1. the instrument is properly and timely presented
2. the instrument is dishonored
3. timely notice of dishonor is given to the secondarily liable party
A note or certificate of deposit (CD) must be presented to the maker for the payment
A draft is presented to the drawee for acceptance, payment, or both.
A check is presented to the drawee (bank) for payment
They protect the person to whom the instrument is presented
1. The person obtaining payment or acceptance is entitled to enforce the instrument or is authorized to obtain payment or acceptance on behalf of a person who is entitled to enforce the instrument.
2. The instrument has not been altered.
3. The person obtaining payment or acceptance has no knowledge that the signature of the drawer of the instrument is unauthorized.
Also called limited defenses; are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or holder through an HDC. Includes: breach of contract or warranty, lack or failure of consideration, fraud in the inducement, illegality, mental incapacity, and other personal defenses.
1. Discharge by previous payment or cancellation
2. Unauthorized completion of an incomplete instrument
3. Nondelivery of the instrument
4. Ordinary duress or undue influence rendering the contract voidable