Payment

(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.