(a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) 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:
The warrantor is, or was, at the time the warrantor transferred the draft, a personentitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft;
The draft has not been altered;
The warrantor has no knowledge that the signature of the purported drawer of thedraft is unauthorized; and
If the draft is a demand draft, creation of the demand draft according to the terms onits face was authorized by the person identified as drawer. Nothing in this section shall be construed to impair the rights of the drawer against the drawee.
A drawee making payment may recover from a warrantor damages for breach ofwarranty 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 (b) is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft (i) breach of warranty is a defense to the obligation of the acceptor, and (ii) 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 (b).
If a drawee asserts a claim for breach of warranty under subsection (a) of this sectionbased on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by reproving that the indorsement is effective under section 4-3-404 or 4-3-405 or the drawer is precluded under section 4-3-406 or 4-4-406 from asserting against the drawee the unauthorized indorsement or alteration.
If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) 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.
The warranties stated in subsections (a) and (b) of this section cannot be disclaimedwith 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 warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.
A cause of action for breach of warranty under this section accrues when the claimanthas reason to know of the breach.
A demand draft is a check, as provided in section 4-3-104 (f).
If the warranty in paragraph (4) of subsection (a) of this section is not given by atransferor under applicable conflict of law rules, then the warranty is not given to that transferor when that transferor is a transferee.
Source: L. 94: Entire article amended with relocations, p. 889, § 2, effective January 1, 1995. L. 2001: (a) amended and (g) and (h) added, p. 869, § 7, effective August 8.
Cross references: For the legislative declaration contained in the 2001 act amending subsection (a) and enacting subsections (g) and (h), see section 1 of chapter 244, Session Laws of Colorado 2001.