§ 4—207. Transfer warranties
(a) A customer or collecting bank that transfers an item and receives a settlement or
other consideration warrants to the transferee and to any subsequent collecting bank
that:
(1) the warrantor is a person entitled to enforce the item;
(2) all signatures on the item are authentic and authorized;
(3) the item has not been altered;
(4) the item is not subject to a defense or claim in recoupment (§ 3—305(a)) of any party that can be asserted against the warrantor;
(5) the warrantor has no knowledge of any insolvency proceeding commenced with respect
to the maker or acceptor or, in the case of an unaccepted draft, the drawer; and
(6) if the item is a demand draft, creation of the item according to the terms on its
face was authorized by the person identified as drawer.
(b) If an item is dishonored, a customer or collecting bank transferring the item and
receiving settlement or other consideration is obliged to pay the amount due on the
item (i) according to the terms of the item at the time it was transferred, or (ii)
if the transfer was of an incomplete item, according to its terms when completed as
stated in sections 3—115 and 3—407 of this title. The obligation of a transferor is owed to the transferee and to any subsequent collecting
bank that takes the item in good faith. A transferor cannot disclaim its obligation
under this subsection by an indorsement stating that it is made “without recourse”
or otherwise disclaiming liability.
(c) A person to whom the warranties under subsection (a) of this section are made and
who took the item in good faith may recover from the warrantor as damages for breach
of warranty an amount equal to the loss suffered as a result of the breach, but not
more than the amount of the item plus expenses and loss of interest incurred as a
result of the breach.
(d) The warranties stated in subsection (a) of this section cannot be disclaimed with
respect to checks. Unless notice of a claim for breach of warranty is given to the
warrantor within 30 days after the claimant has reason to know of the breach and the
identity of the warrantor, the warrantor is discharged to the extent of any loss caused
by the delay in giving notice of the claim.
(e) A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach.
(f) If the warranty in subsection (a)(6) of this section is not given by a transferor
or collecting bank under applicable conflict of law rules, the warranty is not given
to that transferor when that transferor is a transferee nor to any prior collecting
bank of that transferee. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; 2003, No. 87 (Adj. Sess.), § 6.)