IBA Compliance Connection

Your go to source for compliance!

We sent a breach of warranty claim to a depository bank for an altered item. We sent the claim via overnight mail, and the depository bank signed for it the next day. More than thirty days have passed, and we have not received a response to our claim. Is the depository bank required to respond within a certain amount of time? Also, what would the next step be in asserting our claim?

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We do not believe the Illinois Uniform Commercial Code (Illinois UCC) or any other state or federal law specifies any time by which depository banks must respond to a claim for the breach of a presentment warranty.

Whether your bank decides to pursue this claim further (possibly in court) is a business decision to be made based on the available facts and the likelihood of your success. Accordingly, we recommend reviewing this matter with your bank counsel to determine any next steps your bank is willing to take to assert this claim. Your bank would have to commence an action for the breach of a presentment warranty within three years after you had reason to know of the breach.

For resources related to our guidance, please see:

  • Illinois UCC, 810 ILCS 5/3-417(a)(2) and 810 ILCS 5/4-208(a)(2) (“Presentment warranties. (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: . . . (2) the draft has not been altered; . . .”)
  • Illinois UCC, 810 ILCS 5/3-417(b) and 810 ILCS 5/4-208(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.”)
  • Illinois UCC, 810 ILCS 5/3-118(g) (“An action . . . (ii) for breach of warranty, or (iii) to enforce an obligation, duty, or right arising under this Article and not governed by this Section must be commenced within 3 years after the cause of action accrues.”)