400.4-207. Transfer warranties.
Transfer warranties.
400.4-207. (a) A customer or collecting bank that transfers an itemand receives a settlement or other consideration warrants to the transfereeand 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(Section 400.3-305(a)) of any party that can be asserted against thewarrantor;
(5) the warrantor has no knowledge of any insolvency proceedingcommenced with respect to the maker or acceptor or, in the case of anunaccepted draft, the drawer; and
(6) if the item is a demand draft, creation of the item according tothe terms on its face was authorized by the person identified as drawer.Nothing in this section shall be construed to impair the rights of thedrawer against the drawee.
(b) If an item is dishonored, a customer or collecting banktransferring the item and receiving settlement or other consideration isobliged to pay the amount due on the item (i) according to the terms of theitem at the time it was transferred, or (ii) if the transfer was of anincomplete item, according to its terms when completed as stated inSections 400.3-115 and 400.3-407. The obligation of a transferor is owedto the transferee and to any subsequent collecting bank that takes the itemin good faith. A transferor cannot disclaim its obligation under thissubsection by an endorsement stating that it is made "without recourse" orotherwise disclaiming liability.
(c) A person to whom the warranties under subsection (a) are made andwho took the item in good faith may recover from the warrantor as damagesfor breach of warranty an amount equal to the loss suffered as a result ofthe breach, but not more than the amount of the item plus expenses and lossof interest incurred as a result of the breach.
(d) The warranties stated in subsection (a) cannot be disclaimed withrespect to checks. Unless notice of a claim for breach of warranty isgiven to the warrantor within 30 days after the claimant has reason to knowof the breach and the identity of the warrantor, the warrantor isdischarged to the extent of any loss caused by the delay in giving noticeof the claim.
(e) A cause of action for breach of warranty under this sectionaccrues when the claimant has reason to know of the breach.
(f) If the warranty in paragraph (6) of subsection (a) is not givenby a transferor or collecting bank under applicable conflict of law rules,then the warranty is not given to that transferor when that transferor is atransferee, nor to any prior collecting bank of that transferee.
(L. 1963 p. 503 § 4-207, A.L. 1992 S.B. 448, A.L. 2005 S.B. 279)