When a negotiable instrument is used, the drawer of the instrument cannot use the rule of privity to limit the claim of the holder.

Question

Quizplus · Accepted Answer

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.

When a Negotiable Instrument Is Used, the Drawer of the Instrument