§ 41-04-19 — (4-207) Transfer warranties

1. 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:
a. The warrantor is a person entitled to enforce the item.
b. All signatures on the item are authentic and authorized.
c. The item has not been altered.
d. The item is not subject to a defense or claim in recoupment (subsection 1 of
section 41-03-31) of any party that can be asserted against the warrantor.
e. 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.
f. If the item is a demand draft, creation of the item according to the terms on its
face was authorized by the person identified as drawer.
2. 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 according to the terms of the item at the time it was transferred, or, if the transfer
was of an incomplete item, according to its terms when completed as stated in
sections 41-03-15 and 41-03-44. 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 may not disclaim its obligation under this subsection by an endorsement
stating that it is made "without recourse" or otherwise disclaiming liability.
3. A person to whom the warranties under subsection 1 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.
4. The warranties stated in subsection 1 cannot be disclaimed with 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.
5. A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach.
6. If the warranty in subdivision f of subsection 1 is not given by a transferor or collecting
bank under applicable conflict of law rules, the warranty is not given to that transferor
when that transferor is a transferee nor to any prior collecting bank of that transferee.