Miscellaneous Indorsement Issues in Finance
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Questions and Answers

Which of the following statements accurately defines the shelter principle?

  • The shelter principle allows any holder, regardless of involvement in fraud, to benefit from HDC rights. (correct)
  • The shelter principle extends HDC benefits to holders with notice of a claim against an instrument.
  • The shelter principle applies to holders who participated in fraud or illegality.
  • The shelter principle applies only if the holder repurchases the instrument from a later HDC.

When does a person have notice according to the text?

  • When the person believes there may be a defect without concrete evidence
  • When the defect is known to everyone involved in the transaction
  • Upon receiving notification from another about the defect (correct)
  • If the person repurchases the instrument from a later HDC

What is the main purpose of the shelter principle?

  • To prevent any non-HDC holder from benefiting from an HDC transfer
  • To restrict subsequent holders from acquiring benefits of an HDC transfer
  • To limit the rights of HDC holders
  • To allow any holder deriving through an HDC to acquire HDC rights (correct)

What happens if a holder participated in fraud affecting an instrument?

<p>They are not allowed to benefit from the shelter principle. (C)</p> Signup and view all the answers

Under what circumstances is a person considered to have notice?

<p>When they have reason to know about a defect based on facts and circumstances (C)</p> Signup and view all the answers

How does the shelter principle affect holders who have notice of a claim against an instrument?

<p>It restricts them from benefiting under HDC rights. (B)</p> Signup and view all the answers

What is a limitation of the shelter principle?

<p>If a holder participates in fraud affecting an instrument, they are not allowed to benefit. (B)</p> Signup and view all the answers

How can a person acquire HDC rights according to the text?

<p>If they have actual knowledge of the defect (D)</p> Signup and view all the answers

When can a person be considered to have notice based on known facts and circumstances?

<p>When all known facts and circumstances suggest a defect exists (A)</p> Signup and view all the answers

What happens if a holder with notice of a defense against an instrument tries to benefit from the shelter principle?

<p>They face restrictions under the shelter principle. (A)</p> Signup and view all the answers

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