b.

How does the "shelter principle" embodied in the

Negotiable Instruments Law operate to give the rights of a
holder-in-due course to a holder who does not have the
status of a holder-in-due course? Briefly explain.
(2%)
The shelter principle refers to the principle that
a party which does not and cannot qualify as a holder
in due course (HDC) with regard to a given negotiable
instrument can actually still obtain those rights and
privileges if that party obtained the instrument through
an HDC. In other words, if an HDC at some point possessed
the negotiable instrument, then every possessor of that
negotiable instrument after that point will have access
to the same rights and privileges. The reasoning behind
this shelter principle is actually a core reasoning of
negotiation and basic ownership. Every time a negotiable
instrument transfers to a new possessor, that new
possessor is always accorded at least the rights of
the previous possessor, the transferor. This means that if
the transferor is an HDC, then the HDC's rights and
privileges are passed along with the negotiable instrument.