Question

1. A $5000 promissory note payable to order of Ned is discounted to Bob by blank indorsement for $4000. Ken steals the note from Bob and sells it to Olly, who promises to pay Ken $4500. After paying Ken, $3000, Olly learns that Ken stole the note. Olly makes no further payment to Ken. Olly is

Select one or more:

a. Aholder in due course to the extent of $5000.

b. An ordinary holder to the extent of $4500.

c. A holder in due course to the extent of $3,333.

d. A holder in due course to the extent of $4000.

Choice C is the answer, but I'm unsure why. Please provide an explanation with calculations if necessary. This is a commercial law question.

Answer 1

Ans: I think the correct option is not available or the option third is misprinted as 3333 instead of 3000

since Olly did not pay the full value promised, Olly is only a holder in due course to the extent of $3,000, which is the amount actually paid.

Under the shelter principle, Ott has the rights of a holder in due course, because Ott can trace the note back to a holder in due course.