Find Legal Topics > Business Laws > Protect Yourself With Liability Defenses!

Protect Yourself With Liability Defenses!

Protect Yourself With Liability Defenses! For all the different forms of liability that surround negotiable instruments, there are a comparable number of ways for defending oneself from such liability.  These defenses vary in strength and efficacy, and oftentimes require specific proof of some wrongdoing from another involved party. But they can protect the makers and issuers of negotiable instruments from needing to pay claims on those negotiable instruments in instances where those holders of the negotiable instruments may not have a genuine right to the value of those instruments.

Background

Defenses against payment for negotiable instruments must exist because negotiable instruments are fundamentally a form of contract. The laws and rules surrounding contracts apply to negotiable instruments just as well, and for any given form of contract there will be ways to defend oneself from needing to fulfill the conditions of that contract in the event that another party to the contract has participated in wrongdoing of some sort.

The defenses allowed to parties involved with negotiable contracts are oriented around this same basic principle of defending the maker or issuer or even endorser who has done nothing wrong and who has grounds upon which to avoid payment of the negotiable instrument. For more information on the basic idea of these defenses, and a general summary of the main types of defenses, click the link.

Universal Defenses

Universal defenses are the strongest form of defense that an issuer or maker of a negotiable instrument can mount. These are the only type of defenses that can protect the defending party from claims made by a holder in due course; other defenses will still generally require claims made by a holder in due course to be paid. As such, these defenses are generally quite strict in terms of when they actually are applicable.

For the most part, proving that a party's situation successfully corresponds to the circumstances required under a given universal defense is rather difficult. This is the primary means by which the power of the universal defense is restricted, as the situations in which it can be implemented are relatively rare and almost without exception involve clear, undeniable wrongdoing by a party other than the defending party.

There are several different types of universal defenses, each of which deals with a different type of wrongdoing, ensuring that, even though these types of defenses are difficult to employ, should such a situation arise, the innocent party will have a defensive recourse. To find out more about universal defenses and under exactly what conditions they apply, follow the link.

Personal Defenses

Personal defenses are the bookend of universal defenses. Where universal defenses are harder to prove, personal defenses are easier to prove, though still not too easy, and where universal defenses offer great protection, even against holders in due course, personal defenses offer protection only against ordinary holders with absolutely no protection afforded against holders in due course.  

Personal defenses are generally based on instances of wrongdoing, but of a more nebulous or less damaging fashion than the instances defended against with universal defenses. For example, while negotiable instruments signed by a court-ruled mentally incompetent individual can be negated with a universal defense, if the individual has not been ruled as mentally incompetent at the time of the issuance of the negotiable instrument, then no universal defense can be mounted. Instead, the only option would be a personal defense based on the same general principle.

Similarly, some of the situations that fall through the cracks of universal defenses because they are too ambiguous, or because the defending party assumes some of the blame by having made some mistakes, will be covered as personal defenses. For more information about personal defenses and the ways in which a defending party can use them, click the link.

Related Topics