Code of Alabama

Ala. Code § 7-4-207 (2026)

Transfer Warranties.

✓ official Alabama Legislature (ALISON) text, current July 2026

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(a) A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that:

(1) The warrantor is a person entitled to enforce the item;

(2) All signatures on the item are authentic and authorized;

(3) The item has not been altered;

(4) The item is not subject to a defense or claim in recoupment (Section 7-3-305(a)) of any party that 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) If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item (i) according to the terms of the item at the time it was transferred, or (ii) if the transfer was of an incomplete item, according to its terms when completed as stated in Sections 7-3-115 and 7-3-407. The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under this subsection by an indorsement stating that it is made “without recourse” or otherwise disclaiming liability.

(c) A person to whom the warranties under subsection (a) are made and who took the item 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 item plus expenses and loss of interest incurred as a result of the breach.

(d) The warranties stated in subsection (a) 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.

(e) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

(Acts 1965, No. 549, p. 811; repealed by Acts 1995, No. 95-668, p. 1381, §2; added by Acts 1995, No. 95-668, p. 1381, §2.)

Notes of Decisions

Cited in 5 cases, 1979–2012 · leading case: Union Bank & Trust Co. v. Elmore Cnty. Nat'l Bank, 592 So. 2d 560 (Ala. 1991).

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Union Bank & Trust Co. v. Elmore Cnty. Nat'l Bank, 592 So. 2d 560 (Ala. 1991). · cites it 5× “Ala.Code 1975, § 7-4-207, places a duty on the collecting bank (ECNB) to ensure that the indorsements on a check are not forgeries, and the collecting bank is held to warrant the genuineness of the indorsements.”

E.S.P., Inc. v. Midway Nat'l Bank of St. Paul, 437 N.W.2d 71 (Minn. Ct. App. 1989). · cites it 4× “Bank , the Alabama Supreme Court discussed whether the statute of limitations begins to run at the time of wrongful payment, or upon discovery of breach of warranty under Ala.Code § 7-4-207, which is identical to Minn.”

First Fed. Sav. & Loan Ass'n of Hamilton v. Alabama Nat'l Bank of Montgomery, 372 So. 2d 350 (Ala. Civ. App. 1979). · cites it 4× “The cross-claim of Alabama National claimed right of recovery under either § 7-3-417 or § 7-4-207, Code of Alabama (1975). FFS&L contended in defense that Alabama National should not recover because of its negligence in drawing the check to “The Estate of Excel Pugh,” and by…”

Braden Furniture Co. v. Union State Bank, 109 So. 3d 625 (Ala. 2012). “Code 1975, provided the “fictitious payee rule” and generally precluded the liability of a drawee bank to a drawer, see § 7-4-401, and the liability of a collecting bank/payor bank, see § 7-4-207. The "fictitious payee rule” is now codified at § 7-3-404.”

Trust Co. Bank v. Bronner, 451 So. 2d 247 (Ala. 1984). “The Teachers’ Retirement System (TRS), and others, filed suit against Trust Company Bank for breach of warranty of good title under Code 1975, § 7-4-207, for paying certain State of Alabama warrants over the forged endorsements of the payee.”

— Ala. Code § 7-4-207(2) — 1 case

Union Bank & Trust Co. v. Elmore Cnty. Nat'l Bank, 592 So. 2d 560 (Ala. 1991). “Ala.Code 1975, § 7-4-207, places a duty on the collecting bank (ECNB) to ensure that the indorsements on a check are not forgeries, and the collecting bank is held to warrant the genuineness of the indorsements.”

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