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Simple English definitions for legal terms
shelter doctrine
Read a random definition: Reg. FD
A quick definition of shelter doctrine:
The shelter doctrine is a rule in commercial law that says if someone buys a piece of paper that promises to pay money (like a check or a promissory note) from someone who is legally allowed to sell it, then that person has the same rights as the original seller. This means that if the original seller could get the money promised on the paper, then the new buyer can too. This rule helps make it easy for people to buy and sell these kinds of papers without worrying about whether there might be problems with them later on.
A more thorough explanation:
The shelter doctrine is a principle in commercial law that states that anyone who receives commercial paper from a holder in due course, as well as any subsequent transferees, will inherit the same rights as the original holder. This means that transferees of holders in due course are generally not subject to defenses against the payment of an instrument. The doctrine ensures the free transferability of commercial paper.
The name of the doctrine comes from the idea that the transferees "take shelter" in the rights of the holder in due course. This means that they are protected by the same legal rights and defenses as the original holder.
Let's say that John is a holder in due course of a promissory note from Jane. John then transfers the note to Mary. Mary is now protected by the shelter doctrine and has the same legal rights and defenses as John. If Jane tries to raise any defenses against the payment of the note, Mary can take shelter in John's rights and is not subject to those defenses.
Another example would be if John then transfers the note to Sarah. Sarah is also protected by the shelter doctrine and has the same legal rights and defenses as John and Mary. If Jane tries to raise any defenses against the payment of the note, Sarah can take shelter in John and Mary's rights and is not subject to those defenses.
These examples illustrate how the shelter doctrine ensures the free transferability of commercial paper and protects subsequent transferees from any defenses raised against the payment of the instrument.