Okla. Stat. tit. 12A § 3-416

Current through Laws 2024, c. 453.

Section 3-416 - Transfer Warranties

(a) A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that:

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

(2) All signatures on the instrument are authentic and authorized;

(3) The instrument has not been altered;

(4) The instrument is not subject to a defense or claim in recoupment of any party which can be asserted against the warrantor; and

(5) The warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer.

(b) A person to whom the warranties under subsection (a) of this section are made and who took the instrument 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 instrument plus expenses and loss of interest incurred as a result of the breach.

(c) The warranties stated in subsection (a) 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 liability of the warrantor under subsection (b) of this section is discharged to the extent of any loss caused by the delay in giving notice of the claim.

(d) A claim for relief for breach of warranty under this section accrues when the claimant has reason to know of the breach.

Okla. Stat. tit. 12A, § 3-416

Laws 1961, p. 112, § 3-416; Amended by Laws 1991, SB 25, c. 117, § 79, eff. 1/1/1992.

Oklahoma Code Comment

1. Generally, an instrument's transferor warrants that there is no forgery or alteration and the instrument is not subject to any defense or claim in recoupment, the theory being that no transferee would knowingly take an instrument that could not be enforced. However, the transferor makes no warranty as to the obligor's creditworthiness or the sufficiency funds in the drawer's account, except the warranty in sub section 3-416(a)(5) relating to bankruptcy. A similar warranty provision in Section 4-207 applies to transfers within the banking system. If an Article 4 warranty applies, then Article 3 warranties do not. See UCC § 4-102(a).

2. A claim for breach of warranty on grounds of an alteration or unauthorized indorsement may be precluded or mitigated pursuant to Sections 3-401 through 3-407, or Section 4-406. See, e.g., W.R. Grimshaw Co. v. First Nat'l Bank & Trust Co. of Tulsa, 563 P.2d 117 (Okla. 1977). If an indorsement was forged as part of a scheme involving theft of the instrument, then there may be additional remedies for recovery of the instrument, on the underlying obligation, or in conversion, under Sections 3-309, 3-310 or 3-420. Under pre-revision sub section 3-417(3), absolute liability for breach of the warranty that no defense was good against the transferor could be avoided by a transfer "without recourse," but current Section 3-416 changes this because disclaiming indorsement liability is not equivalent to disclaiming warranty liability See UCC § 3-416 Official Comment 3. In this regard, the 1992 UCC revisions to this Section changed the prior law. Compare Cressler v. Brown, 79 Okla. 170, 192 P. 417 (1920), with State Exchange Bank of E& City v. Traders' Nat'l Bank of Kansas City, Mo., 70 Okla. 266, 174 P. 799 (1918). Another change is that warranty liability can no longer be disclaimed, by any language, with respect to a check. UCC § 3-416(c).

3. See generally F. MILLER & A. HARRELL, THE LAW OF MODERN PAYMENT SYSTEMS AND NOTES 17.02121 (2d ed. 19921.