TITLE 11 COMMERCIAL CODE

Section 3. Negotiable Instruments, 11-3-101 through 11-3-605.

ARTICLE 3 NEGOTIABLE INSTRUMENTS

11-3-417. Presentment warranties.

If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of presentment, and 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.
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.
If a drawee asserts a claim for breach of warranty under subsection (a) of this Code 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 Code Section 11-3-404 or 11-3-405 or the drawer is precluded under Code Section 11-3-406 or 11-4-406 from asserting against the drawee the unauthorized indorsement or alteration.
If a dishonored draft is presented for payment to the drawer or an indorser or any other instrument is presented for payment to a party obliged to pay the instrument and 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.
The warranties stated in subsections (a) and (d) of this Code section 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 liability of the warrantor under subsection (b) or (d) of this Code section 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 Code section accrues when the claimant has reason to know of the breach.

(Code 1981, §11-3-417, enacted by Ga. L. 1996, p. 1306, § 3; Ga. L. 1997, p. 143, § 11.)

Law reviews.

- For comment on Perini Corp. v. First Nat'l Bank, 553 F.2d 398 (5th Cir. 1977), see 27 Emory L.J. 393 (1978).

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the provisions, decisions under former Code 1933, §§ 14-606, 14-607 and former Code Section 11-3-417 are included in the annotations for this section.

When endorser liability becomes absolute and when it is discharged.

- Liability of every endorser is contingent until note matures; when conditions of endorser's warranty have been met, liability becomes absolute; when requirements as to presentment and notice of dishonor have not been complied with, endorser is discharged. Massell v. Prudential Ins. Co. of Am., 57 Ga. App. 460, 196 S.E. 115 (1938) (decided under former Code 1933, §§ 14-606 and 14-607).

Forged endorsement is ineffective to pass title. Perini Corp. v. First Nat'l Bank, 553 F.2d 398 (5th Cir. 1977) (decided under former Code Section 11-3-417).

Bank's duty to inquire into validity of irregular endorsements.

- Where endorsements are irregular enough on their face to raise question as to their validity; and when checks are offered for deposit into account of one not payee, bank has duty to inquire to ascertain authority of depositor to endorse and deposit payee's checks and cannot escape its duty of inquiry by relying on word of its customer, the depositor, nor does fact that bank could proceed against its customer under warranty provisions of this section and O.C.G.A. § 11-4-207 absolve it of obligation of inquiry. Failure to inquire into the validity of such endorsements precludes bank from asserting defense of commercial reasonableness of former Code section § 11-3-419(3) as a matter of law. Thornton & Co. v. Gwinnett Bank & Trust Co., 151 Ga. App. 641, 260 S.E.2d 765 (1979) (decided under former Code Section11-3-417).

Defense in conversion suit prohibited.

- Bank may not defend conversion suit under this section by claiming that named payee on negotiable instrument has no enforceable right to receive or retain proceeds evidenced thereby against drawer. Thornton & Co. v. Gwinnett Bank & Trust Co., 151 Ga. App. 641, 260 S.E.2d 765 (1979) (decided under former Code Section11-3-417).

RESEARCH REFERENCES

Am. Jur. 2d.

- 4 Am. Jur. 2d, Alteration of Instruments, § 26. 10 Am. Jur. 2d, Banks and Financial Institutions, § 747. 11 Am. Jur. 2d, Bills and Notes, §§ 389, 390, 412 et seq. 12 Am. Jur. 2d, Banks and Financial Institutions, §§ 912, 980, 981. 12 Am. Jur. 2d, Bills and Notes, §§ 464 et seq., 512 et seq., 647 et seq., 671. 37 Am. Jur. 2d, Fraud and Deceit, § 158.

C.J.S.

- 10 C.J.S., Bills and Notes, §§ 39 et seq., 154 et seq., 239.

U.L.A.

- Uniform Commercial Code (U.L.A.) § 3-417.

ALR.

- Liability on note given to bank to aid in evading law, 64 A.L.R. 595.

Right of maker or endorser of note to set up fraud in transfer by intermediate holder to plaintiff, 66 A.L.R. 800.

Rights and remedies of purchaser of draft, payable to third person, against drawer where draft is not paid, 71 A.L.R. 1454.

Title to commercial paper deposited by customer of bank to his account, 99 A.L.R. 486.

Liability of bank for diversion to benefit of presenter or third party of proceeds of check drawn to bank's order by drawer not indebted to bank, 69 A.L.R.4th 778.

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