Defenses and Equities Kinds of Defenses: Negotiable Instruments Law
Defenses and Equities Kinds of Defenses: Negotiable Instruments Law
Defenses and Equities Kinds of Defenses: Negotiable Instruments Law
KINDS OF DEFENSES
1. real defense – attaches to instrument; on the principle that the right sought to be
enforced never existed/there was no contract at all
2. personal defense – growing out of agreement; renders it inequitable to be enforced vs.
defendant
DEFENSES
General Rule:
1. wholly inoperative
2. no right to retain instrument, or give discharge, or enforce payment vs. any party, can be
acquired through or under such signature (unless forged signature unnecessary to holder’s
title)
Exception:
unless the party against whom it is sought to enforce such right is precluded from setting up
forgery/want of authority
precluded:
1. 1. overdraft
2. 2. stop payment order
3. 3. forged indorsements
1. MATERIAL ALTERATION
Where NI materially altered w/o assent of all parties liable thereon, avoided, except as vs.
a
But when an instrument has been materially altered and is in the hands of a HDC not a
party to the alteration, HDC may enforce payment thereof according to orig. tenor
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Material Alteration
1. change date
2. sum payable, either for principal or interest
3. time of payment
4. number/relations of parties
5. medium/currency of payment, adds place of payment where none specified, other
change/addition altering effect of instrument in any respect.
*material alteration a personal defense when used to deny liability according to org. tenor of
instrument, but real defense when relied on to deny liability according to altered terms.
1. FRAUD
2. fraud in execution: real defense (didn’t know it was NI)
3. fraud in inducement: personal defense (knows it’s NI but deceived as to value/terms)
1. DURESS
Personal, unless so serious as to give rise to a real defense for lack of contractual intent
1. Where instrument is wanting in any material particular: person in possession has prima
facie authority to complete it by filing up blanks therein
2. Signature on blank paper delivered by person making the signature in order that the paper
may be converted into a NI: prima facie authority to fill up as such for any amount
In order that any such instrument, when completed, ma be enforced vs. any person who
became a party thereto prior to its completion:
but if any such instrument after completion is negotiated to HDC, it’s valid for all
purposes in his hands, he may enforce it as if it had been filled up properly.
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