Home Liability Know the Types of Presentment Warranties

Know the Types of Presentment Warranties

Know the Types of Presentment Warranties

When a negotiable instrument is presented for payment, the
presenter is inherently making certain presentment warranties to the party to
whom the presenter is presenting the negotiable instrument. For example, if
someone were to present a check to a bank for payment on the check, that
person would be making certain presentment warranties about that check. The
presenter holds liability for each of these presentment warranties. Should
the drawee discover that the warranties were broken, it may seek damages
from the presenter.

There are three main presentment warranties, each of which puts a
certain level of liability upon the presenter. The first presentment warranty is that the presenter, at the time of presentment if not at the present time,
was authorized to enforce the presented draft. This could also mean that the
presenter was authorized to act as an agent for the party that was actually
authorized to enforce the draft. In other words, this means that at the time of
presentment, the presenter is accepting liability for the fact that he or she
was, in fact, the current holder of that negotiable instrument.  

The
presenter must have had right to that negotiable instrument with the ability
to receive payment upon it. If the presenter did not have this right, then the
presenter is accepting liability for such a breach of warranty. This warranty
would also make the presenter liable if any of the endorsements leading up to
the endorsement that gave the presenter holdership turn out to be forgeries or
unauthorized in some fashion. In such a case, the presenter would not have
the authority to enforce the draft.

The second of the presentment warranties is that the draft has not been
altered. This warranty simply establishes that if the draft has been
substantially and wrongfully altered in some way, the presenter is
accepting liability for any damages incurred because of such alterations.
Alterations include changing the value of the draft, changing the parties
from whom the draft is drawn, or changing the instructions and endorsements of
prior endorsers. Any of these would put liability on the current presenter.

The third of the presentment warranties is that the presenter does not
know at the time of presentment that the signature of the draft’s drawer is
unauthorized, meaning that either the signature is not unauthorized, or that
the presenter does not know that it is unauthorized. This warranty ensures that
the presenter is not a party to any fraud or forgery in the very formation of the
draft. If the signature of the drawer is unauthorized, then the presenter does
not necessarily hold liability for that unauthorized signature. Only if the
presenter holds knowledge of that unauthorized signature does the presenter
assume liability.

Most of the time, the party attempting to recoup losses and seek damages
based on violation of presentment warranties will be the drawee to whom the
draft is presented for payment. The payee would likely be the presenter of the
draft, and therefore, would hold liability for each of the presentment
warranties. The drawee seeking reparations would be entitled to the
amount of money it lost in paying the draft with any money that it did
actually receive from the drawer decreasing this amount, as well as to any
expenses it lost in the pursuit of reparations and any interest that the
drawee might have lost as a result of the violation of the presentment
warranties.

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