Section 4--207. Warranties of Customer and Collecting Bank on Transfer

or Presentment of Items; Time for Claims.

(1) Each customer or collecting bank who obtains payment or acceptance
of an item and each prior customer and collecting bank warrants to the
payor bank or other payor who in good faith pays or accepts the item
that

(a) he has a good title to the item or is authorized to obtain

payment or acceptance on behalf of one who has a good title;

and

(b) he has no knowledge that the signature of the maker or drawer

is unauthorized, except that this warranty is not given by

any customer or collecting bank that is a holder in due

course and acts in good faith

(i) to a maker with respect to the maker's own signature; or

(ii) to a drawer with respect to the drawer's own signature,

whether or not the drawer is also the drawee; or

(iii) to an acceptor of an item if the holder in due course

took the item after the acceptance or obtained the

acceptance without knowledge that the drawer's signature

was unauthorized; and

(c) the item has not been materially altered, except that this

warranty is not given by any customer or collecting bank that

is a holder in due course and acts in good faith

(i) to the maker of a note; or

(ii) to the drawer of a draft whether or not the drawer is

also the drawee; or

(iii) to the acceptor of an item with respect to an alteration

made prior to the acceptance if the holder in due course

took the item after the acceptance, even though the

acceptance provided "payable as originally drawn" or

equivalent terms; or

(iv) to the acceptor of an item with respect to an alteration

made after the acceptance.

(2) Each customer and collecting bank who transfers an item and
receives a settlement or other consideration for it warrants to his
transferee and to any subsequent collecting bank who takes the item in
good faith that

(a) he has a good title to the item or is authorized to obtain

payment or acceptance on behalf of one who has a good title

and the transfer is otherwise rightful; and

(b) all signatures are genuine or authorized; and (c) the item

has not been materially altered; and

(d) no defense of any party is good against him; and

(e) he has no knowledge of any insolvency proceeding instituted

with respect to the maker or acceptor or the drawer of an

unaccepted item.
In addition each customer and collecting bank so transferring an item
and receiving a settlement or other consideration engages that upon
dishonor and any necessary notice of dishonor and protest he will take
up the item.

(3) The warranties and the engagement to honor set forth in the two
preceding subsections arise notwithstanding the absence of indorsement
or words of guaranty or warranty in the transfer or presentment and a
collecting bank remains liable for their breach despite remittance to
its transferor. Damages for breach of such warranties or engagement to
honor shall not exceed the consideration received by the customer or
collecting bank responsible plus finance charges and expenses related to
the item, if any

(4) Unless a claim for breach of warranty under this section is made
within a reasonable time after the person claiming learns of the breach,
the person liable is discharged to the extent of any loss caused by the
delay in making claim.