(810 ILCS 5/3-417)
(from Ch. 26, par. 3-417)
(a) If an unaccepted draft is presented to the drawee for payment or
acceptance and the drawee pays or accepts the draft, (i) the person
obtaining payment or acceptance, at the time of presentment, and (ii) a
previous transferor of the draft, at the time of transfer, warrant to the
drawee making payment or accepting the draft in good faith that:
(1) the warrantor is or was, at the time the
warrantor transferred the draft, a person entitled to enforce the draft 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; and
(3) the warrantor has no knowledge that the signature
of the purported drawer of the draft is unauthorized.
(b) 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 and loss of interest resulting from the breach. 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. If the
drawee accepts the draft, breach of warranty is a defense to the obligation
of the acceptor. 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.
(c) If a drawee asserts a claim for breach of warranty under subsection
(a) 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 Section 3-404 or 3-405 or the drawer is precluded under
Section 3-406 or 4-406 from asserting against the drawee the unauthorized
indorsement or alteration.
(d) If (i) a dishonored draft is presented for payment to the drawer or
an indorser or (ii) any other instrument is presented for payment to a
party obliged to pay the instrument, and (iii) payment is received, the
following rules apply:
(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 and loss of interest resulting from the breach.
(e) The warranties stated in subsections (a) and (d) cannot be
disclaimed with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within 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) or (d) is discharged to the
extent of any loss caused by the delay in giving notice of the claim.
(f) A cause of action for breach of warranty under this Section accrues
when the claimant has reason to know of the breach.
(Source: P.A. 87-582; 87-1135.)