The encoding warranty is found in Section 4-209
of the Uniform Commercial Code.
When you encode an item, you warrant that the encoded information is correct. Unlike alterations and forgeries, Section 4-406 does not put the drawer under a duty to promptly report encoding errors. Therefore, the drawer (or payee, if the mistake went against the payee's favor) can bring file suit, if necessary to enforce its breach of warranty claim up to three years after the cause of action accrues. (See Section 4-111