There are 2 kinds of defenses in negotiable instruments: personal and real

Real Defenses

1.) Minority

2.) Forgery

3.) Non-delivery of an incomplete instrument

4.) Material alteration

5.) Ultra vires act of the corporation

6.) Fraud in factum/esse contractus

7.) illegality (if declared void for any purpose)

8.) Force/violence

9.) Lack of authority

10.) Prescription

11.) Discharge in insolvency

Personal Defenses

1.) Failure/absence of consideration

2.) Illegal consideration

3.) Non-delivery of a complete instrument

4.) Conditional delivery of a complete instrument

5.) Fraud in inducement

6.) Filling up blank not within authority

7.) Duress/intimidation

8.) Filling up blank beyond reasonable time

9.) Transfer in breach of faith

10.) Mistake

11.) Insertion of wrong date

12.) Ante-dating or post-dating for illegal/fraudulent purposes

Personal defense

While any given party issuing a defense against paying claims on a negotiable instrument would likely desire for
that defense to be universal, universal defenses do not typically apply. As a result, most defenses will likely be
personal defenses instead. Personal defenses will protect the defending party from payment to ordinary holders,
but which will not penetrate the rights of a holder in due course (HDC).

In other words, personal defenses will often protect the defender from the first party to hold a negotiable
instrument after it is issued, but if that instrument is then transferred to any other party that fills the requirements
for being an HDC, then the defending party will not be able to avoid payment to that party. Of course, in many
such instances the defending party will be able to sue the intermediary party for some form of reparations,
thereby getting back whatever money the defending party lost in payment to the HDC.

Breach of Contract or Warrant

This type of defense is often linked to action beyond the negotiable instrument itself. While the negotiable
instrument must be unconditional to be deemed as such, most often a negotiable instrument will be exchanged as
some form of payment for a larger contract. For example, the buyer issues a check to the seller in exchange for a
shipment of goods that the seller is bringing into the country. But if that overarching contract is broken in some
fashion, then a given party may claim a personal defense against paying the exchanged negotiable instrument.

In the prior example, if the seller shipped very shoddy or faulty goods to the buyer without the buyer having had
any prior knowledge of such poor quality, then the buyer would likely be able to claim a breach of contract defense
and have the check stopped. Assuming that the seller was not a holder in due course, which would be unlikely, the
buyer would not have to pay the seller. Breaches of contract such as this are a very common form of personal
defense from paying claims on negotiable instruments.

Breaches of warranty also function in the same fashion. A maker or issuer of a negotiable instrument could claim
that the other party broke warranty in some fashion in order to avoid making a payment on the negotiable
instrument involved.

Lack of Consideration

In legal terms, consideration is some form of value offered in a contract. Consideration can be monetary or it can
be based on a service. It can even be an offer to not take a given action. In regard to any negotiable instrument, if
consideration is not offered from both parties involved with the negotiable instrument, then that negotiable
instrument is actually unenforceable. For example, if someone were to offer another individual a written promise
to pay money as a gift, then the transaction would actually lack consideration as the money offered up would be a
gift. If the promising party were to mount a defense against paying on the promise, then they could do so based on
the condition that the transaction lacked equal consideration.

A lack of consideration might also involve a situation in which the consideration offered by one party becomes
unavailable for some reason. For example, if the seller's goods never actually reach the buyer, perhaps because
they are stolen along the way, or the boat they are being shipped on sinks, then the buyer would have a defense
under lack of consideration to avoid paying the negotiable instrument he or she had offered to the seller.

Of course, if the seller had already deposited the negotiable instrument with a bank, for example, then that bank
would likely have holder in due course status and the buyer would still have to pay off the instrument. This is
because lack of consideration will not protect the defending party from needing to pay to an HDC.
Fraud

This type of defense is also referred to as fraud in the inducement, or ordinary fraud. A defending party can mount
this defense if he or she issues a negotiable instrument based on false or fraudulent information given to him or
her by the receiving party. For example, if one party is selling a car to another and claims that the car is like new
and has very few miles on its odometer, then the buying party may issue a negotiable instrument based on that
information.

But if the buying party were to discover that the selling party had knowingly lied in these statements, that the car
is actually old and very faulty with many miles on its odometer, then the buying party would have a right to
employ this defense against paying the selling party. Again, however, as in all personal defenses, if the selling party
had then in turn sold the negotiable instrument to a holder in due course, then the buying party would still have to
pay the HDC.

Illegality

Illegal transactions that result in the transaction’s status as voidable, as opposed to outright void, would be
grounds for a personal defense. The difference between something that is void and something that is voidable is
generally that a void item is considered to have been void from the moment of creation, thus supporting a
universal defense against any payments on a void negotiable instrument. A voidable item, on the other hand, is
void only at the discretion of one of the involved parties.

When one of the involved parties chooses to void such a voidable negotiable instrument, then it would be the
equivalent of mounting a personal defense against claims to payment on that instrument, instead of a universal
defense against such claims. Doing so would not protect against claims from an HDC, however.

Incapacity

Mental incapacity, when firmly established by a court ruling, would generally be grounds for a universal defense.
But if the court has not established that a given party suffers from such mental incapacity prior that party's
creation of a given negotiable instrument, then mental incapacity cannot be used as a defense against paying that
instrument. This is because the individual would not have been legally mentally incompetent at the time of the
instrument's creation.

However, if the individual was still exhibiting the same problems and was mentally incompetent, even though the
court had yet to acknowledge the individual as such, then the negotiable instrument which the individual had
issued would be voidable. Thus, the individual could be protected from the claims of ordinary holders, but not the
claims of holders in due course.

Other

There are other, less commonly used defenses that can be employed as personal defenses in order to avoid
payment to an ordinary holder. Such defenses include discharge by payment, which would involve payment on the
negotiable instrument, even though another party has a claim on it so as to eliminate the defending party's
involvement in the negotiable instrument; discharge by cancellation, under which a holder of a negotiable
instrument can choose to eliminate obligation of a given party to pay for the instrument, or otherwise cancel the
instrument; the unauthorized completion of an incomplete negotiable instrument, which was considered a matter
of personal mistake, so that it could not be considered as a universal defense, but which would function as a
personal defense; or any kind of lesser duress or manipulative influence that would have led to the authorization
of a negotiable instrument which would otherwise never have been made. Such defenses would, again, allow the
maker of the negotiable instrument to avoid the payment of ordinary holders, but would do nothing to prevent
payment of HDCs.
A real defense is a justification for a maker or drawer not to honor a negotiable instrument even if it has been
transferred to a holder in due course (or "HDC") because it makes the instrument “void” according to Uniform
Commercial Code §3-305 comment 1,[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), which cannot protect the maker against the claims
by an HDC.

Ten types of real defenses depending upon state law[edit]

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 surety ship defense, such as the holder knew an endorser 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)