Transfer Warranty of Negotiable Instrument - Explained
What is Transferor Warranty?
Written by Jason Gordon
Updated at April 6th, 2023
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What is transferor warranty of a negotiable instrument?
A transferor of a negotiable instrument warrants the following to the recipient of the instrument:
- Good Title - The transferor has good title to the instrument;
- Enforceability - The transferor is entitled to enforce the instrument;
- Authorization - All signatures are authorized and authentic;
- Alterations - There have been no alterations to the instrument;
- Defenses - There are no defenses to enforcing the instrument; and
- Solvency - The transferor does not know the payor to be insolvent.
Transfer warranties apply when the transferor transfers the instrument for consideration. The new holder only receives transfer warranties from an immediate transferor. Thus, a holder cannot enforce the instrument pursuant to transfer warranty against anyone who transferred the instrument without consideration or did not directly transfer the instrument to her.
Note: A payor bank of a draft does not receive transfer warranty, as the instrument is presented to the bank, rather than transferred. Presentment warranty is discussed separately.
Next Article: Indorser Liability for Negotiable Instrument Back to: COMMERCIAL PAPER
Discussion Question
How do you feel about the warranties provided by the transferor of a negotiable instrument? Are these warranties adequate? Why or why not? Can you think of any other warranties that should be included? Why do you think these warranties are limited to situations where the instrument is transferred for value? Should these warranties apply to prior transferors (as apposed to the immediate transferor)?
Practice Question
Leena is the holder of a note. Leena transfers the note to Kate for $100. Kate then transfers the note to Jean for $110. What transfer warranties apply to each of the parties?
Related Topics
- Commercial Paper (Intro)
- What is Commercial Paper?
- Negotiable Instrument
- What are the common types of commercial paper?
- Promissory Note
- Cashier's Check
- Convenience Check
- Certified Check
- Substitute Check
- Bill of Exchange
- Bank Draft Definition
- Sight Draft Definition
- Bankers Acceptance
- Who is a Holder of a negotiable instrument?
- Commercial Paper Funding Program
- What is Negotiability and why is it important?
- What is required for commercial paper to be negotiable?
- Sum Certain (Contracts)
- Inflation Adjustment Clause
- When does commercial paper contain an Unconditional promise to pay?
- Backup Line of Credit
- What is Payable on Demand or Payable on Time?
- What is Order Paper and Bearer Paper?
- Bearer Form
- How is a payee identified on the negotiable instrument?
- What rules does the court apply in determining negotiability?
- How is commercial paper negotiated to a holder?
- What is Transfer of a negotiable instrument?
- What is Indorsement of a negotiable instrument?
- What are the various types of indorsement?
- Bank Endorsement
- Blank Endorsement
- Accommodation Endorsement
- How does a holder receive payment on a negotiable instrument?
- Who is potentially liable on (or obligated to pay) a negotiable instrument?
- When is an individual liable for a representative signing a negotiable instrument?
- What rules apply if a holder loses a negotiable instrument?
- When is payment of a negotiable instrument overdue?
- What effect does a negotiable instrument have on the underlying obligation?
- What is a holder in due course?
- What are the requirements for a holder to become a holder in due course?
- Receive an instrument for value?
- Receive an instrument in good faith?
- Receive an instrument without notice of a valid defense?
- How does discharge of the Underlying Obligation affect a holder in due course?
- What is the Shelter Rule?
- Can you limit a transferee from becoming a holder in due course?
- Personal Defenses?
- Real Defenses?
- What is a Claim in Recoupment?
- What are the rights of a holder in due course if the instrument involves a consumer transaction?
- What happens if a negotiable instrument is Forged?
- What happens if a negotiable instrument is Stolen?
- Guaranty or Guarantee
- Letter of Guarantee
- Personal Guarantee
-
What is the role of a Guarantor or Surety of a negotiable instrument?
-
Surety
- Cosign
- Accommodation Paper Definition
- Secondary Liability
- Avalize Definition
- What is an Accord & Satisfaction?
- What is primary and secondary liability on an instrument?
- What is Drawer or Maker Liability for a negotiable instrument?
- What is Transferor Warranty of a negotiable instrument?
- What is Indorser Warranty of a negotiable instrument?
- What is Presentment Warranty of a negotiable instrument?
- What is a warrantors liability for a dishonored note or draft?
- What is the time limitation for warranty of a negotiable instrument?
- When are the warranties of a negotiable instrument discharged?