§ 4—208. Presentment warranties
(a) If an unaccepted draft is presented to the drawee for payment or acceptance and the
drawee pays or accepts the draft, (i) the person obtaining payment or acceptance,
at the time of presentment, and (ii) a previous transferor of the draft, at the time
of transfer, warrants to the drawee that pays or accepts the draft in good faith that:
(1) the warrantor is, or was, at the time the warrantor transferred the draft, a person
entitled to enforce the draft or authorized to obtain payment or acceptance of the
draft on behalf of a person entitled to enforce the draft;
(2) the draft has not been altered;
(3) the warrantor has no knowledge that the signature of the purported drawer of the draft
is unauthorized; and
(4) if the draft is a demand draft, creation of the draft according to the terms on its
face was authorized by the person identified as drawer.
(b) A drawee making payment may recover from a warrantor damages for breach of warranty
equal to the amount paid by the drawee less the amount the drawee received or is entitled
to receive from the drawer because of the payment. In addition, the drawee is entitled
to compensation for expenses and loss of interest resulting from the breach. The right
of the drawee to recover damages under this subsection is not affected by any failure
of the drawee to exercise ordinary care in making payment. If the drawee accepts the
draft (i) breach of warranty is a defense to the obligation of the acceptor, and (ii)
if the acceptor makes payment with respect to the draft, the acceptor is entitled
to recover from a warrantor for breach of warranty the amounts stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty under subsection (a) of this section
based on an unauthorized indorsement of the draft or an alteration of the draft, the
warrantor may defend by proving that the indorsement is effective under section 3—404 or 3—405 of this title or the drawer is precluded under section 3—406 or 4—406 of this title from asserting against the drawee the unauthorized indorsement or alteration.
(d) If (i) a dishonored draft is presented for payment to the drawer or an indorser or
(ii) any other item is presented for payment to a party obliged to pay the item, and
the item is paid, the person obtaining payment and a prior transferor of the item
warrant to the person making payment in good faith that the warrantor is, or was,
at the time the warrantor transferred the item, a person entitled to enforce the item
or authorized to obtain payment on behalf of a person entitled to enforce the item.
The person making payment may recover from any warrantor for breach of warranty an
amount equal to the amount paid plus expenses and loss of interest resulting from
the breach.
(e) The warranties stated in subsections (a) and (d) 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.
(f) A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach.
(g) A demand draft is a check as provided in subsection 3—104(k) of this title.
(h) If the warranty in subsection (a)(4) of this section is not given by a transferor
under applicable conflict of law rules, the warranty is not given to that transferor
when that transferor is a transferee. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; amended 2003, No. 87 (Adj. Sess.), § 7.)