§5005 Indemnity

Summary

A bank that turns an original check into a substitute check, and any bank later that sends, presents, or returns that substitute check and gets paid for it, must pay back other banks and people in the payment chain (like the bank receiving the check, the paying bank, the account holder, the payee, depositors, and endorsers) for losses caused by getting the substitute instead of the original. If a warranty under section 5004 is broken, the bank must cover the loss that the break directly caused, including costs like reasonable lawyer fees and other representation expenses. If no warranty was broken, the bank must cover losses up to the amount of the substitute check, plus interest and expenses (including reasonable lawyer fees). If a person who would be paid back was partly negligent or acted in bad faith, the payment must be reduced by that person’s share of fault. If the bank that must pay produces the original check or a correct copy that shows front and back details or enough to check the claim, the bank only owes for losses up to the time it gave that check or copy and can get back any extra money it already paid. The paying bank gets the rights of the person it paid to try to recover money and may seek repayment from others. Anyone who was paid must help the paying bank with reasonable requests to pursue recovery.