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.
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Surety
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