Limit Holder in Due Course Status - FTC Rule

The video tutorial discusses whether a commercial instrument's maker can limit a transferee's ability to become a holder in due course. It explains that holder in due course status provides certain defenses against payors. The Federal Trade Commission (FTC) rule allows a note maker to include a legend that subjects the holder to any defenses, thus limiting holder in due course status. This limitation can affect the instrument's value and liquidity, as it reduces the negotiability and increases the risk of non-payment.

Why might a payor want to limit the ability of a transferee to become a holder in due course?

• To increase the value of the instrument

• To make the instrument more negotiable

• To ensure the instrument is paid promptly

• To protect against certain defenses

What does the Federal Trade Commission rule allow the maker of a note to do?

• Include a legend that exempts the holder from all defenses

• Include a legend that subjects the holder to any defenses

• Increase the interest rate on the note

• Prohibit the transfer of the note

How does the FTC rule affect the holder in due course status?

• It guarantees payment to the holder

• It enhances the holder's rights

• It limits the holder's rights

• It has no effect on the holder's rights

What is the impact of limiting holder in due course status on the instrument?

• It increases the instrument's liquidity

• It decreases the instrument's risk

• It affects the instrument's value and liquidity

• It makes the instrument more attractive to investors

What is the essence of negotiability in commercial instruments?

• The ability to transfer the instrument easily

• The ability to increase the interest rate

• The ability to raise rights to a higher standard

• The ability to avoid all defenses