OUTLINE OF RULES ON DELIVERY OF NEGOTIABLE INSTRUMENTS

Category: Law on Negotiable Instruments

Sec. 16. Delivery; when effectual; when presumed. - Every contract on  a  negotiable  instrument  is  incomplete  and  revocable  until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special  purpose  only,  and  not  for  the  purpose  of  transferring  the property  in  the  instrument.  But  where  the  instrument  is  in  the hands  of  a  holder  in  due  course,  a  valid  delivery  thereof  by  all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.
 

SCOPE OF SECTION

      Applies to an instrument mechanically complete but undelivered
 

UNDELIVERED INSTRUMENT IS INCOMPLETE

      Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto
 

DELIVERY AND ISSUE

      As  between  immediate  parties  and  as  regards  a  remote  party  other than a holder in due course, the delivery, in order to be effectual, must be  made  either  by  or  under  the  authority  of  the  party  making, drawing, accepting, or indorsing as the case may be
      Issue—the  first  delivery  of  the  instrument,  complete  in  form,  to  a person who takes it as a holder
 

OUTLINE OF RULES ON DELIVERY OF NEGOTIABLE INSTRUMENTS

1.    Delivery is essential to the validity of any negotiable instrument
2.    As  between  immediate  parties,  or  those  in  like  cases,  delivery  must have been with the intention of passing title
3.    An instrument signed by the drawer/maker but not completed by him and  retained  in  his  own  custody,  is  invalid  as  to  him  for  want  of delivery, even though stolen or negotiated to a holder in due course
4.    But when the instrument mentioned above is in the hands of a holder of due course, there is prima facie presumption of delivery which the maker/drawer may rebut by proof of non-delivery
5.    Where the custody of the incomplete instrument has been entrusted to another, who wrongfully completes and negotiates it to a holder in due course, delivery to an agent or custodian is sufficient delivery to bind the drawer or maker
6.    Where  maker  or  drawer  executes  a  complete  instrument  which  is found in the possession of another other than a holder in due course, there is a prima facie presumpton of delivery—but subject to rebuttal
7.    Where the instrument mentioned above is in the hands of a holder in due course, there is a conclusive presumption of delivery
8.    Delivery of the instrument may be made on a parol condition or for a special  purpose  not  inconsistent  with  its  written  terms,  where  the validity  of  the  instrument  is  to  arise  out  of  the  performance  of  the condition  or  consummation  of  the  purpose.    But  such  condition  or specification  or  purpose  doesn't  affect  the  rights  of  a  holder  in  due course.  Such conditions is a condition precedent, and is to be sharply distinguished  from  a  condition  subsequent,  the  happening  or  non-happening  of  which  is  to  defeat  or  qualify  the  instrument.    Such condition subsequent contradicts the written terms and may not be set up by parol evidence.
 

RIGHT TO REVOKE

      Before  delivery,  the  maker  or  drawer  can  revoke,  cancel,  or  tear  up the instrument
 

LITERAL MEANING OF IMMEDIATE AND REMOTE PARTIES

      The drawer and payee are immediate parties to one another
      Maker and payee are immediate parties to one another
      Indorser and indorsee are also immediate parties to one another
 

BROAD MEANING OF IMMEDIATE AND REMOTE PARTIES

      Immediate  parties  are  confined  to  “those  who  are  immediate,  in  the sense  of  knowing  or  being  held  to  know  the  conditions  or  limitations placed upon the delivery of the instrument—privity and not proximity

      Criterion:  Whether or not the  party  in  question  knows  of  the  conditions  or limitations placed upon the delivery of the fact that the instrument was not delivered but stolen..
o      If the party in question knows, he is an immediate party even if he is not physically remote
o      If he doesn’t know, he is not an immediate party even if he is the next party immediately
 

PRESUMPTION OF VALID DELIVERY AS TO IMMEDIATE PARTY OR REMOTE PARTY NOT HOLDER IN DUE COURSE

      Where the instrument is no longer in the possession of a party whose signature  appears  thereon,  a  valid  and  intentional  delivery  by  him  is presumed until the contrary is proved
      Presumption is however rebuttable
 

DELIVERY FOR SPECIAL PURPOSES

      For safekeeping or for collection only
 

PRESUMPTION OF DELIVERY AS TO HOLDER IN DUE COURSE

      Conclusively presumed
      There is conclusive presumption where the contrary proof is barred
 

PERSONAL DEFENSE

      The possible defense of a party sought to be charged is that the instrument  wasn't  delivered,  or  if  delivered,  the  delivery  wasn't authorized or only on a condition or for a special purpose
      “Want of delivery of a mechanically complete instrument” defense
      It  can  however  be  interposed  against  an  immediate  party  and remote  parties  not  holders  in  due  course  inasmuch  as  the presumption of valid and intentional delivery is only rebuttable as to immediate parties and to remote parties who are not holders in due course
      Only personal defense
 

CONCLUSIVE    PRESUMPTION    NOT    APPLICABLE    TO    INCOMPLETE INSTRUMENTS

DEFENSES UNDER THE SECOND SENTENCE OF SECTION 16

1.    It  wasn’t  delivered  either  by  or  under  the  authority  of  the  party making, delivering, accepting or indorsing the instrument
2.    It was for a conditional purpose
3.    It was for a special purpose only