(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 55-3-305(a) NMSA 1978) 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 55-3-115 NMSA 1978 and 55-3-407 NMSA 1978. The obligations 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 thirty days after the claimant has reason to know if 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.

History: 1978 Comp., § 55-4-207, enacted by Laws 1992, ch. 114, § 173.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. Except for Subsection (b), this section conforms to Section 3-416 [55-3-416 NMSA 1978] and extends its coverage to items. The substance of this section is discussed in the Comment to Section 3-416 [55-3-416 NMSA 1978]. Subsection (b) provides that customers or collecting banks that transfer items, whether by indorsement or not, undertake to pay the item if the item is dishonored. This obligation cannot be disclaimed by a "without recourse" indorsement or otherwise. With respect to checks, Regulation CC Section 229.34 states the warranties made by paying and returning banks.

2. For an explanation of Subsection (a)(6), see comment 8 to Section 3-416 [55-3-416 NMSA 1978].

Repeals. — Laws 1992, ch. 114, § 173 repealed former 55-4-207 NMSA 1978, as enacted by Laws 1961, ch. 96, § 4-207, relating to warranties of customer and collecting bank on transfer or presentation of items, and enacted a new section, effective July 1, 1992. For provisions of former section, see the 1991 NMSA 1978 on NMOneSource.com.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 10 Am. Jur. 2d Banks §§ 403, 710; 11 Am. Jur. 2d Bills and Notes §§ 646, 649.

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.

9 C.J.S. Banks and Banking §§ 420, 422 et seq., 430 et seq., 415, 435.