Under the Shelter Principle:
A) A holder may acquire the rights and privileges of an HDC even if the instrument is not transferred directly from an HDC.
B) A holder may not acquire the rights of an HDC unless the instrument is transferred directly from an HDC.
C) A holder who engages in fraud still may become an HDC if he or she later obtains the instrument from an HDC.
D) The transferee does not acquire all the rights the transferor had in the item.
E) The holder may not acquire the rights of an HDC if the instrument has been previously dishonored.

Question

Quizplus · Accepted Answer

CThe Shelter Principle allows a holder to acquire the rights and privileges of a holder in due course (HDC) even if the instrument is not transferred directly from an HDC (A), and it also allows a holder who has engaged in fraud to still become an HDC if the instrument is later obtained from an HDC (C). This principle essentially "shelters" the current holder under the rights of the previous HDC, allowing them to claim HDC status and its benefits, even if they themselves would not qualify as an HDC based on their own actions or the manner of acquisition.