Other Unique Defenses

Here's another set of unique defenses in negotiable instruments.

1.) Incomplete, but delivered, instrument

The holder has the prima facie authority to fill up the instrument. This must be done strictly within the authority given and within reasonable time. A holder in due course can enforce the instrument as if it was filled up within the given authority and in reasonable time.

2.) Incomplete and undelivered instrument

This is a real defense. If completed and negotiated without authority, it's not a valid contract against a person who signed  before delivery of the contract even in the hands of a holder in due course. Subsequent indorsers, however, are liable.

3.) Complete, but undelivered instrument

This is another real defense. Between the immediate parties and those similarly situated, delivery must go together with the intention to transfer the title of the instrument. Regarding a holder in due course, however, there is a conclusive presumption of a valid delivery. As against an immediate party and a remote party, valid and intentional delivery is a rebuttable presumption.

4.) Undated instrument

Filling up of the date won't make the instrument void. For a holder in due course who received the instrument after the date was filled up, the date will be considered as the true date. Incomplete instruments negotiated to a holder in due course is valid for all intents and purposes (see 1.)

5.) Absence/Failure of consideration or illegal consideration

These are personal defenses to the prejudiced party and available against a person who isn't a holder in due course. If the consideration is an illegal one, it is a real defense if the law declares the instrument void for any purpose.

6.) Minority, incapacity or lack/want of authority

A minor or incapacitated person can invoke minority or incapacity, as the case may be, as a real defense. It's personal only to the minor/incapacitate. Others can't invoke it. Transfer, however, by the minor constitutes effective negotiation. 

If the issuance of the instrument constitutes an ultra vires act of a corporation, it is a real defense.

7.) Prescription

Real defense against a holder in due course. The prescriptive period is 10 years from the date the cause of action accrued. For checks, the action of the depositor against the drawee bank starts to run when he receives the notice of payment.

8.) Fraud

There are 2 kinds: fraud in inducement and fraud in execution. Fraud in inducement is a personal defense. It takes place when the maker of the instrument was induced to make the instrument and his consent to issue the instrument was vitiated by fraud. Fraud in execution, also known as fraud in factum or esse contractus, takes place when the person who signs the isntrument doesn't know that it's a negotiable instrument (ex. a blind person being asked to sign a letter he dictated, not knowing that a check was placed under his pen.