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Notes On Negotiable Instruments 06
Notes On Negotiable Instruments 06
Notes On Negotiable Instruments 06
A real defense is one which involves the instrument, or the underlying contract
itself, wherein there is an absence, of one or more of the essential elements of a contract,
or where the admitted contract is vitiated.
What are the defenses that may be raised against a holder in due course?
Only real defenses, or those which affect the negotiable instrument or the
contract may be raised against the holder in due course.
What is delivery?
Section 15 provides that, the delivery will not affect a valid contract, in the hands
of any holder, as against any person, whose signature was placed thereon, prior to
delivery.
Section 16 provides that, delivery is valid when it is made either by, or under the
authority of the person making, drawing, accepting, or endorsing the negotiable
instrument.
What are the rules with regard to filling up blanks, in a negotiable instrument?
Fraud is a personal defense when the person who signs the same, is aware that
he is signing a negotiable instrument, and intends to sign it, but he was only induced to
do so, through fraud. His consent is vitiated by fraud.
What is the effect of the forgery of the makers signature in a promissory note?
If the signature of the maker is forged in a promissory note, the maker is not
liable on the instrument, to all subsequent parties, whether the instrument is an order or
a bearer instrument.
What is the effect of the forgery of the signature of the endorser in a promissory
note?
If the note is payable to bearer, the forged signatures may not be set up as a
defense. The signature of the endorser is unnecessary to pass title to the negotiable
instrument. The maker is still primarily liable on the note.
What is the effect of the forgery of the drawers signature in a bill of exchange?
If the drawers signatures is forged in a bill of exchange, the drawer is not liable
on the instrument, to all subsequent parties, whether the bill is an order or bearer bill of
exchange.
What is the effect of the forgery of the endorsers signature in a bill of exchange?
Endorsers prior to the forgery, may set up the real defense of forgery. Endorsers
subsequent to the forgery are still liable.
If the bill is a bearer bill of exchange, the holder may still recover from the drawer
because the forged signature is unnecessary for his title.
The exceptions to the cut-off rule are those prior parties may still be held liable, if
they are precluded from setting up the defense of forgery, either because of their
warranties or representations of their negligence.
May H enforce the note against Senator C? Would your answer remain the same, if it
were S who sought to enforce payment against Senator C?
Yes, H may enforce the note against Senator C. H is a holder in due course. He
possesses the right to enforce the instrument for the full amount stated therein, against
the maker, Senator C. H has taken the instrument free from all personal defenses,
between the prior parties.
Senator C may not set up the defense of want or absence of consideration against
H, because the same is merely a personal defense. Personal defenses have no effect
against holders in due course.
S may not enforce payment against Senator C. The promissory note was given on
the basis of support and friendship. Just as love and affection do not constitute valid
consideration, within the ambit of the Negotiable Instruments Law. The absence or lack
of consideration, is a defense pro tanto, between immediate parties, and against a
holder, who is not a holder in due course.
May lack of consent be ratified?
Yes, ratification by the party whose signature was obtained without valid
consent, for example, precludes that party, from raising the defense of lack or vitiation
of consent. The principles of estoppel and ratification may apply in this case.