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84-3-417. Presentment warranties. (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (1) the person obtaining payment or acceptance, at the time of presentment, and (2) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that:

(A) 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;

(B) the draft has not been altered;

(C) the warrantor has no knowledge that the signature of the drawer of the draft is unauthorized; and

(D) if the draft is a demand draft, creation of the demand draft according to the terms on its face was authorized by the person identified as drawer.

(b) A drawee making payment may recover from any 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, breach of warranty is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from any 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) based on an unauthorized endorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the endorsement is effective under K.S.A. 84-3-404 or 84-3-405, and amendments thereto, or the drawer is precluded under K.S.A. 84-3-406 or K.S.A. 84-4-406, and amendments thereto, from asserting against the drawee the unauthorized endorsement or alteration.

(d) If (1) a dishonored draft is presented for payment to the drawer or an endorser or (2) any other instrument is presented for payment to a party obliged to pay the instrument, and (3) payment is received, the following rules apply:

(A) The person obtaining payment and a prior transferor of the instrument warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the instrument, a person entitled to enforce the instrument or authorized to obtain payment on behalf of a person entitled to enforce the instrument.

(B) 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) 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 liability of the warrantor under subsection (b) or (d) 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 (f) of K.S.A. 84-3-104, and amendments thereto.

(h) If the warranty in subsection (a)(4) is not given by a transferor under applicable conflict of law rules, then the warranty is not given to that transferor when that transferor is a transferee.

History: L. 1991, ch. 296, § 54; L. 2005, ch. 58, § 5; July 1.

KANSAS COMMENT, 1996

This section is identical to the 1995 Official Text except that the lower case roman numerals have been replaced by arabic numbers, and the arabic numbers have been replaced by capital letters. This section is derived from the former 84-3-417(1), with many modifications. Historical case and statutory references can be obtained from the 1965 and 1983 bound volume 7 of the Kansas Statutes Annotated.

Presentment warranties are made to the payor by the presenter and all previous transferees. The payor may not assert the transfer warranties. The warranty derives from decisional doctrines turning on the common-law rule of Price v. Neal , 3 Burr. 1354 (1762), distinguishing between the increased responsibility of the final payor of an instrument and the relative lack of knowledge of other transferees. The warranties given to the drawee of an unaccepted draft (84-3-417(a), paralleled in 84-4-208 for a check presented to the drawee bank for payment or acceptance) are narrower than the transfer warranties. The warranties given to makers and to the drawers of dishonored drafts (84-3-417(d)), are a mere shadow of the transfer warranties. The distinction is based on the responsibility that the drawee has for knowing its drawer's signature, subsection (a), and the greater responsibility that the maker of a note or drawer of a dishonored draft (check) has for knowing all the terms of the original instrument.

The presenter and prior transferors of an unaccepted draft warrant in paragraph 84-3-417(a)(A) that each was entitled to enforce the draft. This basically warrants that there are no forged indorsements on order paper. Under paragraph (a)(B), each warrants that the draft has not been altered, and under paragraph (a)(C) they warrant no knowledge that the signature of the drawer is unauthorized. The drawee is responsible for knowing the drawer's signature since only the lack of knowledge is warranted.

Damages for breach of warranty are the amount paid, less the amount that can be recovered from the drawee. In addition the drawee is entitled to compensation for expenses, which might include attorney fees, and interest.

Subsection (d) covers the very limited warranties made to the drawer or indorser on a dishonored draft, and to others liable on an instrument, most commonly the maker of a note.

Under paragraph (A), persons obtaining payment warrant that they are entitled to enforce the instrument. This is a warranty that there are no forged indorsements on order. It also covers any other situations where they would not be entitled to enforce the instrument, but they would be rare. It is not a warranty that the enforcement of the instrument is proper. See 84-3-301. If the drawer or prior owner is precluded from claiming an unauthorized signature (84-3-404 through 84-3-407), the transferor may assert that fact.

This is the only warranty drawers and indorsers of dishonored drafts and makers of notes receive. These persons are supposed to know details of the instrument they have all previously dealt with, their signatures, and the amount and the terms of the instrument.

In most cases the warranties can be disclaimed, but the Official Comments indicate that the disclaimer of warranties must be explicit and mention warranties. A "without recourse" indorsement is no longer sufficient. Warranties can not be disclaimed on checks.

Revisor's Note:

Former section 84-3-417 was repealed by L. 1991, ch. 296, § 111 and the number reassigned to the current text.

Law Review and Bar Journal References:

"Changes in Check Collection and Access to Funds; Regulation CC and Revised UCC Article 4," William H. Lawrence, 61 J.K.B.A. No. 6, 26, 30 (1992).

CASE ANNOTATIONS

1. Depository bank and insurer/drawees entitled to indemnity from attorney forging client's endorsement; drawees entitled to indemnity from depository bank. King v. White, 265 Kan. 627, 631, 962 P.2d 475 (1998).


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