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[arve url=”https://youtu.be/MLaQs8tpEiM” title=”Presentment Warranty – Negotiable Instrument” description=”This video explains what is Presentment Warranty of a negotiable instrument. ” /]
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What is presentment warranty of a negotiable instrument?
Presentment warranty applies when a person entitled to payment of an instrument presents it to a maker or drawee for payment. The presenter warrants to a good faith payor the following:
Enforceability – She is entitled to enforce the instrument,
No Alterations – The terms of the instrument are genuine and there have been no alterations, and
No Forgeries – The drawer of the instruments signature is genuine.
Presentment warranties generally apply to drafts, as all drafts must be presented for payment. This warranty is broader than the name implies. A payor of an instrument can enforce these warranty provisions against the presenter and all prior transferors of the instrument. The theory is that any transferor of the instrument represents that the instrument may be presented for payment in accordance with the above warranties.
Note: Presentment warranty may be disclaimed in certain drafts, but cannot be disclaimed for checks.
Discussion: Why do you think the UCC allows for presentment warranties? What gap does this fulfill in protection of holders of a draft or note? Are these protections adequate? Why or why not?
Practice Question: Ellen is the holder of a check written by Darla and drawn on First Bank. She received the check from Ed, who received it from Clark, the original issuee. If Ellen presents the check to First Bank, what is she warranting to the bank? If First Bank accepts and pays the check and it turns out that Ellen was not entitled to payment, what are First Banks options for recovering the funds paid?