(a) Sender’s agreement. The warranties, indemnities, authorizations, and agreements made
pursuant to this paragraph (a) may not be disclaimed and are made
whether or not the item bears an indorsement of the sender. By sending
an item to a Reserve Bank, the sender does all of the following.
(1) Authorization to handle item. The sender authorizes the sender’s
Administrative Reserve Bank and any other Reserve Bank or collecting
bank to which the item is sent to handle the item (and authorizes any Reserve
Bank that handles settlement for the item to make accounting entries),
subject to this subpart and to the Reserve Banks’ operating circulars,
and warrants its authority to give this authorization.
(2) Warranties
for all items. The sender warrants to each Reserve Bank handling
the item that—
(i)
The sender is a person entitled to enforce the item or authorized
to obtain payment of the item on behalf of a person entitled to enforce
the item;
(ii) The item has not
been altered; and
(iii) The item
bears all indorsements applied by parties that previously handled
the item for forward collection or return.
(3) Warranties
and indemnities as set forth in Regulation CC and UCC. As applicable
and unless otherwise provided, the sender of an item makes to each
Reserve Bank that handles the item all the warranties and indemnities
set forth in and subject to the terms of subparts C and D of part
229 of this chapter (Regulation CC) and article 4 of the UCC. The
sender makes all the warranties set forth in and subject to the terms
of 4-207 of the UCC for an electronic check as if it were an item
subject to the UCC.
(4) Warranties and indemnities as set forth in Reserve
Bank operating circulars. The sender makes any warranties and
indemnities regarding the sending of items as set forth in an operating
circular issued in accordance with section 210.3(a).
(5) Sender’s
liability to Reserve Bank.
(i) Except as provided in paragraphs
(a)(5)(ii) and (iii) of this section, the sender agrees to indemnify
each Reserve Bank for any loss or expense sustained (including attorneys’
fees and expenses of litigation) resulting from—
(A) The sender’s lack of authority to
make the warranty in paragraph (a)(1) of this section;
(B) Any action taken by the Reserve Bank within
the scope of its authority in handling the item; or
(C) Any warranty or indemnity made by the
Reserve Bank under section 210.6(b), part 229 of this chapter, the
UCC, or, regarding the sending of items, an operating circular issued
in accordance with section 210.3(a).
(ii) A sender’s liability for warranties
and indemnities that the Reserve Bank makes for a substitute check,
a paper or electronic representation thereof, or for an electronic
check is subject to the following conditions and limitations—
(A) A sender of an original check shall
not be liable under paragraph (a)(5)(i) of this section for any amount
that the Reserve Bank pays under subpart D of part 229 of this chapter,
or under section 229.34 of this chapter with respect to an electronic
check, absent the sender’s agreement to the contrary; and
(B) Nothing in this subpart alters the liability
of a sender of a substitute check or paper or electronic representation
of a substitute check under subpart D of part 229 of this chapter,
or a sender of an electronic check under section 229.34 of this chapter.
(iii) A sender shall
not be liable for any amount that the Reserve Bank pays under this
subpart or part 229 of this chapter that is attributable to the Reserve
Bank’s own lack of good faith or failure to exercise ordinary care.
9-784.1
(b) Sender’s liability
under other law. Nothing in paragraph (a) of this section limits
any warranty or indemnity by a sender (or a person that handled an
item prior to the sender) arising under state law or regulation (such
as the UCC), other federal law or regulation (such as part 229 of
this chapter), or an agreement with a Reserve Bank.
9-785
(c) Recovery by Reserve Bank.
(1) A Reserve Bank that has handled
an item may recover as provided in paragraph (c)(2) of this section
if an action or proceeding is brought against (or if defense is tendered
to) the Reserve Bank based on—
(i) The alleged failure of the sender
to have the authority to make the warranty and agreement in paragraph
(a)(1) of this section;
(ii) Any
action by the Reserve Bank within the scope of its authority in handling
the item; or
(iii) Any warranty
or indemnity made by the Reserve Bank under section 210.6(b), part
229 of this chapter, or the UCC.
(2) Upon entry of a final judgment or decree
in an action or proceeding described in paragraph (c)(1) of this section,
a Reserve Bank may recover from the sender the amount of attorneys’
fees and other expenses of litigation incurred, as well as any amount
the Reserve Bank is required to pay because of the judgment or decree
or the tender of defense, together with interest thereon.
9-786
(d) Methods of recovery.
(1) The Reserve Bank may recover the amount
stated in paragraph (c) of this section by charging any account on
its books that is maintained or used by the sender (or by charging
a Reserve Bank sender), if—
(i) The Reserve Bank made seasonable
written demand on the sender to assume defense of the action or proceeding;
and
(ii) The sender has not made
any other arrangement for payment that is acceptable to the Reserve
Bank.
(2) The Reserve
Bank is not responsible for defending the action or proceeding before
using this method of recovery. A Reserve Bank that has been charged
under this paragraph (d) may recover from its sender in the manner
and under the circumstances set forth in this paragraph (d).
(3) A Reserve Bank’s failure to avail itself
of the remedy provided in this paragraph (d) does not prejudice its
enforcement in any other manner of the indemnity agreement referred
to in paragraph (a)(5) of this section.
9-786.1
(e) Security interest. When a sender sends
an item to a Reserve Bank, the sender and any prior collecting bank
grant to the sender’s Administrative Reserve Bank a security interest
in all of their respective assets in the possession of, or held for
the account of, any Reserve Bank to secure their respective obligations
due or to become due to the Administrative Reserve Bank under this
subpart or subpart C or D of part 229 of this chapter (Regulation
CC). The security interest attaches when a warranty is breached or
any other obligation to the Reserve Bank is incurred. If the Reserve
Bank, in its sole discretion, deems itself insecure and gives notice
thereof to the sender or prior collecting bank, or if the sender or
prior collecting bank suspends payments or is closed, the Reserve
Bank may take any action authorized by law to recover the amount of
an obligation, including, but not limited to, the exercise of rights
of set off, the realization on any available collateral, and any other
rights it may have as a creditor under applicable law.
