Law and Business of the Entertainment
Fraud in the inducement refers to an intentional deception from an individual to another which intentionally leads one to execute and instrument or render a judgment like guiding others to do wrong. It also involves use of deceit or trick to another person to an action which in turn result to disadvantage. Personal defense is used to avoid payment to an ordinary holder of a negotiable instrument but not a holder in due course or a holder with the right. The defense here is facilitated by some aspects like Breach of Contract or Breach of Warranty.
In case of Breach of the underlying contract for which an instrument to the negotiated is given the maker of the note can refuse its payment. The bank can also be ordered by the checks’ drawer not to make any payment. Also Breach of warranty can be claimed as a defense to liability on the instrument. Lack or failure of consideration can also act as personal defense in that, when one gives a gift in a note stating the promise in payment of some amount of money, and the promise is accepted, the court can not enforce the promise.
Fraud inducement can be treated as personal
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Mental incapacity can also lead to personal defense in that, if the person involved in transaction has been declared by court as to be mentally incompetent, any instrument issued by him or her is considered to be void. If such a person is instrumental negotiation while mentally incompetent but before the court had declared him/her to be so, the instrument is voidable whereby mental incapacity serves only as a personal defense.
Personal defense can also be applicable in situations like non delivery of the instrument especially when the agreement is made in promise basis. Also in case of discharge by payment or cancellation or in unauthorized completion of an incomplete instrument. Also ordinary undue can influence the contract to be rendered voidable hence be termed as a personal defense.
On the other hand, inception fraud is when one makes a statement of fact that he/she honestly and reasonably is aware to be true although it is not. It is also referred to innocent misinterpretation. For this case, the aggrieved party may rescind the warranty or contract but may not sue the shortcomings in the court. This kind of fraud occurs when a party is deceived concerning the nature of his or her doings and is not aware of what he has done or does not intend to be involved in the warranty or contract.
It mainly occurs when, through the fraud of another, one is deceived as to the nature of the contents of the document itself. For instance, a person who cannot write and relies on the representation of the other party’s agent, that document is merely a receipt and signs a release. This is termed as fraud in the inception (Hahn E, 1984).
Also if a person generates a deed and does not realize the nature of the instrument being signed, and due to fraud of another, he thinks that it is not a deed, there is fraud committed of the inception where the deed is termed to be void. In these two cases, the party signing the document knew what he/she was signing but relied on misinterpretations when induced to sign it, there would be fraud of inducement.
As a result, this is termed as real defense because of commitment in signing the instrument. Also forgery or other unauthorized signature, unless ratification or estopped is done is also termed as an inception and treated as a real defense.
Biederman D, and Pierson E. (1996).Law and Business of the Entertainment
Hahn E, (1984).Japanese Business Law and Legal System. London and England.