The core issue here is determining whether the indorsement on the note constitutes a restrictive indorsement under Rhode Island’s Uniform Commercial Code (UCC) Article 3, specifically § 3-206. A restrictive indorsement generally requires that the instrument be used in accordance with the indorsement’s instructions. If an instrument payable to order is indorsed “For deposit only,” it is a restrictive indorsement. The UCC states that an instrument so indorsed is for the benefit of the indorser or any other person for whose benefit the indorsement is made. A bank or other person that takes an instrument for value or collection that is subject to a restrictive indorsement must pay or apply any value given with respect to the instrument in accordance with the indorsement’s instructions. If the bank fails to do so, it is liable to the indorser or the person for whose benefit the indorsement was made. In this scenario, the indorsement “Pay to the order of Bank of Rhode Island only for deposit to account #12345” clearly restricts the negotiation and use of the instrument. When Ms. Dubois deposited the check, the bank was obligated to apply the funds solely to the specified account. By crediting the check to Mr. Smith’s unrelated account, the Bank of Rhode Island violated the restrictive indorsement. Therefore, the Bank of Rhode Island is liable to Ms. Dubois for the amount of the check, as it failed to adhere to the explicit instructions of the restrictive indorsement, thereby breaching its duty under UCC § 3-206. The bank’s obligation is to ensure that the funds are used as directed by the restrictive indorsement. Failure to do so makes the bank liable for the conversion of the instrument or breach of contract.

Under Rhode Island General Laws § 6A-3-305, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for real defenses. Real defenses are those that go to the validity of the instrument itself or the obligation to pay. Examples of real defenses include infancy, duress that nullifies the obligation, fraud that induces the obligor to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms, and discharge in insolvency proceedings. Personal defenses, such as breach of contract, lack of consideration, or fraud in the inducement, are generally cut off by an HDC. In this scenario, the forged signature of the drawer, Ms. Anya Sharma, renders the instrument void ab initio, meaning it was invalid from its inception. A forged signature is a real defense, as it goes to the fundamental validity of the instrument and the drawer’s obligation. Therefore, even if Mr. Ben Carter qualifies as a holder in due course, he cannot enforce the instrument against Ms. Anya Sharma because the defense of forgery is a real defense that is not cut off by the HDC status. Rhode Island law, consistent with UCC Article 3, recognizes forgery as a real defense.

The concept of holder in due course (HDC) is central to the protection afforded to those who acquire negotiable instruments under specific conditions. For a party to qualify as a holder in due course under UCC Article 3, as adopted in Rhode Island, they must satisfy several requirements. These include taking the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or that any defense or claim to it exists. The question posits that a bank accepts a promissory note as collateral for a loan. Accepting collateral constitutes taking the instrument for value. The bank then discovers a material alteration on the note before it is due. A material alteration generally provides a defense against payment, but not against a holder in due course. However, the bank’s knowledge of the alteration at the time it took the note would prevent it from being a holder in due course because it would lack the required “without notice” element. The scenario states the bank discovers the alteration *after* taking the note as collateral, implying they did not have notice at the time of taking. Therefore, assuming the other requirements of value and good faith are met, and the alteration was discovered after acquisition, the bank would likely be a holder in due course. The specific defense of material alteration, while generally valid against ordinary holders, is cut off against a holder in due course. The UCC § 3-407 addresses the effect of a material alteration. A holder in due course can enforce the instrument according to its original tenor if the alteration is material and fraudulent. However, if the alteration is merely material but not fraudulent, or if the holder had notice of it, the holder in due course may only enforce the instrument as altered. In this specific scenario, the bank took the note for value (as collateral for a loan) and, having discovered the alteration *after* taking it, is presumed to have taken it without notice of the alteration. Therefore, the bank would be a holder in due course and could enforce the note according to its original tenor, despite the material alteration, as the alteration was discovered post-acquisition.

This scenario tests the concept of holder in due course (HDC) status and the defenses available against a holder. Under Rhode Island General Laws § 6A-3-302, a holder in due course is a holder who takes an instrument if it is issued or transferred to the holder for value, in good faith, and without notice of any claim to the instrument or defense against it. The question involves a negotiable instrument where a defense exists. The maker of the note, Mr. Abernathy, has a defense of material alteration. Rhode Island General Laws § 6A-3-305(a)(2) states that a holder not in due course is subject to all defenses and claims in recoupment. However, Rhode Island General Laws § 6A-3-305(a)(1) specifies that the obligation of a party to pay the instrument is enforceable against the party by a holder in due course, subject to defenses of the obligor stated in § 6A-3-305(a)(2) and § 6A-3-305(a)(3). A material alteration is a real defense under § 6A-3-305(a)(2)(iv). A holder in due course can enforce the instrument according to its original tenor if the alteration was fraudulent. However, if the alteration was not fraudulent, the holder in due course can enforce it according to its tenor immediately before the alteration. In this case, the alteration was not fraudulent. Ms. Bell, by purchasing the note after maturity and with knowledge of the alteration, cannot be a holder in due course. Therefore, she is subject to the defense of material alteration. She can only enforce the note according to its original tenor, which was $5,000. The difference between the original tenor and the altered tenor is \( \$10,000 – \$5,000 = \$5,000 \). Thus, Ms. Bell can only recover the original amount of $5,000.

The scenario involves a promissory note payable to a specific individual, which is then endorsed in a manner that raises questions about negotiation and the rights of a holder. Rhode Island General Laws § 6A-3-205 defines a “special indorsement” as one that names a particular indorsee. In this case, the indorsement by Ms. Albright to “Bearer” is not a special indorsement because it does not name a specific indorsee. Instead, it transforms the instrument into one payable to bearer. Rhode Island General Laws § 6A-3-205(b) states that if an indorsement is made by the holder of an instrument to a person named in a signature or otherwise, it is a special indorsement. If an indorsement is of an instrument to an identified person, it is a special indorsement. However, if the indorsement is simply “to Bearer” or a similar designation, it becomes bearer paper. Therefore, when Ms. Albright indorsed the note “to Bearer,” the note became payable to bearer. Subsequently, any holder in possession of bearer paper is deemed to be the lawful holder. The UCC, as adopted in Rhode Island, does not require a chain of special indorsements for a bearer instrument to be negotiated. Possession of the instrument is sufficient to establish the right to enforce it, provided it is indeed bearer paper. The question hinges on whether the indorsement was special or to bearer. The phrase “to Bearer” clearly indicates an indorsement to bearer, not a special indorsement to a named individual. Thus, the note is bearer paper and Mr. Chen, as the possessor, can enforce it.

The scenario involves a promissory note that is initially payable to “bearer.” Under Rhode Island General Laws § 6A-3-109(a)(1), an instrument is payable to bearer if it states that it is payable to bearer or to a specific person or bearer. Once the note is indorsed in blank by the original payee, it becomes bearer paper. Under Rhode Island General Laws § 6A-3-205(b), an indorsement of an instrument, other than a certificate of deposit, that does not specify a indorsee is a blank indorsement and makes the instrument payable to bearer. Therefore, when the original payee, Ms. Anya Sharma, indorses the note in blank, the character of the instrument changes to bearer paper. Any subsequent holder in due course can negotiate it by mere delivery. Mr. Caleb Vance, having possession of the note after it was indorsed in blank, is presumed to be the holder. Therefore, Mr. Vance can transfer his rights to the note to Ms. Brianna Chen by simply delivering the note to her. This transfer is a valid negotiation.

Rhode Island General Laws § 6A-3-305(a)(1) defines a holder in due course (HDC) as a holder of an instrument who takes it (i) for value, (ii) in good faith, and (iii) without notice that it is overdue or has been dishonored or of any defense or claim against it. The scenario describes an instrument that was initially issued for a gambling debt, which is a defense that can be asserted against a party with a mere possessory right. However, the question focuses on the status of the holder *after* the instrument has been transferred. The key is whether the holder, Ms. Anya Sharma, qualifies as a holder in due course. She acquired the note for value (she paid $8,000 for a $10,000 note), and there is no indication she had notice of the original defense (the gambling debt) at the time of acquisition. The original issuer, Mr. Silas Croft, is attempting to raise a personal defense against Ms. Sharma. Under UCC § 3-305(a)(2), a holder in due course takes the instrument free of all defenses of any party to the instrument with whom the holder has not dealt except for real defenses. A gambling debt, while a defense, is generally considered a personal defense, not a real defense, under UCC § 3-305(a)(2) unless specifically made a real defense by state law. Rhode Island law does not elevate gambling debts to real defenses for the purposes of UCC Article 3. Therefore, since Ms. Sharma acquired the note for value and without notice of the personal defense, she takes it free from that defense.

The scenario involves a promissory note that is payable to a specific entity but contains a clause that could be interpreted as a condition precedent. Under Rhode Island General Laws § 6A-3-104(a), a negotiable instrument must be a promise to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer. The critical phrase here is “upon the successful completion of the construction project at 14 Ocean Drive, Newport, RI.” This language introduces an event that must occur before payment is due, thereby making the promise conditional. A promise to pay that is subject to a condition precedent is not an unconditional promise to pay, which is a fundamental requirement for negotiability under UCC Article 3. Therefore, the note is not a negotiable instrument. The UCC defines a negotiable instrument as one that is payable to order or to bearer, and a promise that is subject to an event, like the successful completion of a construction project, is not payable to order or bearer; it is payable only upon the occurrence of that event. Rhode Island law, like the UCC, strictly adheres to the requirement of an unconditional promise for an instrument to be negotiable.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under UCC Article 3, as adopted in Rhode Island, a holder in due course takes an instrument free from most defenses, including those arising from simple contract disputes. However, certain “real” defenses are available even against an HDC. These real defenses are typically those that go to the validity of the instrument itself or the maker’s capacity. Examples include infancy, duress, fraud in the factum (execution), illegality of a nature that renders the obligation void, and discharge in insolvency proceedings. Fraud in the inducement, where the party knows they are signing a note but is deceived about the underlying transaction, is a personal defense and generally not available against an HDC. In this scenario, the promissory note was properly negotiated to a third-party bank, which qualifies as a holder in due course because it took the note for value, in good faith, and without notice of any claim or defense. The defense raised by Mr. Abernathy is that the seller misrepresented the condition of the antique clock, leading him to believe he was purchasing a fully functional timepiece when, in reality, it had significant hidden defects. This constitutes fraud in the inducement, a personal defense. Since the bank is an HDC, it is protected from this personal defense. Therefore, the bank can enforce the note against Mr. Abernathy. The UCC’s policy is to promote the free circulation of negotiable instruments in commerce, and allowing personal defenses to defeat an HDC would undermine this purpose.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against payment of a negotiable instrument. Under UCC Article 3, as adopted in Rhode Island, a holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses. These real defenses include infancy, duress, illegality, and fraud in the factum (or fraud that induces the obligor to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms). Personal defenses, such as breach of contract or failure of consideration, are generally not available against an HDC. In this scenario, the promissory note was issued for a shipment of antique Rhode Island-made pottery. However, the pottery was subsequently found to be a sophisticated forgery, a fact unknown to the maker at the time of signing. This constitutes fraud in the inducement, a personal defense, not fraud in the factum. The bank, by purchasing the note for value, in good faith, and without notice of any claim or defense, qualifies as a holder in due course. Therefore, the bank’s status as an HDC shields it from the maker’s personal defense of fraud in the inducement. The maker remains obligated to pay the note to the bank, despite the fraudulent misrepresentation regarding the pottery’s authenticity. The UCC’s policy is to promote the free negotiability of commercial paper, and allowing personal defenses against HDCs would significantly impede this goal.

The core issue here is determining whether the instrument constitutes a negotiable instrument under UCC Article 3, as adopted by Rhode Island. Rhode Island General Laws § 6A-3-104 defines a negotiable instrument as an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, payable to bearer or to order, and if it states a present or past obligation of the drawer or maker and is payable to order or to bearer. A key requirement is that the instrument must be payable to order or to bearer. An instrument payable to a specific person, without more, is not payable to order or bearer. In this scenario, the promissory note is made payable “to the order of Elias Vance.” This phrase “to the order of” is a specific requirement for negotiability, indicating that it is payable to Elias Vance or to anyone Elias Vance designates. If it were payable simply “to Elias Vance,” it would likely be considered a non-negotiable contract. The inclusion of the clause “or his heirs” does not inherently destroy negotiability as long as the ultimate payee is ascertainable and the intent is to transfer the rights of Elias Vance. However, the phrasing “to the order of Elias Vance or his heirs” could be interpreted as creating alternative payees, which, under some interpretations, might affect negotiability if not properly structured. The critical factor for negotiability is that the instrument must be payable to order or to bearer. The phrase “to the order of Elias Vance” clearly satisfies the “payable to order” requirement. The additional clause “or his heirs” does not negate this, as the primary payee is Elias Vance, and the intent is to follow his direction or, in the event of his death, to pay his designated successors as per his estate’s direction. The UCC generally favors the interpretation of instruments to promote negotiability. Therefore, the instrument is negotiable because it contains the requisite language of negotiability (“to the order of”) and is payable to a specific, identifiable payee.

The scenario presented involves a promissory note that contains a clause allowing the holder to accelerate the payment due date upon the occurrence of certain events. Specifically, the note states that the entire balance becomes due and payable immediately if the maker “defaults on any other financial obligation.” The maker, Mr. Silas Croft, has failed to make timely payments on a separate loan from a different financial institution, the Newport Savings Bank. This failure constitutes a default on another financial obligation. Under Rhode Island General Laws, Chapter 6A-3, specifically concerning negotiable instruments and the concept of acceleration clauses, such a clause is generally enforceable. An acceleration clause that is triggered by a default on another obligation is typically considered a reasonable provision that does not affect the negotiability of the instrument, provided it is clearly stated. The Uniform Commercial Code (UCC) Article 3, as adopted in Rhode Island, permits acceleration clauses. When such a clause is triggered by a specified event, like the default on another financial obligation, the holder of the note has the right to demand immediate payment of the entire outstanding balance. Therefore, the holder of the note, Ms. Eleanor Vance, is entitled to accelerate the payment and demand the full amount owed. The question tests the understanding of acceleration clauses and their enforceability under UCC Article 3 in Rhode Island when triggered by an event external to the note itself. The key is that the default on the Newport Savings Bank loan directly fulfills the condition for acceleration as stipulated in the note between Ms. Vance and Mr. Croft.

The scenario involves a negotiable instrument that was originally payable to a specific payee, “Phoebe Price.” The instrument was then transferred by endorsement. The critical aspect here is the nature of the endorsement. If Phoebe Price endorsed the instrument “in blank,” meaning she simply signed her name on the back without specifying a new payee, the instrument then becomes bearer paper. Bearer paper is payable to whoever possesses it. Subsequent transfers of bearer paper do not require endorsement by the holder. Therefore, if Bartholomew Brown, who received the instrument from Phoebe Price after her blank endorsement, then transferred it to Clara Cooper by mere physical delivery without Clara’s endorsement, Clara Cooper would be a holder in due course (assuming she meets the other requirements of good faith and lack of notice, and paid value) and could enforce the instrument against the maker. The UCC, specifically Article 3 as adopted in Rhode Island, defines a holder in due course and outlines the rules for transfer of bearer instruments. A blank endorsement converts an order instrument into bearer paper. Transfer of bearer paper is by delivery. The question hinges on understanding this conversion and the subsequent transfer rules.

The scenario involves a promissory note that is not payable to order or to bearer. Under Rhode Island General Laws § 6A-3-104(c), an instrument that would otherwise be a negotiable instrument but is not payable to order or to bearer is not negotiable. Instead, it is governed by Article 3 of the Uniform Commercial Code as a promise or order to pay a fixed amount of money, but it is not a negotiable instrument. Therefore, it cannot be transferred by negotiation under UCC Article 3. Transfer of such an instrument is governed by the law applicable to the transfer of non-negotiable instruments, which generally involves assignment. The holder of such an instrument, even if they acquired it for value, cannot become a holder in due course because the instrument itself is not negotiable. Consequently, the holder takes the instrument subject to all defenses and claims that would be available in an action on a simple contract. The concept of holder in due course, which grants special protection against defenses, is predicated on the instrument being negotiable. Since the note fails the negotiability test by lacking the “to order” or “to bearer” language, the protections afforded to a holder in due course are unavailable. The question tests the fundamental requirement of negotiability under UCC Article 3, specifically focusing on the words of negotiability.

The scenario involves a promissory note that is non-negotiable due to the inclusion of a statement that it is “subject to the terms and conditions of a certain mortgage agreement.” Under Rhode Island General Laws, specifically referencing UCC Article 3 as adopted in Rhode Island, a promise to pay that is conditional is generally not a negotiable instrument. UCC § 3-104(a) defines a negotiable instrument as an unconditional promise or order to pay a fixed amount of money, if it also meets other criteria. UCC § 3-106(a) clarifies that a promise is unconditional unless it states an obligation to do any act in addition to the payment of money, or it states that the promise or order is subject to or governed by another writing. The phrase “subject to the terms and conditions of a certain mortgage agreement” clearly indicates that the payment obligation is contingent upon, or at least modified by, the terms of another document, thereby rendering the promise conditional. Consequently, the note cannot be negotiated under Article 3 of the UCC, meaning it cannot be transferred by endorsement and delivery in a manner that would allow a holder in due course to take free of most defenses. The rights of a transferee would be governed by assignment law, not by the special rules for negotiable instruments.

The core issue here is whether a holder in due course (HDC) can enforce a negotiable instrument that has been materially altered. Under UCC Article 3, specifically as adopted in Rhode Island, a holder in due course takes an instrument free from most defenses and claims. However, certain defenses, known as real defenses, can be asserted even against an HDC. Material alteration is generally considered a real defense, meaning it can be asserted against anyone, including an HDC. A material alteration is one that changes the contract of any party to the instrument. In this scenario, the face amount of the note was increased from $5,000 to $15,000. This change significantly alters the obligation of the maker, and therefore constitutes a material alteration. Under UCC § 3-407(b), as adopted in Rhode Island, when an instrument is materially altered, the alteration can be enforced according to its original tenor, or if the alteration is fraudulent, the instrument is discharged. However, if the alteration is fraudulent and the holder is not an HDC, the holder cannot enforce the instrument. If the holder is an HDC and the alteration is fraudulent, the HDC can enforce the instrument according to its original tenor. In this case, the question implies a fraudulent alteration because the increase is substantial and unexplained. An HDC can enforce the instrument only to the extent of its original tenor, which was $5,000. The subsequent holder, even if an HDC, cannot enforce the altered amount of $15,000. The Rhode Island UCC, consistent with the general principles of Article 3, protects the original parties from fraudulent material alterations by allowing enforcement only according to the original terms when an HDC is involved.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Rhode Island’s Uniform Commercial Code (UCC) Article 3, specifically § 3-305, a holder in due course takes an instrument free of most defenses, including personal defenses. However, certain real defenses are still assertable against an HDC. Among the real defenses listed in § 3-305(a)(1) are those that render the obligation of the obligor voidable or that are specifically provided for by Rhode Island law. Illegality of the transaction that makes the obligation a nullity is considered a real defense. In this scenario, the note was given for a gambling debt, which is illegal in Rhode Island. Therefore, the underlying obligation is void. A holder in due course takes the instrument subject to defenses that would be available in an action on a simple contract. Since the gambling debt is void, the maker has a real defense against payment, even if the holder acquired the note for value, in good faith, and without notice of any defect or defense. This defense of illegality, rendering the obligation void, is a real defense that can be asserted against anyone, including an HDC.

The scenario involves a promissory note that is payable to “order” and is signed by the maker. The key issue is whether the note qualifies as a negotiable instrument under UCC Article 3, as adopted in Rhode Island. For an instrument to be negotiable, it must contain certain elements, including being signed by the maker or drawer, being an unconditional promise or order to pay a fixed amount of money, and being payable on demand or at a definite time. Crucially, it must be payable “to order or to bearer.” The note in question is made payable “to the order of Ms. Anya Sharma.” This specific phrasing, “to the order of,” is a statutory requirement for negotiability under UCC § 3-104(a)(1). If the note had been payable “to Anya Sharma” without the “to the order of” language, it would likely be considered a non-negotiable instrument, essentially a simple contract. The presence of this specific language signals the intent for the instrument to be governed by the rules of Article 3, allowing for easy transferability and holder in due course status. Therefore, the note’s negotiability hinges on this precise wording.

The scenario involves a promissory note that contains a clause stating “The payment of this note is subject to the satisfactory completion of the construction project at 123 Ocean Drive, Newport, Rhode Island.” This type of clause introduces a condition precedent to payment. Under UCC Article 3, as adopted in Rhode Island, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money. A promise or order is conditional if it states an obligation to do any act in addition to the payment of money, or if it states that the promise or order is subject to any other undertaking or contingency. In this case, the payment of the note is explicitly tied to the satisfactory completion of a construction project, which is an act in addition to the payment of money and a contingency. Therefore, the note is not a negotiable instrument under UCC § 3-104(a). The fact that the note is payable to “order” and specifies a fixed sum is insufficient to overcome the conditional nature of the promise to pay. The mention of Rhode Island law is pertinent as UCC Article 3 governs negotiable instruments in Rhode Island.

No calculation is required for this question as it tests conceptual understanding of UCC Article 3 regarding the rights of a holder in due course. A holder in due course (HDC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. However, certain real defenses, such as infancy, duress, illegality of a type that nullifies the obligation, and fraud in the factum (real fraud), can be asserted even against an HDC. Fraud in the inducement, where a party is tricked into signing an instrument but understands the nature of the instrument itself, is a personal defense and is cut off by an HDC. In Rhode Island, as in most states, UCC Article 3 governs these principles. The scenario involves a promissory note that was procured through misrepresentation regarding the value of a business investment. This misrepresentation constitutes fraud in the inducement, a personal defense. Therefore, a holder who takes the note for value, in good faith, and without notice of any claim or defense, would be a holder in due course and would be able to enforce the note against the maker, despite the fraud. The maker’s claim that the note is voidable due to the misrepresentation is a personal defense, not a real defense that would prevail against an HDC.

Under Rhode Island General Laws § 6A-3-307, a holder of an instrument may enforce it if the holder is the person entitled to enforce the instrument. This means the holder must be in possession of the instrument and have the right to enforce it, which typically arises from being the named payee or a holder in due course. A person is entitled to enforce an instrument if they are the holder of the original instrument, or if they are a nonholder in possession of the instrument who has the rights of a holder. This includes situations where the instrument is lost, stolen, or destroyed, provided the person can prove ownership and right to enforce. However, if the instrument is incomplete or undelivered, the person seeking to enforce it must prove their right to do so. The scenario describes a situation where the original note is missing, and the purported holder is a successor in interest. To enforce the note, the successor must demonstrate they are the rightful owner and possess the rights of a holder, even without physical possession of the original. This would typically involve providing evidence of the transfer of rights, such as a properly executed assignment or a court order, and demonstrating that they can prove the terms of the instrument and their right to enforce it. Without such proof, the claim of enforcement would fail.

The core issue here is the negotiability of the instrument. Under UCC Article 3, as adopted in Rhode Island, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, to order or to bearer. The instrument in question is a draft. A draft is an order to pay. The phrase “subject to the conditions set forth in the agreement dated January 15, 2023” creates a condition precedent to payment. This means that payment is not guaranteed but is contingent upon the fulfillment of certain terms within that separate agreement. Such a reference, which ties the payment obligation to the terms of another document, renders the promise or order conditional, thereby destroying its negotiability. UCC § 3-104(a)(1) requires the promise or order to be unconditional. UCC § 3-106(b)(1) clarifies that a promise or order is conditional if it states that payment is subject to performance or fulfillment of a condition. Therefore, because the draft explicitly states payment is “subject to the conditions set forth in the agreement,” it is not a negotiable instrument. The fact that the agreement might be readily accessible or that the conditions might be easily met does not alter the legal characterization of the instrument as non-negotiable. The UCC is strict on this point to ensure certainty in the flow of commerce. A holder in due course status, which requires the instrument to be negotiable, cannot be achieved.

The scenario describes a situation involving a negotiable instrument where the drawer has issued a check to a payee. The crucial element is the drawer’s subsequent attempt to stop payment. Under Rhode Island’s Uniform Commercial Code (UCC) Article 3, specifically as adopted in Rhode Island, a bank is obligated to honor a stop payment order if it is received at such a time and in such a manner as to afford the bank a reasonable opportunity to act on it before the bank has taken any action that would bind it. Actions that bind the bank include certifying the check or, more commonly in the context of a check, paying the check. Paying a check typically means the bank has already debited the drawer’s account and credited the payee’s account or otherwise irrevocably transferred the funds. If the bank has already paid the check, it is no longer obligated to honor the stop payment order, and the drawer’s liability on the instrument remains. The question hinges on whether the bank’s actions constitute final payment. In this case, the bank’s notification to the payee that the check has been “processed and cleared” implies that the bank has completed the payment process, meaning the funds have been transferred or the account debited. This constitutes final payment under UCC § 3-602, which generally states that an instrument is paid to the extent paid in accordance with UCC § 3-603. UCC § 3-603(a) states that payment or satisfaction may be made with the consent of the holder of the instrument. However, once the bank has paid the instrument, it cannot subsequently dishonor it based on a stop payment order. The drawer’s stop payment order is effective only if it is received before the bank has paid the instrument. Since the bank has already processed and cleared the check, it has paid the instrument. Therefore, the stop payment order is no longer effective, and the drawer remains liable to the holder in due course.

Under Rhode Island General Laws § 6A-3-305, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses. These real defenses include infancy, duress that nullifies the obligation, fraud that induces the inducement of the instrument, discharge in insolvency proceedings, and any other discharge of which the holder in due course has notice when taking the instrument. Other defenses, such as breach of contract or failure of consideration, are generally considered personal defenses and are cut off by an HDC. In this scenario, the issue is whether the seller’s failure to deliver the custom-built cabinetry constitutes a defense against the holder of the promissory note. Since the failure to deliver is a breach of the underlying contract and not a real defense that would render the instrument void ab initio or otherwise fundamentally invalid, it is a personal defense. A holder in due course, having acquired the note without notice of this defense and for value, takes the note free from this personal defense. Therefore, the holder in due course can enforce the note against the maker, despite the seller’s breach of contract. The fact that the note was made in Rhode Island and the UCC Article 3 is applicable is crucial.

No calculation is required for this question as it tests conceptual understanding of the holder in due course doctrine and its limitations under UCC Article 3, as adopted in Rhode Island. A holder in due course (HDC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. However, certain real defenses, such as infancy, duress, illegality, and discharge in insolvency proceedings, can be asserted even against an HDC. Forgery is also a real defense. In this scenario, the forged indorsement by Mr. Abernathy means that Mr. Abernathy had no right to negotiate the instrument. Consequently, Ms. Barlow, who received the instrument from Mr. Abernathy, could not have acquired better title than Mr. Abernathy possessed. Therefore, Ms. Barlow is not a holder in due course because she did not take the instrument from a holder with valid title. Even if she otherwise met the criteria for HDC status (taking for value, in good faith, and without notice of any defense or claim), the forged indorsement is a fundamental defect in title that prevents the instrument from being properly negotiated to her. Under Rhode Island law, as under the UCC, a forged indorsement is wholly inoperative. Thus, Ms. Barlow’s claim to the instrument is subject to the defenses available against Mr. Abernathy, including the drawer’s defense that the instrument was never properly negotiated. The critical factor is that the instrument was not negotiated by a party with the power to do so, rendering any subsequent transfer defective from the outset.

The scenario involves a promissory note that is transferred by endorsement. The question tests the concept of holder in due course (HDC) status and the defenses available against such a holder. Under UCC Article 3, specifically as adopted in Rhode Island, a holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Examples of real defenses include infancy, duress that nullifies assent, fraud that induces the inducement of the instrument, discharge in insolvency proceedings, and certain types of forgery or material alteration. Personal defenses, such as breach of contract, failure of consideration, or misrepresentation in the inducement, are cut off by an HDC. In this case, Mr. Abernathy is a holder in due course because he took the note for value, in good faith, and without notice of any claim or defense. The defense of “misrepresentation in the inducement” concerning the quality of the antique clock is a personal defense. Therefore, Mr. Abernathy, as an HDC, takes the note free from this defense. The Rhode Island Uniform Commercial Code, Article 3, governs these principles.

The core issue here is whether the document, a promissory note, qualifies as a negotiable instrument under Rhode Island’s Uniform Commercial Code (UCC) Article 3. For an instrument to be negotiable, it must meet several requirements, including being payable to order or to bearer, being for a fixed amount of money, and containing an unconditional promise or order. Rhode Island General Laws § 6A-3-104(a) outlines these criteria. In this scenario, the note states it is payable “to the order of the holder of the collateral described herein.” This phrasing is problematic. While it references a “holder,” it links the payment directly to the status of collateral ownership rather than a named payee or the broader concept of “bearer.” UCC § 6A-3-109(a) defines “order” and “bearer” instruments. An instrument payable “to the order of X” is an order instrument, requiring negotiation by endorsement and delivery. An instrument payable “to bearer” is negotiated by delivery alone. The phrase “to the order of the holder of the collateral described herein” does not clearly establish that the instrument is payable to order or to bearer in the manner contemplated by UCC Article 3. It creates ambiguity about who the intended payee is and how the instrument should be transferred. The UCC requires a clear designation of a payee or a general designation like “bearer.” The reference to collateral ownership as the condition for payee status makes the promise conditional on an event outside the typical framework of commercial paper, potentially rendering it non-negotiable. Rhode Island General Laws § 6A-3-104(a)(1) requires that a negotiable instrument must be payable “to bearer or to order.” The language used here fails to meet this standard for negotiability, as it ties the payee status to an external condition (holding collateral) rather than a clear designation of a person or bearer. Therefore, the note likely fails to qualify as a negotiable instrument.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under UCC Article 3, as adopted in Rhode Island, a holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Fictitious payee situations, often termed “imposter rules” or “employment status” under UCC § 3-404(b) and (c), determine who is considered the intended payee. If a person signs an instrument in the name of a fictitious payee, or if an agent supplies the name of the payee intending that payee to have no interest in the instrument, the instrument is generally deemed payable to bearer. This means that anyone in possession of the instrument can negotiate it. In this scenario, Ms. Anya Sharma, the accountant, forged Mr. Robert Chen’s signature and made the check payable to “Cash.” Since the check was made payable to “Cash,” it is considered a bearer instrument. A bearer instrument is negotiated by delivery alone. The subsequent endorsement by “Alex Miller” is irrelevant for negotiation purposes as it was a bearer instrument. The bank, therefore, acted properly in cashing the check upon delivery, as possession is sufficient for negotiation of a bearer instrument. Mr. Chen, as the drawer, is generally liable on the instrument, but he cannot assert a defense against a holder in due course based on the forgery of his signature if the instrument was made payable to bearer. The UCC § 3-404(b) rule regarding fictitious payees means that when the drawer’s employee supplies the name of the payee intending that payee to have no interest, the instrument is effective as if made payable to bearer. This rule is designed to allocate the risk of employee fraud. Therefore, the bank’s payment to the person who presented the bearer instrument was proper, and Mr. Chen cannot recover from the bank for paying out on a bearer instrument. The question of whether the bank acted in good faith and without notice of any defect in title is presumed unless proven otherwise. The critical point is that the instrument became bearer paper due to its payable-to-cash designation.

The scenario involves a negotiable instrument that was originally payable to “cash.” Under Rhode Island General Laws § 6A-3-111, an instrument payable to “cash” is payable to bearer. When a bearer instrument is transferred by delivery, it is considered a negotiation. However, if the transfer is by endorsement and delivery, it is also a negotiation. The question hinges on whether the holder in due course status can be acquired. A holder in due course (HDC) takes an instrument free from all defenses and claims to it on the part of a person against whom enforcement is sought, except for certain real defenses. To be an HDC, a holder must take the instrument (1) for value, (2) in good faith, and (3) without notice that it is overdue or has been dishonored or that there is any defense or claim to it on the part of any person. In this case, Ms. Gable received the instrument for value (she paid $5,000 for it). The facts do not suggest bad faith or notice of any defenses or claims. The instrument was originally payable to bearer, and its subsequent negotiation by delivery to Ms. Gable, who took it for value and without notice of any defenses or claims, allows her to acquire HDC status. Therefore, she can enforce the instrument against the maker, Mr. Abernathy, despite Abernathy’s defense that the instrument was procured by fraud in the inducement, as this is a personal defense and not a real defense that can be asserted against an HDC.

The core issue here is whether a holder in due course (HIDC) status can be maintained when the instrument is acquired under circumstances that suggest a fundamental alteration of the underlying obligation. Rhode Island law, like other states, follows the Uniform Commercial Code (UCC) Article 3. Under UCC § 3-302, a holder in due course takes an instrument free from defenses and claims of a kind described in § 3-305(a)(2) and (a)(3), provided the holder takes the instrument (1) for value, (2) in good faith, and (3) without notice that the instrument is overdue or dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, or that the instrument contains an unauthorized signature or has been altered. The scenario describes a promissory note originally payable to “Ocean State Bank.” It was then endorsed in blank by the payee. Subsequently, before its maturity, a third party, Mr. Mariner, purchased the note from an individual claiming to be an agent of Ocean State Bank. Crucially, the note itself was materially altered by the agent, who changed the interest rate from 5% to 8% without the bank’s authorization. Mr. Mariner paid face value for the note and had no actual knowledge of the alteration. The question hinges on the definition of a “material alteration” and its effect on the holder in due course status. UCC § 3-302(a)(1) defines a holder in due course as taking an instrument for value, in good faith, and without notice of any defense or claim. However, UCC § 3-305(a)(2) states that a holder in due course takes subject to a defense of a kind described in § 3-305(a)(2), which includes “a defense of any party to the instrument that is based on… material alteration.” UCC § 3-302(a)(1) further clarifies that a holder does not become a holder in due course if the instrument contains an unauthorized signature or has been altered. The UCC defines a material alteration as one that changes the contract of any person in any respect. A change in the interest rate of a negotiable instrument is considered a material alteration. In this case, the interest rate was changed from 5% to 8%. This is a material alteration. Therefore, even though Mr. Mariner paid value, acted in good faith, and had no notice of the alteration at the time of purchase, he cannot be a holder in due course because the instrument was materially altered. The alteration effectively invalidates his claim to holder in due course status concerning the altered terms. The bank, as the original payee, would be the party whose rights are most directly impacted by the alteration. Since the instrument was materially altered before Mr. Mariner acquired it, he takes it subject to the defenses arising from that alteration. The note itself is not void, but the holder in due course protection against defenses related to the alteration is lost. Therefore, Mr. Mariner, as a holder, takes the instrument subject to the defense of material alteration.