Warranty Liability and Transfer Warranties

Warranty Liability

Extends to both signers and non-signers.

Breach of warranty can occur when the instrument is transferred or presented for payment.

Transferors make certain implied warranties regarding instruments they negotiate.

Liability not subject to dishonor, presentment, notice.

Liabilities: Transfer or Presentment.

Transfer Warranties

Following transfer warranties extend to all subsequent holders:

§ Transferor is entitled to enforce the instrument.

§ Signatures are authentic and authorized.

§ Instrument has not been altered.

§ Instrument not subject to defense.

§ Transferor has no notice of insolvency.

Presentment Warranties

Person who presents an instrument makes the following presentment warranties:

§ No missing or unauthorized indorsement.

§ Instrument has not been altered.

§ Person obtaining payment has no knowledge signature is unauthorized.

Case 26.3: First National Bank of Chicago v. MidAmerica Federal Savings (1999).