A person who transfers an instrument for consideration gives warranties about enforceability, signatures, alteration, defenses, and insolvency knowledge; the warranties cannot be disclaimed for checks.
§3-416. Transfer warranties (a) A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that: (1) the warrantor is a person entitled to enforce the instrument; (2) all signatures on the instrument are authentic and authorized; (3) the instrument has not been altered; (4) the instrument is not subject to a defense or claim in recoupment of any party which can be asserted against the warrantor; and (5) the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer. (b) A person to whom the warranties under Subsection (a) of this Section are made and who took the instrument in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach. If the person to whom the warranties are made sends written notice by certified or registered mail or commercial courier to the warrantor of its claim for breach of warranty and the warrantor fails to pay the claim within thirty days after receiving the notice, the expenses of the person to whom the warranties are made shall include reasonable attorney fees. (c) The warranties stated in Subsection (a) 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 thirty 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) of this Section is discharged to the extent of any loss caused by the delay in giving notice of the claim. (d) A cause of action for breach of warranty under this Section accrues when the claimant has reason to know of the breach. Acts 1992, No. 1133, §3, eff. July 1, 1993; Acts 1993, No. 948, §10, eff. Jan. 1, 1994; Acts 2024, No. 208, §1.