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Effects of Alteration of a Negotiable Instrument

Law On Negotiable Instruments

inShare
Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is
avoided, except as against a party who has himself made, authorized, or
assented to the alteration and subsequent indorsers. But when an instrument
has been materially altered and is in the hands of a holder in due course not
a party to the alteration, he may enforce payment thereof according to its
original tenor.

RIGHTS OF ONE NOT HOLDER IN DUE COURSE

Where an instrument has been materially altered, it is avoided in the hands

of one who is not a holder in due course as against a prior party who has not
assented to the alteration

WHERE INSTRUMENT NOT AVOIDED AS TO HOLDER NOT IN DUE COURSE

1.

A party who has made the material alteration

2.

A party who has authorized the material alteration

3.
4.

A party who has assented to the material alteration

Any subsequent indorsers

RIGHTS OF HOLDER IN DUE COURSE

He may enforce the instrument in its original tenor

He could recover the altered tenor to any party who has made,
authorized or assented the alteration, or any subsequent indorser of the
instrument

NO DISTINCTION BETWEEN FRAUDULENT AND INNOCENT ALTERATION

RIGHT TO COLLECT ORIGINAL CONSIDERATION

When the alteration wasn't fraudulently done, the holder may recover the
original consideration

WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT TO
HAVE HIS ACCOUNT DEBITED WITH CORRECT AMOUNT ONLY

BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST NOTIFY
THE COLLECTING BANKS WITHIN 24 HOURS OF ALTERATION OF CHECKS