Also known as: alteration of instruments · altered instrument · instrument alteration
Written by attorneys · grounded in primary & secondary sources — see below
An unauthorized change in a negotiable instrument that purports to modify the obligation of a party or an unauthorized addition of words or numbers to an incomplete instrument. A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument according to its original terms or, in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.
Alexis Archer issues a $500 note to Aurora Biotech. Aurora Biotech raises the amount to $5,000 and negotiates the note to Apollo Energy, which pays value in good faith without notice of the change. Apollo Energy presents the note to the payor bank. The bank may enforce the note only according to its original $500 terms.
Abigail Alvarez signs a note with a blank interest-rate line. The holder adds an 8 percent rate without authorization and then sues Alvarez. Because the addition is both fraudulent and material, Alvarez's obligation is discharged and the holder recovers nothing.
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A fraudulent and material alteration discharges the affected party unless that party assents or is estopped. Non-fraudulent alterations produce no discharge.
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A person taking the instrument for value, in good faith, and without notice may enforce it according to its original terms.
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Yes. Adding an interest rate changes the contract between the parties and is treated as material under the UCC.
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