Legal Definitions - presentment warranty

A presentment warranty is a legal promise or guarantee that is automatically made by a person or entity who presents a negotiable instrument, such as a check, for payment or acceptance to the party expected to pay it (typically the bank on which the check is drawn). These warranties are implied by law, usually under the Uniform Commercial Code (UCC), and are designed to protect the payor from certain financial risks.

Essentially, when someone presents a check for payment, they are legally guaranteeing that:

• They are entitled to enforce the instrument (meaning they are the rightful owner or authorized agent).
• The instrument has not been altered (e.g., the amount or payee has not been fraudulently changed).
• They have no knowledge that the signature of the drawer (the person who wrote the check) is unauthorized.

If any of these warranties prove to be untrue, the payor (the bank that paid the check) may have a legal claim against the person or entity who made the presentment warranty to recover the money paid.

Examples:

• Example 1: Forged Endorsement

  Imagine a business, "Tech Solutions," issues a check to its supplier, "Global Parts Inc." An employee of Tech Solutions steals the check before it's mailed, forges the endorsement of "Global Parts Inc." on the back, and deposits it into their personal bank account. The employee's bank (the depositary bank) then presents the check to Tech Solutions' bank (the drawee bank) for payment. When the employee's bank presents the check, it implicitly makes a presentment warranty that it is entitled to enforce the instrument. Since the endorsement was forged, the employee's bank was not truly entitled to enforce it. If Tech Solutions' bank pays the check, it can later recover the funds from the employee's bank due to the breach of this presentment warranty.

• Example 2: Altered Check Amount

  A customer writes a check for $50 to pay for groceries. A dishonest cashier at the grocery store alters the check, changing the amount from $50 to $500, and then deposits it into the store's account. The grocery store's bank presents this altered check to the customer's bank for payment. By presenting the check, the grocery store's bank makes a presentment warranty that the instrument has not been altered. If the customer's bank pays the $500, it can later demand reimbursement from the grocery store's bank for the $450 difference, because the presentment warranty regarding alteration was breached.

• Example 3: Presenter Not the Rightful Owner

  A person finds a lost payroll check made out to "Jane Doe." Instead of returning it, they attempt to cash it at a check-cashing service, falsely claiming to be Jane Doe. The check-cashing service, after a quick verification that doesn't uncover the deception, pays the individual and then presents the check to the employer's bank for payment. The check-cashing service makes a presentment warranty that it is entitled to enforce the instrument. Since the person who cashed the check was not the rightful payee, the check-cashing service was not entitled to enforce it. If the employer's bank pays the check, it can seek to recover the funds from the check-cashing service due to the breach of this warranty.