The scenario describes a promissory note that is payable to “bearer” and is not dated. Under Hawaii Revised Statutes (HRS) § 490:3-108, an instrument that is payable to bearer is payable to whoever possesses it. The absence of a date on a note generally means it is payable upon demand. However, the critical element here is the “bearer” designation. For bearer paper, the Uniform Commercial Code (UCC), as adopted in Hawaii, treats it like cash. Transfer of possession is sufficient to effect a valid negotiation, provided the transfer is voluntary. Therefore, if Kai transferred possession of the note to Leilani without endorsement, and Leilani took possession, Leilani became the holder of the instrument. The question of whether Leilani is a holder in due course is separate and depends on other factors not present here (e.g., taking for value, in good faith, without notice of claims or defenses). The core issue is negotiation. Since the note is bearer paper, negotiation occurs by delivery. The fact that it is undated and payable on demand does not prevent negotiation. The UCC, specifically HRS § 490:3-201, addresses transfer and negotiation. A transfer of possession of bearer paper, even without endorsement, constitutes a negotiation. Thus, Leilani, by receiving possession of the bearer note from Kai, became the holder. The concept of “holder in due course” is a subsequent status that requires more than mere possession. However, for the instrument to be negotiated, delivery is sufficient for bearer paper.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Hawaii’s Uniform Commercial Code (UCC) Article 3. A person who takes an instrument for value, in good faith, and without notice of any defense or claim to the instrument is a holder in due course. Hawaii Revised Statutes (HRS) §490:3-302 defines an HDC. Once a party is an HDC, they are generally protected from most personal defenses that the maker or drawer of the instrument might have against the original payee. However, certain real defenses, such as infancy, duress, illegality of the transaction, or fraud in the factum (real fraud), can be asserted even against an HDC. Fraud in the factum occurs when the maker is induced to sign the instrument without knowledge of its character or essential terms. In this scenario, Kai signing the promissory note believing it was a simple acknowledgment of a debt, rather than a negotiable instrument with a promise to pay a specific sum on demand, constitutes fraud in the factum. This is a real defense that can be asserted against anyone, including a holder in due course. Therefore, while Kalia might have been an HDC if she acquired the note properly, Kai can still raise the defense of fraud in the factum to avoid liability on the note because the fraud goes to the very nature of the instrument itself. The UCC, as adopted in Hawaii, prioritizes the protection of parties who are genuinely misled about the fundamental nature of the document they are signing, recognizing this as a defense that transcends the usual limitations imposed against HDCs.

The question concerns the rights of a holder in due course (HDC) under Hawaii’s Uniform Commercial Code (UCC) Article 3, specifically concerning a negotiable instrument that is subject to a defense. Under UCC § 3-305, an 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. Fraud in the factum, also known as 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, is a real defense that can be asserted even against an HDC. In this scenario, Kaimana was misled into believing he was signing a rental agreement when, in fact, he was signing a promissory note. This constitutes fraud in the factum because he was unaware he was signing a negotiable instrument with an obligation to pay. Therefore, even if the note is transferred to an HDC, the defense of fraud in the factum is available against that HDC. The UCC, as adopted in Hawaii, defines a holder in due course in § 3-302 and outlines the defenses that are cut off by HDC status in § 3-305. Understanding the distinction between personal defenses (which are cut off by an HDC) and real defenses (which are not) is crucial. Fraud in the factum is a classic example of a real defense.

The scenario involves a promissory note that is payable to “bearer” and is then transferred by physical delivery. Under Hawaii’s Uniform Commercial Code (UCC) Article 3, specifically HRS § 490:3-201, negotiation of an instrument payable to bearer occurs by delivery alone. Endorsement is not required for bearer paper. The question asks about the effect of the physical delivery of the note to Kaimana, which constitutes a negotiation. The subsequent blank endorsement by Kaimana converts the bearer instrument into order paper, payable to Kaimana, but this conversion does not negate the initial valid negotiation by delivery. Therefore, Kaimana is a holder. The critical element is that the note was initially payable to bearer. Transfer of bearer paper is accomplished solely by delivery. The UCC does not require any further action for a valid negotiation of bearer paper. The subsequent blank endorsement by Kaimana, while creating order paper, does not invalidate the initial negotiation by delivery.

The scenario involves a promissory note that is incomplete with respect to the amount payable. Under Hawaii Revised Statutes (HRS) §490:3-115, a negotiable instrument that is signed but incomplete is enforceable by a holder in due course if it is completed in a reasonable time and in accordance with any authority given. However, the question specifically asks about the enforceability of the instrument as is, without completion. HRS §490:3-115(a) states that if an instrument contains blanks for the name of the payee, the amount payable, or other essential terms, it is incomplete. HRS §490:3-115(b) addresses the authority to complete an incomplete instrument. Critically, HRS §490:3-115(c) states that if an incomplete instrument is not completed, it cannot be enforced. Therefore, even if the instrument was signed and delivered, its incompleteness regarding the amount payable renders it unenforceable by anyone, including a holder in due course, in its current state. The principle here is that a fundamental term, the amount, must be present for the instrument to be considered a complete negotiable instrument and thus enforceable under Article 3. The absence of this essential term means the instrument fails to meet the requirements of a negotiable instrument as defined, and therefore cannot be enforced as such.

In Hawaii, under UCC Article 3, 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. To qualify as an HDC, a person must take a negotiable instrument that is (1) taken for value, (2) taken in good faith, and (3) taken without notice that the instrument is overdue or has been dishonored or that there is a defense or claim against it. The scenario involves a promissory note issued by Kaimana to Leilani for the purchase of a surfboard. Leilani then negotiates the note to Makani. Makani receives the note after its due date. Since Makani took the note after its due date, he cannot satisfy the requirement of taking the instrument without notice that it is overdue. Therefore, Makani does not qualify as a holder in due course and is subject to any defenses Kaimana might have against Leilani, such as a failure of consideration if the surfboard was defective. The question tests the understanding of the “without notice that the instrument is overdue” requirement for HDC status.

The question pertains to the concept of a holder in due course (HDC) under UCC Article 3, specifically as adopted in Hawaii. For an instrument to be taken by a holder in due course, it must be taken for value, in good faith, and without notice that it is overdue or dishonored or that there is a defense or claim against it. In this scenario, while the note was taken for value and in good faith by Kai, the critical element is notice. Kai received the note after its maturity date, which is explicitly stated as a form of notice that the instrument is overdue. UCC § 3-302(a)(2) defines a holder in due course as a holder who takes the instrument “without notice that it is overdue or has been dishonored or of any defense or claim to it on the part of any person.” Taking an instrument after its stated due date constitutes notice that it is overdue, thereby preventing the holder from qualifying as a holder in due course. Consequently, Kai takes the note subject to any defenses that the maker, Malia, may have against the original payee, even if Kai did not have actual knowledge of those defenses. The UCC’s framework for negotiability and HDC status is designed to facilitate commerce by allowing subsequent holders to take instruments with confidence, but this confidence is predicated on adhering to the notice requirements. The maturity date serves as a crucial indicator of the instrument’s status.

The scenario involves a promissory note that is payable to order. Under Hawaii Revised Statutes (HRS) § 490:3-301, a person is a holder in due course if the instrument is taken for value, in good faith, and without notice of any claim or defense. A transferee of a holder in due course generally acquires the same rights as the transferor, including the rights of a holder in due course, provided the transferee does not itself engage in any conduct that would disqualify it from being a holder in due course. This is often referred to as the “shelter doctrine.” However, this doctrine does not apply to a transferee who was itself a party to fraud or illegality affecting the instrument or who, as a prior holder, had notice of a claim or defense. In this case, Kaito transferred the note to Lei. Lei, having acquired the note from Kaito who was a holder in due course, steps into Kaito’s shoes. Since Lei did not have any prior dealings with the maker, Aiko, and did not have notice of any defenses Aiko might have against Kaito, Lei is also considered a holder in due course. Therefore, Lei can enforce the note against Aiko despite any defenses Aiko might have against Kaito. The question asks about Lei’s ability to enforce the note against Aiko. As Lei is a holder in due course through the shelter doctrine, she can enforce the note free from most defenses.

The scenario describes a promissory note made by Kai and payable to the order of Leilani. The note specifies a principal sum and an interest rate, with payments due on specific dates. The critical aspect here is the concept of negotiability and how it might be affected by the terms of the note, particularly concerning acceleration clauses and the certainty of payment. Under Hawaii’s UCC Article 3, a negotiable instrument must contain an unconditional promise to pay a fixed amount of money. The inclusion of an acceleration clause, which allows the holder to demand payment earlier than the stated maturity date upon the occurrence of a specified event (like default), does not typically destroy negotiability. This is because the acceleration still results in a definite sum being due at some point, even if that point is earlier than originally anticipated. The key is that the amount payable remains fixed. Therefore, if the note otherwise meets the requirements of a negotiable instrument, the acceleration clause would not prevent it from being considered such. The explanation focuses on the underlying principles of negotiability as defined in UCC Article 3, specifically addressing how acceleration clauses interact with the requirement for a fixed amount payable. It highlights that the acceleration event triggers a right to demand payment of a sum that is ascertainable at the time of acceleration, thereby maintaining the instrument’s negotiability.

The scenario involves a promissory note that is transferred by endorsement. The core issue is whether the transferee, Kai, qualifies as a holder in due course (HDC) under UCC Article 3, specifically as adopted in Hawaii. For Kai to be an HDC, the instrument must be negotiable, he must take it for value, in good faith, and without notice of any claim or defense. The note is payable to order, as it specifies “Pay to the order of Leilani,” making it negotiable. Leilani’s endorsement “For deposit only” is a restrictive endorsement. However, UCC § 3-206(c) states that if an instrument becomes payable to a named person and the proceeds of the instrument are not applied to that person’s account, the taker does not become a holder in due course. In this case, Leilani endorsed the note “For deposit only” and delivered it to her brother, Kai, who then deposited it into his own account at First Hawaiian Bank. The bank, acting as a collecting bank, is not taking the instrument for value in the sense required for HDC status when it merely credits the depositor’s account subject to withdrawal. However, UCC § 3-303(a)(3) defines “value” as including taking an instrument as satisfaction of or security for a pre-existing claim. More importantly, UCC § 4-211(a) states that if a bank takes an item for collection, it has given value for the item to the extent a credit given for the item has been withdrawn or applied. Here, Kai deposited the note into his account, and the bank credited his account. If Kai has withdrawn any portion of that credit or if the bank has applied that credit to satisfy a pre-existing claim Kai had against the bank, then the bank has given value. Crucially, the question states Kai deposited it into *his* account. The bank’s status as a holder in due course is governed by its actions. When a bank takes an instrument for collection, it becomes a holder. If the bank credited Kai’s account and Kai subsequently withdrew funds against that credit, or if the bank applied that credit to a debt Kai owed the bank, the bank would have given value. However, the question focuses on Kai’s status, and the restrictive endorsement “For deposit only” by Leilani means that the instrument’s proceeds must be applied to Leilani’s account. Kai, by depositing it into his own account, is essentially misappropriating the funds. Even if Kai were to argue he took it for value (e.g., by cashing it, which is not indicated), the restrictive endorsement creates a limitation on how the instrument can be negotiated or paid. UCC § 3-206(d) states that a person taking an instrument under a restrictive endorsement is subject to the restrictions. Therefore, Kai, by depositing it into his own account, has not followed the restriction. He cannot be a holder in due course because he has not taken the instrument in good faith or without notice of a defense or claim. The restrictive endorsement itself puts him on notice that the instrument is not for his personal benefit. The bank’s rights as a holder would also be affected by the restrictive endorsement if it failed to ensure the proceeds were applied to Leilani’s account. The most accurate characterization of Kai’s position is that he is a holder, but not a holder in due course, due to the restrictive endorsement and the potential failure to adhere to its terms. The critical element is that the restrictive endorsement “For deposit only” requires the proceeds to be deposited into Leilani’s account. By depositing it into his own account, Kai has not complied with the restriction, and thus cannot claim HDC status.

Under Hawaii Revised Statutes (HRS) §490:3-305, 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. Real defenses are those that can be asserted against any holder, including an HDC. These real defenses are enumerated in HRS §490:3-305(a)(1) and include infancy, duress that nullifies the obligation, fraud that nullifies the obligation, discharge in insolvency proceedings, and that the issuer lacked legal capacity. The question concerns a promissory note where the maker’s signature was forged. Forgery of a signature is a real defense under HRS §490:3-305(a)(1)(A), as it is an unauthorized signature. An unauthorized signature means a signature made without actual, implied, or apparent authority. In the context of negotiable instruments, a forged signature is wholly inoperative unless the party against whom it is asserted ratifies it or is precluded from asserting the forgery. Therefore, a party whose signature is forged on a note can assert this as a real defense against even a holder in due course. The maker of the note, Mrs. Alani, can raise the defense of forgery, as her signature was not genuinely placed on the instrument. This defense is effective against any holder, regardless of whether they qualify as a holder in due course.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Hawaii’s Uniform Commercial Code (UCC) Article 3. A party is generally a holder in due course if the instrument is negotiable, they are a holder, it is taken for value, in good faith, and without notice of any defense or claim. The UCC specifies certain defenses that are “real” defenses, meaning they can be asserted against even an HDC, and others that are “personal” defenses, which are generally cut off by an HDC. In this scenario, the promissory note is a negotiable instrument. Elara is a holder. She took the note for value, as she paid $10,000 for it. She acted in good faith and without notice of any issues, making her a holder in due course. The crucial element is the nature of the defense raised by Kai. Kai’s defense is that the note was obtained by fraud in the inducement. Fraud in the inducement occurs when a party is persuaded to sign a negotiable instrument by a misrepresentation about the underlying transaction or the nature of the obligation, but they understand they are signing a negotiable instrument. This is a personal defense. Real defenses, which can be asserted against an HDC, typically include things like forgery, fraud in the execution (where the signer is deceived about the nature of the document itself), material alteration, or discharge in insolvency proceedings. Fraud in the inducement, however, does not prevent the formation of a contract; rather, it makes the contract voidable. Therefore, it is a personal defense that is cut off by a holder in due course. Because Elara is a holder in due course and Kai’s defense is a personal defense, Elara can enforce the note against Kai.

The scenario describes a promissory note issued by Kai to Lena. The note is payable to Lena or her order, and it specifies a fixed sum of money. Crucially, the note contains a clause that states, “This note is subject to the terms and conditions of the underlying loan agreement dated October 15, 2023, between Kai and Lena.” Under UCC Article 3, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money. A promise or order is considered 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 or governed by another writing. In this case, the phrase “subject to the terms and conditions of the underlying loan agreement” clearly makes the promise to pay conditional upon the terms of that separate agreement. This external reference and incorporation of another document’s terms renders the note non-negotiable. While the note might still be enforceable as a simple contract, it loses its status as a negotiable instrument under UCC Article 3, meaning it cannot be freely transferred by endorsement and delivery in the same manner as a truly negotiable instrument, and subsequent holders may not qualify for holder in due course status. Therefore, the note fails the unconditional promise requirement for negotiability.

The scenario involves a promissory note payable to a specific payee, “Kaimana Enterprises,” and subsequently endorsed in blank by Kaimana Enterprises. A blank endorsement converts the instrument into bearer paper. Any holder of bearer paper is presumed to be a holder in due course, provided they meet the requirements of honesty, lack of notice of defenses, and value. The subsequent endorsement by “Leilani” is a special endorsement, making the note payable to Leilani. However, because the note was already bearer paper, Leilani is a holder. When Leilani transfers the note to Kai, who is aware of a dispute between Kaimana Enterprises and the maker, Kai’s status as a holder depends on Leilani’s status. Since Leilani is a holder (and potentially a holder in due course if she acquired it properly), Kai can acquire the rights of a holder in due course through Leilani, even with knowledge of the dispute, under the shelter doctrine. This doctrine allows a transferee to “step into the shoes” of a holder in due course. Therefore, Kai can enforce the note against the maker, subject to any defenses the maker might have against Kaimana Enterprises that are not cut off by Leilani’s holder in due course status. The question asks about the *rights* of Kai to enforce the note. Kai, as a holder, can enforce the note. The knowledge of the dispute does not prevent Kai from being a holder, and the shelter doctrine allows Kai to enforce it as if they were a holder in due course, assuming Leilani was. The crucial point is that the blank endorsement made it bearer paper, and subsequent holders, including Kai, can enforce it.

The scenario involves a promissory note that is payable to order. Under Hawaii Revised Statutes (HRS) §490:3-301, a person is a holder of an instrument if the person is in possession of a negotiable instrument that designates that person as the payee. To enforce the instrument, the holder must be entitled to enforce it. This means the holder must be in possession of the instrument and be the person entitled to enforce it. For an instrument payable to order, entitlement to enforce requires possession and being the named payee or a transferee from the payee. In this case, Kai possesses the note, and it is made payable to the order of “Lani Kai.” Since Kai is the named payee and in possession of the note, Kai is the holder entitled to enforce the instrument. The fact that the note is undated does not affect its negotiability under HRS §490:3-104(a) as long as it is payable on demand or at a definite time, and a note payable without a stated date is generally considered payable on demand. The absence of a specific endorsement from Lani Kai to Kai, if Kai is indeed a different person than Lani Kai, would prevent Kai from being a holder in due course or even a holder by transfer, but the problem states the note is payable to the order of “Lani Kai” and Kai possesses it. Assuming Kai is the intended recipient and payee, possession alone is sufficient for enforcement as the named payee. If “Lani Kai” refers to a single individual, and Kai is that individual, then possession is sufficient. If Kai is a separate entity or person, and the note is payable to “Lani Kai” and Kai possesses it without any endorsement from “Lani Kai” to Kai, then Kai would not be entitled to enforce it unless Kai can prove they are the rightful successor or assignee, which is not indicated. However, the question implies Kai is the rightful possessor and payee. Therefore, Kai, as the named payee in possession, is entitled to enforce the instrument.

The core issue here is whether a holder in due course (HDC) status can be maintained when a negotiable instrument is transferred in a transaction where the transferor has a fiduciary duty and the transferee has notice of a potential breach of that duty. Under UCC Article 3, specifically Hawaii Revised Statutes (HRS) § 490:3-302, a holder in due course takes an instrument free from most defenses and claims. However, HRS § 490:3-302(a)(2) requires that the holder take the instrument “without notice of any claim to the instrument or defense against it.” Furthermore, HRS § 490:3-307(b) addresses notice of breach of fiduciary duty. If a person receives an instrument in payment of or as security for a debt known to have been incurred in breach of fiduciary duty, or if the instrument is taken with notice of the breach, the taker has notice of the claim. In this scenario, Kai, a trustee, transfers a certificate of deposit (CD) issued by Aloha Bank to Leilani, a business associate, to satisfy a personal debt. Leilani knows that Kai is the trustee of the trust and that the CD is an asset of the trust. Leilani also has reason to believe that Kai is using trust funds for personal benefit, which constitutes a breach of fiduciary duty. Because Leilani has notice of the breach of fiduciary duty at the time of the transfer, she cannot qualify as a holder in due course. Consequently, the trust can assert its claim to the instrument against Leilani. The fact that Leilani paid value for the instrument (satisfying a personal debt) is insufficient to overcome her notice of the breach. The question is designed to test the understanding of how notice, particularly notice of a breach of fiduciary duty, prevents a transferee from achieving HDC status, even when value is given. The correct answer hinges on the application of HRS § 490:3-307(b) in conjunction with the definition of HDC in HRS § 490:3-302.

The core issue here revolves around the concept of “holder in due course” (HDC) status and the defenses available against such a holder under Hawaii’s Uniform Commercial Code (UCC) Article 3, specifically HRS § 490:3-305. A party claiming HDC status must take the instrument for value, in good faith, and without notice of any defense or claim. In this scenario, Kaimana’s knowledge of the underlying dispute between Leilani and Kai regarding the quality of goods, which formed the basis of the original transaction for the promissory note, constitutes notice of a defense. Specifically, this knowledge prevents Kaimana from being a holder in due course because he had notice of a claim or defense to the instrument. The defense available to Kai is the breach of warranty regarding the goods, which is a real defense under UCC § 3-305(a)(1). A holder in due course takes the instrument free of most defenses, but not all. Real defenses, such as infancy, duress, illegality, or fraud in the factum, can be asserted even against an HDC. However, personal defenses, like breach of contract or failure of consideration, are generally cut off by an HDC. In this case, Kai’s defense relates to the underlying transaction, specifically the failure of consideration due to the defective goods, which is a personal defense. But Kaimana’s lack of HDC status due to his notice means he is subject to all defenses that would be available in an action on the simple contract, including this personal defense. Therefore, Kai can assert the defense of failure of consideration against Kaimana. The promissory note itself is a negotiable instrument, and its transfer to Kaimana appears to be a negotiation. However, the critical element for Kaimana to enforce it against Kai, free from Kai’s defenses, is his status as a holder in due course. Since Kaimana was aware of the circumstances surrounding the note’s creation and the potential dispute, he cannot claim the protections afforded to a holder in due course. Consequently, Kai can raise the defense that the note was issued without valid consideration due to the defective goods.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against payment on a negotiable instrument. Under UCC Article 3, as adopted in Hawaii, 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, where the person to whom the instrument is payable is not intended to have any interest in it, are specifically addressed. If a person making or drawing an instrument payable to an identified person supplies the name of that person, the instrument is payable to an identified person even if the payee is fictitious. However, if the instrument is made payable to a fictitious person, and the maker or drawer does not intend that person to have any interest in it, the instrument is payable to bearer. In this scenario, Kaimana, the drawer, intended the funds to go to “Lani’s Luau Supplies,” a legitimate business. The fact that Kaimana mistakenly wrote “Lani’s Luau Supply” (singular) instead of “Lani’s Luau Supplies” (plural) does not make the payee fictitious. It is a minor error in naming, not an indication that the drawer intended no one by that name to receive the funds. Therefore, the instrument is payable to an identified person. When Kaimana stops payment, the bank is obligated to honor that stop payment order. If the instrument had been properly negotiated to an HDC, the HDC would generally take it free of Kaimana’s claim of mistake. However, the question asks about the bank’s liability if it pays the instrument after a stop payment order. The bank is obligated to honor a valid stop payment order unless it has already paid the instrument or accepted it. Since the bank paid the instrument after the stop payment order was issued, and the stop payment order was valid because the payee was identified, the bank is liable to Kaimana for wrongful payment. The bank cannot recover from the payee, “Lani’s Luau Supply,” because the bank’s liability stems from its failure to honor the stop payment order, not from any issue with the instrument itself or its negotiation. The correct answer is that the bank is liable to Kaimana for wrongful payment.

The scenario describes a promissory note issued by Kaito Tanaka to Hana Sato, payable to Hana Sato or her order. The note is dated August 1, 2023, for $10,000, due on demand, and contains a clause stating, “This note is subject to the condition that the maker’s business, ‘Aloha Surfboards,’ achieves a net profit of at least $50,000 in the fiscal year ending December 31, 2023.” Under Hawaii’s Uniform Commercial Code (UCC) Article 3, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money. The presence of a condition precedent to payment, as indicated by the phrase “subject to the condition that,” renders the promise conditional. Therefore, the note is not a negotiable instrument because it violates the unconditional promise requirement of UCC § 3-104(a)(1). The explanation of negotiability hinges on the certainty of payment, which is undermined by the explicit contingency. The UCC aims to facilitate the free circulation of commercial paper, and such conditional promises impede this purpose by requiring a payee or holder to investigate the fulfillment of the condition before payment is due, thereby increasing transaction costs and reducing marketability. This principle is fundamental to distinguishing negotiable instruments from ordinary contracts.

The scenario describes a promissory note that is payable to “bearer” and contains an acceleration clause. Under Hawaii Revised Statutes Chapter 490, Article 3, a negotiable instrument is an unconditional promise or order to pay a fixed amount of money, payable to bearer or to order on demand or at a definite time. HRS § 490:3-104(a) defines a negotiable instrument. A promise to pay “bearer” makes the instrument payable to bearer, as defined in HRS § 490:3-109(a)(1), which is a key requirement for negotiability. The acceleration clause, which states the entire balance is due upon default, does not make the promise conditional in a way that destroys negotiability. HRS § 490:3-108(b) clarifies that an instrument is payable on demand if it states that it is payable on demand, at sight, or on presentation. An instrument that is otherwise payable on demand is also payable on demand if no time for payment is stated. Therefore, the note is a negotiable instrument. The question asks about the legal status of the instrument as a negotiable instrument. The presence of “pay to bearer” and the acceleration clause do not prevent it from being a negotiable instrument under Hawaii law.

The scenario involves a promissory note that was originally payable to “bearer” and was then specially indorsed to “Kai”. Subsequently, the note was transferred by physical delivery without any further indorsement to “Lani”. Under Hawaii Revised Statutes (HRS) § 490:3-205, an instrument payable to bearer that is specially indorsed becomes payable to the indorsee’s order. However, HRS § 490:3-205(b) further clarifies that if an instrument payable to an identified person is indorsed in blank, it becomes payable to bearer. Crucially, HRS § 490:3-201(b) states that if an instrument is indorsed to a person who is not the drawer or maker and the indorsement is not a blank indorsement, the instrument is payable to the indorsee. The question hinges on the effect of the transfer by mere delivery after a special indorsement. When an instrument is specially indorsed to a specific person (Kai), it is no longer payable to bearer but rather to the order of Kai. To negotiate an instrument that is payable to order, it requires the indorsement of the holder. Lani received the note from Kai by physical delivery alone, without Kai’s indorsement. Therefore, Lani is not a holder in due course or even a holder in her own right, but rather a mere transferee. Under HRS § 490:3-301, a person may be a holder of an instrument if the person is in possession of the instrument and the instrument is payable to that person or to bearer. Since the note was specially indorsed to Kai, it was payable to Kai’s order. Lani’s possession without Kai’s indorsement means Lani does not meet the definition of a holder for the purpose of enforcing the instrument in her own name, although she may have rights as a transferee under HRS § 490:3-301. The instrument is still effectively payable to Kai’s order.

In Hawaii, under UCC Article 3, a holder in due course (HDC) takes an instrument free from most defenses that a prior party could assert against the original payee. However, certain real defenses, such as infancy, duress, illegality of the type that nullifies the obligation, and fraud in the factum, can be asserted even against an HDC. Fraud in the factum occurs when a party is induced to sign an instrument with neither knowledge nor reasonable opportunity to learn of its character or essential terms. This is distinct from fraud in the inducement, where a party knows the nature of the instrument but is deceived about collateral matters. For a party to qualify as an HDC, they must take the instrument for value, in good faith, and without notice of any claim or defense. Notice includes actual knowledge, receipt of notice, or reason to know from all the facts and circumstances known to the person at the time, including the fact that the instrument is incomplete or irregular. In this scenario, Ms. Kiana, a resident of Maui, received a promissory note from Mr. Kai, a resident of Oahu, for the purchase of rare Hawaiian artifacts. Mr. Kai represented that the artifacts were genuine, but they were later discovered to be replicas. Mr. Kai then negotiated the note to Ms. Leilani, who is an HDC. The defense Mr. Kai could raise against Ms. Leilani would be fraud in the inducement, which is a personal defense and generally not available against an HDC. However, if Mr. Kai had been tricked into signing a document he believed was a receipt for a delivery of goods, rather than a promise to pay, that would constitute fraud in the factum, a real defense that could be asserted against Ms. Leilani, even as an HDC. Since the question implies Mr. Kai knew he was signing a promissory note but was misled about the value of the goods, it is fraud in the inducement. Therefore, Ms. Leilani, as an HDC, takes the note free from this defense.

The question revolves around the concept of negotiability and the impact of certain clauses on a promissory note under Hawaii’s Uniform Commercial Code (UCC) Article 3. Specifically, it tests the understanding of what constitutes an “unconditional promise” and how additional terms might affect this. A promissory note is negotiable if it contains an unconditional promise to pay a fixed amount of money, payable on demand or at a definite time, to order or to bearer, and which does not state any other undertaking or instruction by the person promising to pay except as authorized by this article. HRS § 490:3-104(a). In this scenario, the note promises to pay “$50,000 on January 1, 2025.” This establishes a fixed amount and a definite time for payment, satisfying key elements of negotiability. The crucial part is the phrase “subject to the satisfactory completion of the construction project at 123 Aloha Drive, Honolulu, Hawaii, by December 15, 2024.” This phrase introduces a condition precedent to payment. For a promise to be unconditional, the promise to pay must not be subject to any contingency other than the passage of time or the occurrence of an event that is certain to occur. The completion of a construction project is an event that may or may not occur by a specific date, and its satisfactory completion is a condition that must be met before the obligation to pay arises. Therefore, this clause makes the promise conditional, thereby destroying the negotiability of the instrument. The UCC specifically states that a promise or order is not unconditional if it states that it is subject to or governed by another writing or record, or that it is to be paid only out of a particular fund or source, unless it is an order for the payment of money by a bank or a bank’s commitment to pay. HRS § 490:3-104(a)(1). The condition of satisfactory project completion falls under this prohibition. Consequently, the instrument is not a negotiable instrument.

The question concerns the enforceability of a promissory note under Hawaii’s Uniform Commercial Code (UCC) Article 3, specifically regarding the concept of negotiability and the effect of a conditional promise. 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, and payable to order or to bearer. In this scenario, the promissory note states, “I promise to pay to the order of Kai Tanaka the sum of $5,000, provided that this payment is contingent upon the successful completion of the Kilauea Volcano viewing tour by the end of the current fiscal year.” The phrase “provided that this payment is contingent upon the successful completion of the Kilauea Volcano viewing tour by the end of the current fiscal year” clearly introduces a condition precedent to payment. According to UCC § 3-104(a)(1) and its official comments, a promise or order is conditional if it states an obligation to do anything other than pay money, or if it states that the promise or order is subject to any other undertaking or overrule by terms not stated in the promise or order. A promise to pay is conditional if the promise to pay is itself dependent upon the occurrence of an event or the performance of a condition. Therefore, the note is not for an unconditional promise to pay. Because the promise to pay is made conditional on an event not solely related to the payment of money or the passage of time, the instrument fails to meet the requirements of an unconditional promise or order, a fundamental element for negotiability under UCC Article 3. Consequently, it is not a negotiable instrument and cannot be enforced as such by a holder in due course, although it may still be enforceable as a simple contract.

The core concept here is the effect of a qualified indorsement on a negotiable instrument under Hawaii’s Uniform Commercial Code (UCC) Article 3. A qualified indorsement, such as “without recourse,” limits the indorser’s liability. When an instrument is indorsed “without recourse,” the indorser essentially states that they are transferring their rights in the instrument but are not guaranteeing payment if the maker defaults. This means the indorser is not liable to subsequent holders if the instrument is dishonored by the maker or drawee. Therefore, if Kaito indorses the promissory note “without recourse” and delivers it to Hana, Hana cannot pursue Kaito for payment if Kenji, the maker, fails to pay. Kaito’s liability is limited to his warranties as an indorser, which do not include the promise that the maker will pay. The UCC, specifically in Hawaii, defines these warranties and the effect of qualified indorsements. A holder in due course status for Hana is irrelevant to the indorser’s liability under a qualified indorsement. The UCC distinguishes between a general indorsement and a qualified indorsement, with the latter significantly reducing the indorser’s contractual liability.

Under Hawaii Revised Statutes Chapter 490 (UCC Article 3), 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. To qualify as an HDC, a person must take the instrument for value, in good faith, and without notice of any claim or defense. Notice is generally actual knowledge or reason to know from all the facts and circumstances known to the person at the time of acquisition that the instrument is overdue, has been dishonored, or that there is a defense or claim. A check that is presented for payment more than ninety days after its date is generally considered “stale” for purposes of determining whether a transferee has notice of a claim or defense, although this is not an absolute bar to HDC status. However, if a purchaser has reason to know that the check is stale, this could constitute notice. In this scenario, the check was issued on January 1st. By February 15th, approximately 45 days have passed. This timeframe is not typically considered so long as to automatically put a purchaser on notice of a defense or claim under Hawaii law. Therefore, if Kai purchases the check for value and in good faith, he would likely be considered a holder in due course, taking the check free from any personal defenses the drawer might have against the original payee.

The scenario involves a promissory note payable to “Cash” that is then specially indorsed by the payee to “Kai.” Under Hawaii’s Uniform Commercial Code (UCC) Article 3, specifically HRS § 490:3-205, a special indorsement specifies a particular person in whose favor the instrument is payable. Once specially indorsed, the instrument becomes payable only to that named indorsee. If Kai then wishes to transfer the note to another party, he must indorse it himself. If Kai indorses the note in blank by simply signing his name, the note then becomes payable to bearer. However, the question states Kai “forwards the note to his sister, Leilani, with a simple signature on the back.” This signature is an indorsement. Since Kai is the specially indorsed payee, his signature on the back converts the instrument into one payable to bearer, as per HRS § 490:3-205(b). Leilani, as the holder of a bearer instrument, can negotiate it by delivery alone. The crucial point is that Kai’s indorsement, following his status as the specially indorsed payee, transforms the instrument’s negotiability. The initial payee being “Cash” is irrelevant after the special indorsement to Kai. Therefore, the instrument is now payable to bearer.

The question concerns the rights of a holder in due course (HDC) when presented with a negotiable instrument that has a forged drawer’s signature. Under Hawaii’s Uniform Commercial Code (UCC) Article 3, specifically HRS § 490:3-404, a signature that is not the drawer’s own is generally not enforceable against the person whose signature it purports to be. However, the UCC also provides exceptions and rules for situations involving unauthorized signatures. In this scenario, the check is drawn on “Koa Investments,” and the signature of “Kai Alani” as drawer is forged. A holder in due course takes an instrument free of most defenses, including the defense of forgery of a necessary signature, provided the HDC took the instrument for value, in good faith, and without notice of any claim or defense. HRS § 490:3-305(b) states that an obligor is not liable on an instrument if the instrument is enforced against the obligor by a person who is not a holder in due course and the obligor has a defense against the person. However, the defense of forgery is generally not available against an HDC. Therefore, if the bank that cashed the check for Leilani qualifies as an HDC, it can enforce the instrument against Koa Investments, despite the forged signature of Kai Alani. The key is whether the bank is an HDC. Since the bank paid value for the check and had no notice of the forgery, it likely qualifies as an HDC. The forged signature of Kai Alani does not prevent the bank from being an HDC and enforcing the instrument against Koa Investments, as the forgery is a defense that is cut off by the HDC status.

The question revolves around the concept of a holder in due course (HIDC) under UCC Article 3, specifically as adopted in Hawaii. For a party to qualify as an HIDC, they must take an instrument that is (1) negotiable, (2) taken for value, (3) taken in good faith, and (4) taken without notice of any claim or defense against it. In this scenario, the promissory note is negotiable. Kai takes the note for value by giving $7,500 for a $10,000 note. The critical element here is whether Kai took the note without notice of any defense. The fact that the note was overdue when Kai received it is a significant indicator of potential defenses or claims, as notice of an overdue instrument generally prevents HIDC status. Under Hawaii Revised Statutes § 490:3-302, a holder takes the instrument for value if they give any consideration sufficient to support a simple contract, and if they acquire the instrument for security for, or in satisfaction of, a money debt. Good faith is defined as honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice of a claim or defense includes actual knowledge, receipt of notice, or reason to know of the claim or defense. Since the note was due on demand, and Kai received it one month after its issuance, it is considered overdue. Under HRS § 490:3-304, a purchaser has notice that an instrument is overdue if the purchaser has notice that the time for payment of the instrument has passed or that the same is past due. Therefore, Kai cannot be a holder in due course because receiving an instrument that is overdue constitutes notice of a potential defense or claim, specifically the maker’s right to assert defenses against the original payee, which would now be effective against Kai. The explanation correctly identifies that Kai’s knowledge of the overdue status of the note prevents him from being a holder in due course, thus he takes the note subject to the maker’s defenses.

The scenario involves a promissory note that was originally payable to “bearer.” Under Hawaii Revised Statutes (HRS) § 490:3-201, negotiation of an instrument payable to bearer occurs by transfer of possession alone. This means that if the note is transferred by merely handing it over to another party, that party becomes a holder. The question then asks about the rights of a holder in due course. A holder in due course (HDC) takes an instrument free from all defenses and claims to it on the part of the obligor and from all claims of ownership by another person, with certain exceptions as provided in HRS § 490:3-305. To qualify as an HDC, the holder must take the instrument for value, in good faith, and without notice of any claim or defense against it. In this case, since the note is payable to bearer, possession alone is sufficient for negotiation. Assuming the subsequent holder meets the criteria for taking for value, in good faith, and without notice, they would acquire the rights of an HDC. The critical element here is the bearer nature of the instrument, which simplifies negotiation compared to an order instrument. The concept of “good faith” under HRS § 490:1-201(20) means honesty in fact and the observance of reasonable commercial standards of fair dealing. “Notice” under HRS § 490:1-304 means actual knowledge, receipt of notice, or reason to know from all the facts and circumstances known to the person at the time in question. If the holder had any reason to know of a defect or claim, they would not be an HDC. The question tests the understanding of how bearer paper is negotiated and the requirements for holder in due course status, specifically focusing on the effect of the bearer designation on negotiation.