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What are Universal Defenses?

What are Universal Defenses?

Universal defenses are the strongest possible defenses that a given party to a negotiable instrument might be able to mount in order to avoid payment on that negotiable instrument. These defenses are so strong that they actually supersede the protective rights of a holder in due course (HDC), and in turn, the protective rights of any holders through an HDC. The reason is that most of these universal defenses are based on blatant, inarguably illegitimate actions, each of which would serve as grounds for not paying the negotiable instrument in question. These defenses are also referred to as real defenses.

Fraud in Execution

Fraud in execution refers to a type of fraud in which an individual is convinced to sign something that he or she believes to be a given type of document, but which is actually a negotiable instrument. Essentially, this type of fraud revolves around the signer being deceived into signing something which he or she did not realize that he or she was signing. If this can be proven successfully, then it would afford the signer a universal defense against paying off any negotiable instruments that the individual was deceived into signing in this fashion.

This type of fraud might not necessarily support a universal defense, however, depending upon the exact circumstances surrounding its enactment. If the signing, defrauded party could have determined the exact nature of the document he or she was signing with a reasonable inquiry, then that party does not have the ability to lay claim to a universal defense based on fraud in execution.

This type of determination very much depends upon the exact qualities of the victim, as a younger, less intelligent or knowledgeable victim would likely be more easily granted this universal defense than an older, savvy business person who, by virtue of his or her experience and knowledge, should have known better. In other words, this type of universal defense will only protect victims of another person's manipulation or wrongdoing. It will not protect those who make mistakes which they should not have made.


Alteration of a negotiable instrument can come in different types. The most important form of alteration with regard to universal defenses is material alteration, which is any kind of alteration that changes the terms of the contract represented by the negotiable instrument. For example, any change to the amount of money for which the instrument is valued would be a material alteration. A change of the interest rate on a promissory note would similarly be a material alteration.

Alterations of a less significant fashion, however, are not material alterations. For example, simply correcting a misspelled name, while a form of alteration, would not be a material alteration, and thus would not be grounds for a universal defense. Even if there is evidence of a material alteration, however, the victim still might not be able to mount a universal defense.

Material alteration will provide a full defense against any ordinary holder, meaning that the defending party will not have to pay any claims made by an ordinary holder. But a holder in due course (HDC) will still have some claim to the negotiable instrument, regardless of material alteration. The HDC's claim on the negotiable instrument will only be for what the instrument was prior to alteration, meaning that the defender will not have to pay any additional value that was added to the negotiable instrument through material alteration, but he or she will have to pay the original value of the instrument.

Material alteration also cannot be used as any kind of universal defense against an HDC when it is used with regard to unauthorized completion of an incomplete negotiable instrument, as the blame for such unauthorized completion lies on the drawer or maker of the incomplete instrument, who should have exercised more care.

Bankruptcy Discharge

Bankruptcy exists for the specific purpose of ensuring that the party claiming bankruptcy will be able to settle all debts, most likely because that party has no other recourse for settling those debts. As a result, discharge in bankruptcy will ensure that the discharging party does not have to pay off any claims from any outstanding negotiable instruments, regardless of whether or not the claimants are ordinary holders or holders in due course. This is unfortunate for the holders, of course, but necessary for bankruptcy proceedings to perform their intended function.


If an individual has not reached majority, then that individual may be able to mount a universal defense against paying any claims on negotiable instruments which he or she has issued. This is not necessarily true, however; a minority defense may only be mounted depending upon the exact statues of state law regarding minority parties. Specifically, the state law statutes surrounding simple contract liability apply to minors' liability for negotiable instruments. If the state laws would afford the minor an exemption from liability for a simple contract, then that individual will be able to mount an equal defense in terms of negotiable instruments. If this defense against simple contracts does not exist under state law, however, then the minor will have no such defense against any kind of holder of a negotiable instrument.


A negotiable instrument can be made void if its execution was connected with illegal activities. If the negotiable instrument can be linked to an illegal act which, under state law, would have made any other contract similarly void, then that negotiable instrument can be voided. Such voiding based on illegality will allow the defending party to mount a universal defense against all claims made on that negotiable instrument, from holders to holders in due course alike.


This type of real defense is mounted around the idea that a given individual might not actually have the authority to sign a negotiable instrument, even if he or she did so knowingly, with his or her own signature. Any party which suffers from some form of mental incapacity will no longer be able to add his or her authority to negotiable instruments. Thus, if a party can be shown to have suffered from mental incapacity at the time of the negotiable instrument's making, then that party cannot be held responsible for any claims on the negotiable instrument. This is a full universal defense, defending the party suffering from mental incapacity from ordinary holders' claims and the claims of holders in due course with equal efficacy.

Extreme Duress

Neither ordinary holders nor holders in due course can mount a claim against a party that issued a negotiable instrument under any kind of extreme duress. Extreme duress is a defense mounted by a party claiming to have made a decision, such as signing or issuing a negotiable instrument, while under threat of physical injury. Thus, the decision to make the negotiable instrument would likely have been made unwillingly, only because the maker was coerced into doing so. Any negotiable instrument issued under such conditions is inapplicable and the defending party would never have to pay any claims mounted on such an instrument by any holder, ordinary or otherwise.