Holder deriving title from holder in due course
Full Text
Holder deriving title from holder in due course.—A holder of a negotiable instrument who derives title from a holder in due course has the rights thereon of that holder in due course.
Plain English Summary
Provides that any holder who gets their title from a holder in due course inherits the full rights of a holder in due course.
Key Legal Elements
- Applies to a holder who derives title from a holder in due course
- The holder inherits all the rights of that holder in due course
- Protects subsequent transferees from defects that occurred prior to the holder in due course's title
Practical Note
Called the 'shelter rule' in commercial law. Even if a subsequent holder did not pay consideration or had notice of a defect when they got the instrument, they are protected ('sheltered') by the clean title of the prior holder in due course, unless they were a party to the original fraud/illegality.
हिंदी पाठ
यथाविधि धारक से स्वत्व (title) प्राप्त करने वाला धारक।—परक्राम्य लिखत का ऐसा धारक जो यथाविधि धारक (holder in due course) से अपना स्वत्व (अधिकार) प्राप्त करता है, उसके पास उस लिखत पर उस यथाविधि धारक के सभी अधिकार होते हैं।