KRS 355.3-417: Presentment warranties.

(1) (a) If an unaccepted draft is presented to the drawee for payment or acceptance

and the drawee pays or accepts the draft,

1. The person obtaining payment or acceptance, at the time of presentment;

and

2. A previous transferor of the draft, at the time of transfer,

warrant to the drawee making payment or accepting the draft in good faith the

conditions set out in paragraph (b) of this subsection.

(b) 1. The warrantor is, or was, at the time the warrantor transferred the draft,

a person entitled to enforce the d raft or authorized to obtain payment or

acceptance of the draft on behalf of a person entitled to enforce the

draft;

2. The draft has not been altered;

3. The warrantor has no knowledge that the signature of the drawer of the

draft is unauthorized; and

4. With respect to any remotely created item, that the person on whose

account the item is drawn authorized the issuance of the item in the

amount for which the item is drawn.

(2) (a) A drawee making payment may recover from any warrantor damages for

breach of warranty equal to the amount paid by the drawee less the amount

the drawee received or is entitled to receive from the drawer because of the

payment. In addition, the drawee is entitled to compensation for expenses,

including reasonable attorney's fee s, and loss of interest resulting from the

breach.

(b) The right of the drawee to recover damages under this subsection is not

affected by any failure of the drawee to exercise ordinary care in making

payment.

(c) If the drawee accepts the draft, breach of warranty is a defense to the

obligation of the acceptor.

(d) If the acceptor makes payment with respect to the draft, the acceptor is

entitled to recover from any warrantor for breach of warranty the amounts

stated in this subsection.

(3) If a drawee asse rts a claim for breach of warranty under subsection (1) of this

section based on an unauthorized indorsement of the draft or an alteration of the

draft, the warrantor may defend by proving that the indorsement is effective under

KRS 355.3-404 or 355.3 -405 or the drawer is precluded under KRS 355.3 -406 or

355.4-406 from asserting against the drawee the unauthorized indorsement or

alteration.

(4) (a) If:

1. a. A dishonored draft is presented for payment to the drawer or an

indorser; or

b. Any other instrument is presented for payment to a party obliged

to pay the instrument; and

2. Payment is received,

the rules set out in paragraph (b) of this subsection apply.

(b) 1. The person obtaining payment and a prior transferor of the instrument

warrant to the person making payment in good faith that the warrantor

is, or was, at the time the warrantor transferred the instrument, a person

entitled to enforce the instrument or authorized to obtain payment on

behalf of a person entitled to enforce the instrument.

2. The person making payment may recover from any warrantor for breach

of warranty an amount equal to the amount paid plus expenses,

including reasonable attorney's fees, and loss of interest resulting from

the breach.

(5) (a) The warranties stated in subsections (1) and (4) of this section cannot be

disclaimed with respect to checks.

(b) Unless notice of a claim for breach of warranty is given to the warrantor

within thirty (30) days after the claimant has reason to know of the breach and

the identity of the warrantor, the liability of the warrantor under subsection (2)

or (4) of this section is discharged to the extent of any loss caused by the

delay in giving notice of the claim.

(6) A claim for relief for breach of warranty under this section accrues when the

claimant has reason to know of the breach.