Which of the following requirements has to be met for a holder to qualify as a holder in due course (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

The shelter principle states that a holder who acquires a negotiable instrument from an HDC can also qualify as an HDC, even if they themselves do not meet all of the requirements. Therefore, choice (D) is the correct answer. Choice (A) is incorrect because prior possession is not a requirement for HDC status. Choice (B) is incorrect because an HDC is not affected by claims or defenses that could be raised against previous holders. Choice (C) is incorrect because participation in fraud or illegality would disqualify a holder from HDC status, regardless of the shelter principle.

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