(a) A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by endorsement, to any subsequent transferee that: (1) The warrantor is a person entitled to enforce the instrument; (2) all signatures on the instrument are authentic and authorized; (3) the instrument has not been altered; (4) the instrument is not subject to a defense or claim in recoupment of any party which 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) A person to whom the warranties under subsection (a) are made and who took the instrument 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 instrument plus expenses and loss of interest incurred as a result of the breach.

(c) 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 thirty 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) is discharged to the extent of any loss caused by the delay in giving notice of the claim.

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

(1959, P.A. 133, S. 3-416; P.A. 91-304, S. 53; May Sp. Sess. P.A. 92-11, S. 18, 70.)

History: P.A. 91-304 entirely replaced former provisions re contract of guarantor with provisions re transfer warranties, a restatement of Sec. 42a-3-417(2), revised to 1991, and provisions re damages, notice of claim and accrual of action for breach of warranty; May Sp. Sess. P.A. 92-11 made a technical change in Subsec. (c).

See Sec. 42a-3-419(c) and (d) for successor provisions to Sec. 42a-3-416(4) and (2), respectively, revised to 1991, re effect of words of guaranty added to signature and of signature guaranteeing collection.

Cited. 202 C. 277; 203 C. 407; 240 C. 10.

When guarantee agreement is the type covered by statute, there is no need to proceed against the maker of the note. 40 CS 236.