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  5. Part 4: Liability of Parties


Section 3-417 Warranties on Presentment and Transfer

Uniform Commercial Code (UCC)

Section 3--417. Warranties on Presentment and Transfer.

  (1) Any person who obtains payment or acceptance and any prior transferor warrants to a person who in good faith pays or accepts that

   (a) he has a good title to the instrument or is authorized to

   obtain payment or acceptance on behalf of one who has a good

   title; and

   (b) he has no knowledge that the signature of the maker or drawer

   is unauthorized, except that this warranty is not given by a

   holder in due course acting in good faith

   (i) to a maker with respect to the maker's own signature; or

   (ii) to a drawer with respect to the drawer's own signature,

   whether or not the drawer is also the drawee; or

   (iii) to an acceptor of a draft if the holder in due course

   took the draft after the acceptance or obtained the

   acceptance without knowledge that the drawer's signature

   was unauthorized; and

   (c) the instrument has not been materially altered, except that

   this warranty is not given by a holder in due course acting

   in good faith

   (i) to the maker of a note; or

   (ii) to the drawer of a draft whether or not the drawer is

   also the drawee; or

   (iii) to the acceptor of a draft with respect to an alteration

   made prior to the acceptance if the holder in due course

   took the draft after the acceptance, even though the

   acceptance provided "payable as originally drawn" or

   equivalent terms; or

   (iv) to the acceptor of a draft with respect to an alteration

   made after the acceptance.

  (2) Any person who transfers an instrument and receives consideration warrants to his transferee and if the transfer is by indorsement to any subsequent holder who takes the instrument in good faith that

   (a) he has a good title to the instrument or is authorized to

   obtain payment or acceptance on behalf of one who has a good

   title and the transfer is otherwise rightful; and

   (b) all signatures are genuine or authorized; and

   (c) the instrument has not been materially altered; and

   (d) no defense of any party is good against him; and

   (e) he has no knowledge of any insolvency proceeding instituted

   with respect to the maker or acceptor or the drawer of an

   unaccepted instrument.

  (3) By transferring "without recourse" the transferor limits the obligation stated in subsection (2) (d) to a warranty that he has no knowledge of such a defense.

  (4) A selling agent or broker who does not disclose the fact that he is acting only as such gives the warranties provided in this section, but if he makes such disclosure warrants only his good faith and authority.