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
