In the stolen negotiable promissory note scenario, who may be held liable by B?

• A. A only
• B. X only
• C. X and A only
• D. M, X, and A

Answer: (C)

The key idea is that liability on a negotiable promissory note follows the signatures on the instrument. The maker of the note is primarily obligated to pay, and anyone who signed as an endorser takes on secondary liability if the note is not paid. A person who merely possesses a stolen note and did not sign the instrument has no personal liability to the holder.

In this scenario, the individuals who signed the note are the ones who may be held liable to the holder. An endorser becomes liable to the holder if the instrument is dishonored, and the original signer who is part of the negotiation chain would also be responsible. The thief who stole the note and did not sign cannot be held liable on the instrument to the holder. Therefore, the parties who may be liable to B are the signers who are A and X, while M, having not signed, would not be liable in this context.