Which of the following requirements has to be met for a holder to qualify as an HDC under the shelter principle?
A)The holder must not be in possession of a prior negotiable instrument.
B)The holder must have notice of a defense or claim against the payment of the instrument.
C)The holder must have been a party to a fraud or an illegality affecting the instrument.
D)The holder must have acquired the instrument from an HDC.

Question

Quizplus · Accepted Answer

Under the shelter principle, a holder who acquires a negotiable instrument from an HDC (holder in due course) will also qualify as an HDC, even if the holder does not meet all the other requirements. Therefore, if the holder acquired the instrument from an HDC, they meet this requirement and qualify as an HDC. Option A is incorrect because a holder can be in possession of a prior negotiable instrument and still qualify as an HDC. Option B is incorrect because an HDC is protected from defenses or claims against payment of the instrument by the shelter principle. Option C is incorrect because if the holder was a party to fraud or an illegality affecting the instrument, they would not qualify as an HDC at all.

Which of the Following Requirements Has to Be Met for a Holder