Legal Definitions - negligence rule

Definition: The negligence rule is a principle in commercial law that states if a party's carelessness contributes to an unauthorized signing or alteration in a negotiable instrument, that party cannot raise this issue against later parties who transfer or pay the instrument in good faith.

Examples:

• Leaving blanks or spaces on the amount line of the instrument
• Erroneously mailing the instrument to a person with the same name as the payee
• Failing to follow internal procedures designed to prevent forgeries

These examples illustrate how a party's negligence can lead to unauthorized signing or alteration of a negotiable instrument. For instance, leaving blanks or spaces on the amount line of the instrument can allow someone to fill in a larger amount than intended. Similarly, mailing the instrument to the wrong person or failing to follow internal procedures can result in unauthorized signing or alteration.