Importance of delivery in Negotiation

Importance of delivery (Section 46): Delivery is an incident of the utmost importance in the case of an instrument. It is essential to the issue of an “instrument’ for “issue” means the delivery of the instrument, complete in form, to a person who takes is as a holder. It is equally essential to the negotiation of an instrument, for a bearer instrument, must be transferred by delivery and in the case of any other instrument, endorsement is incomplete without delivery. In fact, a negotiable instrument is nothing but a contract, which is incomplete and revocable until the delivery of the instrument is made. For the payee cannot claim payment; Section 46 of the Act provides as follows:

“The making, acceptance or endorsement of promissory note, bill of exchange or cheque is completed by delivery, actual or constructive”

How to deliver: As between parties standing in immediate relations, delivery to be effectual, must be made by the party making, accepting or endorsing the instrument, or by a person authorized by him in this behalf. Thus a promissory note must be handed over to the payee by the maker himself or by some one authorized by the maker. Similarly, a bill of exchange must be delivered to the transferee by the maker, acceptor or endorser, as a case may be.

Conditional and unconditional delivery; An instrument may be delivered conditionally or only for a special purpose, and not for the purpose of transferring absolutely the property in the instrument. A bill delivered conditionally is called an ‘escrow’. Although a conditional delivery is valid, the condition attaches exclusively to the delivery and not to the making or drawing of an instrument. A bill must be drawn and a note made unconditionally When an instrument is delivered conditional or for special purpose, the property in the instrument does not pass on to the transferee until the condition is fulfilled and the transferee holds such instrument in law as trustee or agent of the transferor.

If, however, he transfers an instrument delivered conditionally to X for value to Y without notice of the condition, Y can claim payment even if the condition is not complied with. The reason is obvious – Y is bonafide transferee for value without notice of the condition and, as such, he should not suffer for suppression of fact by X.

Negotiation by delivery (Section 47): An instrument payable to bearer is negotiable by delivery thereof. But when such instrument is delivered on condition that it is not to take effect except in certain event, it is not negotiable (except in the hands of a holder for value without notice of the condition ) unless such event happens.

The distinction between ‘delivery’ and ‘negotiation’ should be noticed. An instrument is said to be negotiated, when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof. (v) Negotiation by endorsement: In order to negotiate, that is to transfer title to an instrument payable to order, it is at first to be endorsed and then delivered by the holder thereof.