(a) A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that:

1. (1) the warrantor is a person entitled to enforce the item;
2. (2) all signatures on the item are authentic and authorized;
3. (3) the item has not been altered;
4. (4) the item is not subject to a defense or claim in recoupment ( IC 26-1-3.1-305 (a)) of any party that can be asserted against the warrantor;
5. (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; and
6. (6) with respect to a remotely-created consumer item, the person on whose account the item is drawn authorized the issuance of the item in the amount for which the item is drawn.

(b) If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item:

1. (1) according to the terms of the item at the time it was transferred; or

2. (2) if the transfer was of an incomplete item, according to its terms when completed as stated in IC 26-1-3.1-115 and IC 26-1-3.1-407 .

   The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under this subsection by an endorsement stating that it is made "without recourse" or otherwise disclaiming liability.

(e) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

Formerly: Acts 1963, c.317, s.4-207. As amended by P.L.222-1993, SEC.23; P.L.135-2009, SEC.16.