Which of the following is true regarding Zoe's liability to Rohan?

A) Because of the fraudulent alteration, Zoe is not liable to Rohan for any amounts under the promissory note.
B) Zoe's obligation will be enforced only to the amount of $4,000 if payment is to be made to Rohan; but if the note has been negotiated to another holder, Zoe is liable for $4,500.
C) Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan; but in the event the note is negotiated to a holder in due course, Taylor is liable for $3,500.
D) Unless Zoe has a written document from Rohan to the effect that the agreement was for $4,000 only, Zoe and Rohan will be legally required to split the remainder with Zoe being held responsible for $4,250.
E) Zoe is liable for $4,000 regardless of whether or not Rohan has negotiated the note to another party.

Question

Zybrea Knight · Accepted Answer

Final Answer : A, Explanation :  BA) When a promissory note is fraudulently altered, the party whose obligation is represented by the note (in this case, Zoe) is not liable under the altered terms. This means Zoe is not liable for the increased amount due to Rohan's fraudulent alteration.B) The principle of holder in due course (HIDC) does not apply to fraudulent alterations made by the maker of the note. Therefore, even if the note is negotiated to another party, the alteration made without Zoe's consent invalidates the increase, and she is only liable for the original amount agreed upon ($4,000). This choice is incorrect based on the general principles governing negotiable instruments, but it's included to clarify common misconceptions.

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