The Shelter Principle for Negotiable Instruments

The video tutorial explains the concept of a holder in due course, detailing the rights and qualifications required. It discusses the impact of defenses on holders and transferees, introducing the shelter principle, which allows transferees to inherit the rights of a holder in due course. The tutorial also covers the liquidity and value implications for negotiable instruments when defenses are present.

What are the requirements for someone to qualify as a holder in due course?

• Being a financial institution

• Being the original issuer of the instrument

• Giving value, acting in good faith, and being unaware of defenses

• Having a legal background

What happens if a holder in due course transfers the instrument to someone who does not pay value?

• The transferee is subject to personal defenses

• The transferee can ignore any defenses

• The transferee gains additional rights

• The transferee becomes a holder in due course

How does the shelter principle benefit a transferee?

• It provides them with financial compensation

• It exempts them from all legal obligations

• It grants them the same rights as the transferor

• It allows them to become a holder in due course automatically

Why is the shelter principle important for the liquidity of an instrument?

• It increases the market value of the instrument

• It allows the transferee to enforce holder in due course rights

• It eliminates all defenses against the instrument

• It guarantees a fixed return on the instrument

What is the effect on the instrument's value if it is transferred without holder in due course status?

• The value becomes unpredictable

• The value increases

• The value remains unchanged

• The value diminishes