To qualify as a holder in due course under the shelter principle,the holder must not have been a party to a fraud or an illegality affecting the instrument.

Question

Quizplus · Accepted Answer

This statement is true. According to the shelter principle, a holder who receives a negotiable instrument from a holder in due course also receives their rights and protections, as long as the receiving holder did not participate in any fraud or illegality associated with the instrument. Therefore, to qualify as a holder in due course under the shelter principle, the holder must not have been a party to any fraudulent or illegal activity involving the instrument.

To Qualify as a Holder in Due Course Under the Shelter