KRS 355.4-207: Transfer warranties.

(1) 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:

(a) The warrantor is a person entitled to enforce the item;

(b) All signatures on the item are authentic and authorized;

(c) The item has not been altered;

(d) The item is not subject to a defense or claim in recoupment (KRS 355.3 -

305(1)) of any party that can be asserted against the warrantor;

(e) The warrantor has no knowledge of any i nsolvency proceeding commenced

with respect to the maker or acceptor or, in the case of an unaccepted draft, the

drawer; and

(f) With respect to any remotely created item, that person on whose account the

item is drawn authorized the issuance of the item i n the amount for which the

item is drawn.

(2) 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:

(a) According to the terms of the item at the time it was transferred; or

(b) If the transfer was of an incomplete item, according to its terms when

completed as stated in KRS 355.3-115 and 355.3-407.

The obligation 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.

(3) A person to whom the warranties under subsection (1 ) of this section 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.

(4) The warranties stated in subsection (1) of this section cannot be disclaimed with

respect to checks. 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 warrantor is discharged to the extent of any

loss caused by the delay in giving notice of the claim.

(5) A claim for relief for breach of warranty under this section accr ues when the

claimant has reason to know of the breach.