.GENERAL CONSIDERATION.   Annotator's note. The following annotations include cases decided under former provisions similar to this section.   Parol evidence is admissible to determine if reformation of instrument is appropriate where misrepresentations of legal effect of contract by assignee's attorney was alleged. Boyles Bros. Drilling v. Orion Indus., Ltd., 761 P.2d 278 (Colo. App. 1988).   II.CONTRACT OF INDORSER.   A.“Without Recourse”.   Annotator's note. Since § 4-3-114 is similar to repealed laws antecedent to CSA, C. 112, § 38 (negotiable instruments law), relevant cases construing those provisions have been included in the annotations to this section.   One who by false representations as to the solvency of the maker of a promissory note induces another to accept it under an indorsement “without recourse” is liable to an action of deceit and the injured party is not concluded by the character of the indorsement. Pallister v. Camenisch, 21 Colo. App. 79, 121 P. 958.   Where a bank indorses a note over to its president for collection, but he later indorses it back to the bank without recourse, and the bank delivers the note without further indorsement to a third party for a valuable consideration, the bank is liable as an indorser without further indorsement. Moore v. First Nat'l Bank, 38 Colo. 336 , 88 P. 385 (1907).   Where a mortgage assigns “with the notes therein described without recourse”, though the notes have been indorsed prior to the assignment, then the indorsement and assignment are considered as parts of one transaction, though of different dates, and are therefore construed together. Gillett v. Flora, 68 Colo. 218 , 187 P. 527 (1920).   B.Liability.   Each indorser entitled to notice of dishonor. Where a complaint against numerous individuals alleges their liability as “indorsers”, each of them is entitled to notice of dishonor precedent to any liability. Bieser v. Irwin, 101 Colo. 210 , 72 P.2d 271 (1937).   Where there is a waiver of protest. By placing one's signature upon a note before delivery he becomes an indorser, and if the note contains a waiver of protest, he is not entitled to demand and notice, with his ability, therefore, being governed by this section where he is to pay the holder if the maker does not. Sproul v. Monteith, 66 Colo. 541 , 185 P. 270 (1919).   The indorser of a promissory note is not a party to a warrant to confess judgment. Sproul v. Monteith, 66 Colo. 541 , 185 P. 270 (1919).   Consequently, a judgment against him without service of process is void. Sproul v. Monteith, 66 Colo. 541 , 185 P. 270 (1919).   Liability 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 (1976).   Applied in Am. Nat'l Bank v. First Nat'l Bank, 130 Colo. 557 , 277 P.2d 951 (1954).   III.ORDER OF LIABILITY.   Where one, subsequent to discounting of notes to a bank, indorses his name thereon after that of the payee, this, prima facie makes him liable as an indorser after the latter, but such presumption can be overcome by proof. Loveland v. Sigel-Campion Live Stock Co., 77 Colo. 22 , 234 P. 168 (1925) (decided under repealed laws antecedent to CSA, C. 112, § 64, negotiable instruments law).   Applied in Faden v. Midcap's Estate, 112 Colo. 573 , 152 P.2d 682 (1944) (decided under repealed CSA, C. 112, § 68, negotiable instruments law).   IV.DELAY IN PRESENTMENT OR NOTICE.   Where presentment is not made on one of the makers primarily liable on the note, recovery cannot be had against the indorser. Prior v. Simonson, 62 Colo. 116 , 160 P. 1035 (1916).   In case of a note secured by a chattel mortgage, the mortgagee, to preserve his lien against a third party, must make demand for payment of the mortgage debt within a reasonable time after maturity or take possession of the mortgaged property, which must be within a reasonable time; and on his failure thus to act, his lien will be postponed to that of a subsequent bona fide incumbrancer who levies upon it before the mortgagee takes possession. Metro. State Bank v. Wright, 72 Colo. 106 , 209 P. 804 (1922).   Similarly, a check must be presented within a reasonable time, depending upon the circumstances. Babcock v. City of Rocky Ford, 25 Colo. App. 312, 137 P. 899 (1914).   One must make presentment on day received when he has knowledge of bank's failing circumstances. See Babcock v. City of Rocky Ford, 25 Colo. App. 312, 137 P. 899 (1914).   The failure of a subcontractor to present a check for payment within a reasonable time after issue does not discharge the liability of the prime contractor. Hoeppner Constr. Co. v. United States ex rel. Trautman Shreve, Inc., 273 F.2d 835 (10th Cir. 1960).   V.DELAY IN PROTEST.   A bank's failure to make a formal protest is immaterial where one's liability is based not on his indorsement of a check, but on his status as depositor and withdrawer of the funds. Mercantile Bank Trust Co. v. Hunter, 31 Colo. App. 200, 501 P.2d 486 (1972).