Okla. Stat. tit. 12A § 3-417

Current through Laws 2024, c. 453.

Section 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, (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 making payment or accepting the draft in good faith that:

(1) 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;

(2) The draft has not been altered; and

(3) The warrantor has no knowledge that the signature of the drawer of the draft is unauthorized.

(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) of this section based on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the indorsement is effective under Section 3-404 or 3-405 of this title or the drawer is precluded under Section 3-406 or 4-406 of this title from asserting against the drawee the unauthorized indorsement or alteration.

(d) If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other instrument is presented for payment to a party obliged to pay the instrument, and (iii) payment is received, the following rules apply:

(1) 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; and

(2) 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) 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 (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) of this section is discharged to the extent of any loss caused by the delay in giving notice of the claim.

(f) A claim for relief for breach of warranty under this section accrues when the claimant has reason to know of the breach.

Okla. Stat. tit. 12A, § 3-417

Laws 1961, p. 113, § 3-417; Amended by Laws 1991, SB 25, c. 117, § 80, eff. 1/1/1992.

Oklahoma Code Comment

1. The party making presentment makes fewer warranties than a party who transfers the instrument. A primary difference is that the transferor warrants the genuineness of all signatures, while the presenter warrants the genuineness of all indorsements (this is part of the warranty of good title in sub section 3-417(a)(1); see, e.g., Guaranty Bank & Trust Co. v. Federal Reserve Bank of Kansas City, 454 F.Supp. 488 (W.D. Okla. 1977)), but only a lack of knowledge regarding any lack of authority for the drawer's signature (UCC § 3-417(a)(3)). The reason often given is that the drawee/payor is in a better position to judge the genuineness of its customer's signature. This time-honored concept dates from the English case of Price v. Neal, 3 Burr. 1354 (1762), and has long been the Oklahoma rule. See Cherokee Nat'l Bank v. Union Trust Co., 33 Okla. 342, 125 P. 464 (1912). A similar set of warranties exists for the bank collection process. See UCC § 4-208. The law prior to the 1992 UCC revisions contained a number of exceptions to the presenter's warranty; for example, there was no warranty against alteration given to a drawer, who should recognize its own instrument. The current restructured provisions produce no different result but allow elimination of the exceptions.

As a result, if a payor finalpayment under Section 4-215 or becomes accountable under Section 4-302 , and then discovers that the drawer's signature is a forgery, the bank cannot recover from the presenter for breach of warranty. In contrast, if a forged indorsement is discovered in these circumstances, there will be a cause of action for breach of warranty See UCC §§ 3-417(a)(1), 4-208(A)(I). In either case, however, the payor may have a remedy based on the law of mistake and restitution. See UCC §§ 3-418 and 4-302(b); F. MILLER & A. HAR RELL, THE LAW OF MODERN PAYMENT SYSTEMS AND NOTES 1 8.02[3] & [4] (2d ed. 1992).

2. Liability for breach of warranty in the form of an unauthorized indorsement or alteration may be precluded or mitigated under Sections 3-401 through 3-407 or Section 4-406 . In such case, the instrument would be considered properly payable to the extent of the preclusion, permitting, for example, the payor bank to charge the drawer's account (subject to any offsetting liability of the party asserting the preclusion, under the new comparative negligence standard in sub sections 3-404(d), 3-405(b), 3-406(b) and 4-406(e)). See UCC §§ 404-l(a), 4-406(f); F. MILLER & A. HARRELL THE LAW OF MODERN PAYMENT SYSTEMS AND NOTES 19.03[4] (2d ed. 1992). See generally MILLER & HARRELL at P 7.02[3].

3. This Section's Official Comment 5 explains that the recovery under Sections 3-417 and 4-208 leaves the question of attorney's fees open to interpretation in each state. For Oklahoma, see Guaranty Bank & Trust Co. v. Federal Reserve Bank of Kansas City, 454 F.Supp. 488 (W.D. Okla. 1977) (attorney fees awarded). See also UCC § 4-207. Oklahoma Comment