Explain personal defenses against the payment of negotiable instruments. Give suitable examples.
What will be an ideal response?
Students' answers may vary. Personal defenses are legal reasons for avoiding or reducing liability of a person who is liable on a negotiable instrument. Generally, personal defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law. They are valid only against plain holders of instruments-but not against holders in due course or holders who have the rights of in-due-course holders through the shelter rule. Examples include lack or failure of consideration; breach of contract (including breach of warranty); fraud in the inducement; lack of capacity (except minority), illegality, duress that makes the contract voidable; unauthorized completion of an incomplete instrument, or material alteration of the instrument; nonissuance of the instrument; failure to countersign a traveler's check; modification of the obligation by a separate agreement; payment that violates a restrictive indorsement; breach of warranty when a draft is accepted; etc.
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