JollyGreenGiant wrote:Ugh. I could use commercial paper help if possible:
If someone presents a forged signature/alteration to the Drawee, the drawee can recover from that party as they have breached their "presentment warranty." That party can then recover from who they got it from due to that party breaching their "transfer warranty" and that party can recover from the party before it, etc. until it reaches the forging party. Can anybody recover for another party's breach of presentment warranty other than Drawee? Also, my notes indicate that if Drawer's signature is forged, then Drawee Bank can't recover from anybody except forger. So can Drawer only recover on presentment warranty in cases of material alterations to the check?
In regards to presentment warranty - Presentment warranty is only triggered when the check is presented to the bank from which the check is drawn (drawee bank). So let's say that A draws a check from his account at Bank 1. He transfers the check to B. C steals the check from B, and forges B's signature. C then transfers the note to D. D takes the check to his bank at Bank 2 to have it cashed. There is no presentment warranty between D and Bank 2, because the check is drawn from Bank 1. Bank 2 is the "depository bank," and presentment warranty is only triggered when presented to the drawee bank. So Bank 2 takes the check, and presents it to Bank 1 for payment. Here is where presentment warranty is implicated, because Bank 2 is "presenting" the check for payment at the drawee bank. So if there is a breach of the presentment warranty, it is going to happen between Bank 1 and Bank 2.
Bank 1 cannot go after any of the other indorsers because they did not present the check to it. But assuming that there was a breach of the presentment warranty and Bank 1 recovers from Bank 2. Bank 2 can then go after D for breach of his transfer warranty (because there was an unauthorized/unauthentic indorsement) D can then go after C for breach of the transfer warranty.
In regards to your question about the forged maker's signature - A forged maker's signature is not treated the same as a forged indorsement. It is considered a valid maker's signature from the forger's account. So in other words, if there is a forged maker's signature, the check is properly payable, but payable on the forger's account and not the person from whom the check was stolen. The rationale here is that when a maker signs the note, he is promising that he will pay it according to its terms when he signs. If his signature is forged, he's not making any promise; the forger is. So the forger's signature is treated as a valid signature ordering the check to be paid from his account. And because this is viewed as a valid signature, there is no presentment warranty issue (unless there's a forged indorsement/alteration etc. somewhere else down the line). But the reason your notes says that the drawee bank can only recover from the forger is probably because the forger usually won't have an account in that bank and isn't a customer. But when he forges the maker's name, he will be deemed to be a customer of that bank for the purposes of that check. So if he doesn't actually have an account at the bank from which the check is drawn, it can go after the forger to recover the money that it paid. (because it can't just deduct the money from the forgers account if he doesn't have one at that bank)
And your last question - Presentment warranty arises any time a check that is not payable for whatever reason (either forged indorsement, alteration, person isn't entitled to enforce it, etc.) is presented to it. Presentment warranty is only between the drawee bank and the the person or bank presenting the check to it for payment.
I hope this helps. It's complicated to explain. haha I hope it makes sense.