Asked by Tomas Calderaro on Jun 09, 2024
Verified
When a negotiable instrument is used, the drawer of the instrument cannot use the rule of privity to limit the claim of the holder.
Negotiable Instrument
A formal document that promises to pay a certain sum of money, either upon request or at a specified date, with the right for the recipient to pass it on to someone else.
Privity
A concept in contract law referring to the relationship between parties in a contract, limiting the rights and obligations to those parties directly involved.
- Identify the roles of negotiable instruments in overriding privity rules and their impact on assignments.
Verified Answer
NM
ngcebo masilelaJun 12, 2024
Final Answer :
True
Explanation :
In negotiable instruments law, the rule of privity, which usually restricts the rights to enforce a contract to the parties of the contract, does not apply. This means the drawer of a negotiable instrument cannot limit the claim of the holder, even if the holder was not a party to the original contract, allowing the holder in due course to enforce the instrument free from most defenses that could be raised if the contract were subject to the rule of privity.
Learning Objectives
- Identify the roles of negotiable instruments in overriding privity rules and their impact on assignments.