(a) Subject to Subsection (e) of this section, an instrument is paid to the extent payment is made by or on behalf of a party obliged to pay the instrument and to a person entitled to enforce the instrument. To the extent of the payment, the obligation of the party obliged to pay the instrument is discharged, even though payment is made with knowledge of a claim to the instrument under Section 55-3-306 NMSA 1978 by another person.

(b) Subject to Subsection (e) of this section, a note is paid to the extent payment is made by or on behalf of a party obliged to pay the note to a person that formerly was entitled to enforce the note only if at the time of the payment the party obliged to pay has not received adequate notification that the note has been transferred and that payment is to be made to the transferee. A notification is adequate only if it is signed by the transferor or the transferee, reasonably identifies the transferred note and provides an address at which payments subsequently are to be made. Upon request, a transferee shall seasonably furnish reasonable proof that the note has been transferred. Unless the transferee complies with the request, a payment to the person that formerly was entitled to enforce the note is effective for purposes of Subsection (c) of this section even if the party obliged to pay the note has received a notification pursuant to this subsection.

(c) Subject to Subsection (e) of this section, to the extent of a payment pursuant to Subsections (a) and (b) of this section, the obligation of the party obliged to pay the instrument is discharged, even though payment is made with knowledge of a claim to the instrument pursuant to Section 55-3-306 NMSA 1978 by another person.

(d) Subject to Subsection (e) of this section, a transferee, or any party that has acquired rights in the instrument directly or indirectly from a transferee, including any such party that has rights as a holder in due course, is deemed to have notice of any payment that is made pursuant to Subsection (b) of this section after the date that the note is transferred to the transferee, but before the party obliged to pay the note receives adequate notification of the transfer.

(e) The obligation of a party to pay the instrument is not discharged pursuant to Subsections (a) through (d) of this section if:

(1) a claim to the instrument under Section 55-3-306 NMSA 1978 is enforceable against the party receiving payment and: (i) payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction; or (ii) in the case of an instrument other than a cashier's check, teller's check or certified check, the party making payment accepted, from the person having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument; or

(2) the person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession of the instrument.

(f) As used in this section, "signed" with respect to a record that is not a writing includes the attachment to or logical association with the record of an electronic symbol, sound or process with the present intent to adopt or accept the record.

History: 1978 Comp., § 55-3-602, enacted by Laws 1992, ch. 114, § 152; 2009, ch. 234, § 9.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. This section replaces former Section 3-603(1) [55-3-603 NMSA 1978]. The phrase "claim to the instrument" in subsection (a) means, by reference to Section 3-306 [55-3-306 NMSA 1978], a claim of ownership or possession and not a claim in recoupment. Subsection (e)(1)(ii) is added to conform to Section 3-411 [55-3-411 NMSA 1978]. Section 3-411 is intended to discourage an obligated bank from refusing payment of a cashier's check, certified check or dishonored teller's check at the request of a claimant to the check who provided the bank with indemnity against loss. See Comment 1 to Section 3-411. An obligated bank that refuses payment under those circumstances not only remains liable on the check but may also be liable to the holder of the check for consequential damages. Section 3-602(e)(1)(ii) [55-3-602 NMSA 1978] and Section 3-411, read together, change the rule of former Section 3-603(1) with respect to the obligation of the obligated bank on the check. Payment to the holder of a cashier's check, teller's check, or certified check discharges the obligation of the obligated bank on the check to both the holder and the claimant even though indemnity has been given by the person asserting the claim. If the obligated bank pays the check in violation of an agreement with the claimant in connection with the indemnity agreement, any liability that the bank may have for violation of the agreement is not governed by Article 3, but is left to other law. This section continues the rule that the obligor is not discharged on the instrument if payment is made in violation of an injunction against payment. See Section 3-411(c)(iv).

2. Subsection (a) covers payments made in a traditional manner, to the person entitled to enforce the instrument. Subsection (b), which provides an alternative method of payment, deals with the situation in which a person entitled to enforce the instrument transfers the instrument without giving notice to parties obligated to pay the instrument. If that happens and one of those parties subsequently makes a payment to the transferor, the payment is effective even though it is not made to the person entitled to enforce the instrument. Unlike the earlier version of Section 3-602, this rule is consistent with Section 9-406(a) [55-9-402 NMSA 1978], Restatement of Mortgages § 5.5, and Restatement of Contracts § 338(1).

3. In determining the party to whom a payment is made for purposes of this section, courts should look to traditional rules of agency. Thus, if the original payee of a note transfers ownership of the note to a third party but continues to service the obligation, the law of agency might treat payments made to the original payee as payments made to the third party.

4. Subsection (d) assures that the discharge provided by Subsection (c) is effective against the transferee and those whose rights derive from the transferee. By deeming those persons to have notice of any payment made under Subsection (b), Subsection (d) gives those persons "notice of the discharge" within the meaning of Section 3-302(b) [55-3-302 NMSA 1978]. Accordingly, the discharge is effective against those persons, even if any of them has the rights of a holder in due course. Compare Section 3-601(b). The deemed notice provided by subsection (d) does not, however, prevent a person from becoming or acquiring the rights of, a holder in due course. See Section 3-302(b) [55-3-302 NMSA 1978]. Thus, such a person does not become subject to other defenses described in Section 3-305(a)(2) [55-3-305 NMSA 1978], claims in recoupment described in Section 3-305(a)(3), or claims to the instrument under Section 3-306. A transferee can prevent payment to the transferor from discharging the obligation on the note by assuring that each person who is obligated on the note receives adequate notification pursuant to subsection (b) prior to making a payment.

Repeals. — Laws 1992, ch. 114, § 237 repealed former 55-3-602 NMSA 1978, as enacted by Laws 1961, ch. 96, § 3-602, relating to effect of discharge against holder in due course, effective July 1, 1992. Laws 1992, ch. 114, § 152, enacted a new section, effective July 1, 1992. For provisions of former section, see the 1991 NMSA 1978 on NMOneSource.com. For present comparable provisions, see 55-3-601 NMSA 1978.

The 2009 amendment, effective January 1, 2010, in Subsection (a), after "Subject to Subsection", deleted the letter "(b)" and added "(e) of this section"; added Subsections (b) through (d); in Subsection (e), after "is not discharged", deleted "under Subsection (a)" and added "pursuant to Subsections (a) through (d) of this section"; and added Subsection (f).

I. PAYMENT OR SATISFACTION.

Presentment at time of payment. — A party making payment upon a negotiable promissory note should insist upon the presentation of the paper by the party to whom the payment is made in order to make sure that it is at the time in his possession and not outstanding in another, and if he fails to do so the payment is wholly at payor's risk. Hayden v. Speakman, 1914-NMSC-077, 20 N.M. 513, 150 P. 292 (decided under former law).

When payment deemed made. — The mere act of stamping a bill of exchange "paid" by the payee, in and of itself, does not constitute payment. Payment could only be made by delivery of the actual cash, or an adjustment of accounts, by agreement of the parties, so that the payee would be obligated to the holder of the bill. Hanna v. McCrory, 1914-NMSC-047, 19 N.M. 183, 141 P. 996 (decided under former law).

Presumption of payment may not arise. — Even though a note may be 20 years past due, a presumption of payment does not arise if within 20 years prior to suit thereon, payment on the principal or interest is made, or it is otherwise definitely and unequivocally recognized as an existing obligation. Heisel v. York, 1942-NMSC-009, 46 N.M. 210, 125 P.2d 717 (decided under former law).

Bank action compromising and settling note balance amounts to complete discharge of all parties, insofar as the bank is concerned; the bank does not thereby discharge a claim of contribution resulting between parties. Farmington Nat'l Bank v. Basin Plastics, Inc., 1980-NMSC-092, 94 N.M. 668, 615 P.2d 985.

II. BY ANY PERSON.

Note of third person to debt generally. — The note of a third person given for a prior debt will be held a satisfaction, where it was agreed by the creditor to receive it absolutely as payment, and to run the risk of its being paid. The onus of establishing that it was so received is on the debtor. But there must be a clear and special agreement that the creditor shall take the paper absolutely as payment, or it will be no payment if it afterwards turns out to be of no value. A receipt in full of an account does not establish an agreement on the part of the creditor to accept as absolute payment at his own risk the note of a third person for the debt. Lindberg v. Ferguson Trucking Co., 1964-NMSC-110, 74 N.M. 246, 392 P.2d 586.

Accommodation maker may sue maker on note. — Where a note and mortgage are assigned to an accommodation maker who then paid up the note, the accommodation maker succeeds to the payee's rights and may sue the maker on the note, because the note was not discharged when paid by the accommodation maker. Simson v. Bilderbeck, Inc., 1966-NMSC-170, 76 N.M. 667, 417 P.2d 803.

Foreclose assigned mortgage. — An accommodation maker's payment of a note will not extinguish the lien of mortgage assigned to the accommodation maker and the accommodation maker may foreclose mortgage upon his payment of the note. Simson v. Bilderbeck, Inc., 1966-NMSC-170, 76 N.M. 667, 417 P.2d 803.

Law reviews. — For article, "New Mexico's Uniform Commercial Code: Who Is the Beneficiary of the Stop Payment Provisions of Article 4?" see 4 Nat. Resources J. 69 (1964).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 11 Am. Jur. 2d Bills and Notes §§ 506, 531, 963 to 965, 970, 973.

Acceptance of renewal note made or endorsed by personal representative of obligor in original paper as payment or novation of that paper, 12 A.L.R. 1546.

Right to have usurious payments made on previous obligation applied as payment of principal on renewal, 13 A.L.R. 1244.

Rights and remedies of accommodation party to paper as against accommodated party after payment, 36 A.L.R. 553, 77 A.L.R. 668.

Renewal note as discharging original obligation or indebtedness, 52 A.L.R. 1416.

10 C.J.S. Bills and Notes § 231 et seq.