Limit Holder in Due Course Status - Explained
Signaling Limits to Others
Written by J. Mance Gordon
Updated at April 19th, 2024
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Can you limit holder in due course status?
In some situations, it is possible for the issuer of a note to limit the ability of anyone to whom the note is transferred to become a holder in due course. The Federal Trade Commission allows such a limitation for notes used in sales of goods. The note must have the proper language in the legend or footnoted that the paper may be subject to applicable defenses and a possessor is not a holder in due course. This action preserves the ability of the maker of the note to assert any defenses to payment (particularly those arising in the underlying agreement) against a later transferee of the note.
Note: This is generally not available for drafts.
Related Topics
- Commercial Paper (Intro)
- What is Commercial Paper?
- Negotiable Instrument
- What are the common types of commercial paper?
- Promissory Note
- Cashier's Check
- Convenience Check
- Certified Check
- Substitute Check
- Bill of Exchange
- Bank Draft Definition
- Sight Draft Definition
- Bankers Acceptance
- Who is a Holder of a negotiable instrument?
- Commercial Paper Funding Program
- What is Negotiability and why is it important?
- What is required for commercial paper to be negotiable?
- Sum Certain (Contracts)
- Inflation Adjustment Clause
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- Bearer Form
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- What rules apply if a holder loses a negotiable instrument?
- When is payment of a negotiable instrument overdue?
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- Receive an instrument for value?
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- Receive an instrument without notice of a valid defense?
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- Personal Defenses?
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- What happens if a negotiable instrument is Forged?
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- Guaranty or Guarantee
- Letter of Guarantee
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What is the role of a Guarantor or Surety of a negotiable instrument?
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Surety
- Cosign
- Accommodation Paper Definition
- Secondary Liability
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- What is Indorser Warranty of a negotiable instrument?
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