84-4-208. Presentment warranties. (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (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 that pays or accepts 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 purported 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 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 (1) breach of warranty is a defense to the obligation of the acceptor, and (2) 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) 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 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) 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 (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, § 89; L. 2005, ch. 58, § 7; July 1.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text except that the lower case roman numerals in the text were replaced by arabic numbers, and the arabic numbers in the text were replaced by capital letters. This is a new section derived from the presentment warranties in the former 84-4-207. The transfer warranties have been moved to the current 84-4-207.
If the drawer's signature is forged on a check, the drawer can get the account recredited under 84-4-401, unless the drawer's negligence facilitated the forgery (84-3-406), or unless the drawer fails to notify the bank promptly after discovering the forgery (84-4-406), with an outer time limit of one year (84-4-406(f)). Assuming no drawer negligence, the loss will stay with the drawee bank because payment is normally final under 84-3-418, and prior collecting banks only warrant they have no knowledge that the drawer's signature has been forged. 84-4-208(a)(3).
By contrast, if a check is materially altered (e.g., raised from $58.20 to $8658.20), and the drawer is not negligent under 84-3-406 or 84-4-406, the drawee bank must recredit the account to the tune of $8600; to the extent of the alteration, the check is not "properly payable" under 84-4-401(a) and (d). In this case, however, unlike the forged drawer's signature situation, the drawee bank can shift the loss upstream to its presenter and prior collecting banks on a warranty theory under this section. 84-4-208(a)(3) provides that the presenting bank warrants to the drawee bank the lack of any material alteration with respect to each item flowing through the bank collection system. In turn, each collecting bank can shift the loss upstream to its transferor under 84-4-207, and to any prior indorsers for value under 84-3-417, until the loss rests with the alterer, or the depositary bank or other party which took the item from alterer.
Finally, if a check carries a forged indorsement, the drawee bank will be forced to recredit its customer's account (84-4-401) or be liable to the intended payee in conversion (84-3-420(a)), but can in turn shift the loss upstream to collecting banks under 84-4-208(a)(1), each of which warranted it was entitled to enforce the check. A forged indorsement breaches this warranty.
In summary, the warranties under this section allow the drawee bank to shift liability for forged indorsements and material alterations to prior collecting banks, although it will be left holding the bag with respect to forgery of the drawer's signature.
The Official Comment to this section refers to 84-3-417, which is nearly identical to this section. Official Comment 5 to 84-3-417 clearly contemplates recovery of attorney fees as part of a breach of warranty claim against prior collecting banks. The courts have generally upheld recovery of attorney fees even though the language appears in the Official Comment rather than in the text itself. See, e.g., Guaranty Bank & Trust Co. v. Federal Reserve Bank of Kansas City, 454 F. Supp. 488 (W.D. Okla. 1977).
Revisor's Note:
In 1991 former section 84-4-208 was transferred to 84-4-210 as a conforming amendment in the revision of article 3 of the code and the number reassigned to a new section.
|
|