Know the Types of Presentment Warranties
When a negotiable instrument is presented for payment, the presenter is inherently making certain presentment warranties to the party to whom the presenter is presenting the negotiable instrument. For example, if someone were to present a check to a bank for payment on the check, that person would be making certain presentment warranties about that check. The presenter holds liability for each of these presentment warranties. Should the drawee discover that the warranties were broken, it may seek damages from the presenter.
There are three main presentment warranties, each of which puts a certain level of liability upon the presenter. The first presentment warranty is that the presenter, at the time of presentment if not at the present time, was authorized to enforce the presented draft. This could also mean that the presenter was authorized to act as an agent for the party that was actually authorized to enforce the draft. In other words, this means that at the time of presentment, the presenter is accepting liability for the fact that he or she was, in fact, the current holder of that negotiable instrument.
The presenter must have had right to that negotiable instrument with the ability to receive payment upon it. If the presenter did not have this right, then the presenter is accepting liability for such a breach of warranty. This warranty would also make the presenter liable if any of the endorsements leading up to the endorsement that gave the presenter holdership turn out to be forgeries or unauthorized in some fashion. In such a case, the presenter would not have the authority to enforce the draft.
The second of the presentment warranties is that the draft has not been altered. This warranty simply establishes that if the draft has been substantially and wrongfully altered in some way, the presenter is accepting liability for any damages incurred because of such alterations. Alterations include changing the value of the draft, changing the parties from whom the draft is drawn, or changing the instructions and endorsements of prior endorsers. Any of these would put liability on the current presenter.
The third of the presentment warranties is that the presenter does not know at the time of presentment that the signature of the draft's drawer is unauthorized, meaning that either the signature is not unauthorized, or that the presenter does not know that it is unauthorized. This warranty ensures that the presenter is not a party to any fraud or forgery in the very formation of the draft. If the signature of the drawer is unauthorized, then the presenter does not necessarily hold liability for that unauthorized signature. Only if the presenter holds knowledge of that unauthorized signature does the presenter assume liability.
Most of the time, the party attempting to recoup losses and seek damages based on violation of presentment warranties will be the drawee to whom the draft is presented for payment. The payee would likely be the presenter of the draft, and therefore, would hold liability for each of the presentment warranties. The drawee seeking reparations would be entitled to the amount of money it lost in paying the draft with any money that it did actually receive from the drawer decreasing this amount, as well as to any expenses it lost in the pursuit of reparations and any interest that the drawee might have lost as a result of the violation of the presentment warranties.
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