Section 4--207. Warranties of Customer and Collecting Bank on Transfer or Presentment of Items; Time for Claims

(1) Each customer or collecting bank who obtains payment or acceptance
  of an item and each prior customer and collecting bank warrants  to  the
  payor  bank  or  other  payor who in good faith pays or accepts the item
  that
         (a) he has a good title to the item or is  authorized  to  obtain
             payment  or acceptance on behalf of one who has a good title;
             and
         (b) he has no knowledge that the signature of the maker or drawer
             is unauthorized, except that this warranty is  not  given  by
             any  customer  or  collecting  bank  that  is a holder in due
             course and acts in good faith
             (i) to a maker with respect to the maker's own signature; or
            (ii) to a drawer with respect to the drawer's  own  signature,
                 whether or not the drawer is also the drawee; or
           (iii) to  an  acceptor  of  an item if the holder in due course
                 took the  item  after  the  acceptance  or  obtained  the
                 acceptance  without knowledge that the drawer's signature
                 was unauthorized; and
         (c) the item has not been materially altered,  except  that  this
             warranty is not given by any customer or collecting bank that
             is a holder in due course and acts in good faith
             (i) to the maker of a note; or
            (ii) to  the  drawer  of  a draft whether or not the drawer is
                 also the drawee; or
           (iii) to the acceptor of an item with respect to an  alteration
                 made  prior to the acceptance if the holder in due course
                 took the item  after  the  acceptance,  even  though  the
                 acceptance  provided  "payable  as  originally  drawn" or
                 equivalent terms; or
            (iv) to the acceptor of an item with respect to an  alteration
                 made after the acceptance.
    (2) Each customer and  collecting  bank  who  transfers  an  item  and
  receives  a  settlement  or  other  consideration for it warrants to his
  transferee and to any subsequent collecting bank who takes the  item  in
  good faith that
         (a) he  has  a  good title to the item or is authorized to obtain
             payment or acceptance on behalf of one who has a  good  title
             and the transfer is otherwise rightful; and
         (b) all  signatures  are  genuine or authorized; and (c) the item
             has not been materially altered; and
         (d) no defense of any party is good against him; and
         (e) he has no knowledge of any insolvency  proceeding  instituted
             with  respect  to  the  maker or acceptor or the drawer of an
             unaccepted item.
    In addition each customer and collecting bank so transferring an  item
  and  receiving  a  settlement  or  other consideration engages that upon
  dishonor and any necessary notice of dishonor and protest he  will  take
  up the item.
    (3)  The  warranties  and the engagement to honor set forth in the two
  preceding subsections arise notwithstanding the absence  of  indorsement
  or  words  of  guaranty or warranty in the transfer or presentment and a
  collecting bank remains liable for their breach  despite  remittance  to
  its  transferor.  Damages for breach of such warranties or engagement to
  honor shall not exceed the consideration received  by  the  customer  or
  collecting bank responsible plus finance charges and expenses related to
  the item, if any

    (4)  Unless  a claim for breach of warranty under this section is made
  within a reasonable time after the person claiming learns of the breach,
  the person liable is discharged to the extent of any loss caused by  the
  delay in making claim.