A real defense is a justification for a maker or drawer not to honor a
negotiable instrument
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
even if it has been transferred to a
holder in due course
In commercial law, a holder in due course (HDC) is someone who takes a negotiable instrument in a value-for-value exchange without reason to doubt that the instrument will be paid. If the instrument is later found not to be payable as written, a h ...
(or "HDC") because it makes the instrument “void” according to
Uniform Commercial Code
The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...
§3-305 comment 1,
thus the defense can't be "cut off" by the transfer to an HDC. Contrast this with personal defenses (such as failure of
consideration
Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions.
The court in ''Currie v Misa'' declared ...
), which cannot protect the maker against the claims by an HDC.
Ten types of real defenses depending upon state law
1. Fraud inducing obligor to sign instrument without a reasonable opportunity to learn of its fraudulent character or essential terms (also known as “(fraud in the factum”); this depends upon consideration of “all relevant factors”;
2. forgery of a necessary signature;
3. adjudicated insanity which renders the instrument void;
4. material alteration of the instrument, such as the amount;
5. infancy which renders the instrument voidable or void;
6. illegality which renders the instrument void;
7. duress at the time of making the instrument;
8. discharge of obligor in insolvency proceedings, or any discharge known to the HDC;
9. a suretyship defense, such as the holder knew an indorser was signing as a surety or accommodation party;
10. statute of limitation (generally 3 years after dishonor of a draft or 6 years after demand or other due date on a note).
{{DEFAULTSORT:Real Defense
Legal defenses
Negotiable instrument law