Notes and Articles for Law students

User Tools

Site Tools


Delivery of a negotiable instrument

Section 46 of the Negotiable Instruments Act,1881.

The making, acceptance or indorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive.

As between parties standing in immediate relation; delivery to be effectual must be made by the party making, accepting or indorsing the instrument, or by a person authorized by him in that behalf.

As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of transferring absolutely the property therein.

A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof.

A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by indorsement and delivery thereof.

Delivery essential

Negotiable instruments are contracts which cannot be operative only when they are written and signed. Delivery of the instruments after they are signed is essentially necessary to complete the contract, that is, in order to make the property in the instrument pass, it is not sufficient to sign or endorse it, it must also be delivered to the payee or indorsee. Suppose, the maker of a promissory note writes out and signs the instrument but does not make it over to the person in whose favour it is executed, the instrument cannot be enforced. Until and unless it has been delivered the instrument is inchoate, incomplete and revocable. There can be no cause of action on a negotiable instrument before delivery as property does not pass before delivery is fully completed. Thus, when half of a note is sent with promise to send the other half afterwards property in the note remains with the sender until the other half is sent. An instrument delivered to one’s own agent for delivery to the payee can be revoked before it actually reaches the payee.

The property in a currency note passes by mere delivery. But what is delivery? Delivery means transfer of possession actual, or constructive, from one person to another. Section 33 of the Sale of Goods Act defines delivery as the voluntary transfer of possession from one person to another and, therefore, the parties concerned should agree to the transaction with full knowledge of it , that is to say, the assent of the parties to the transaction is essential. In other words, the intention of passing the property to the person to whom it is delivered is necessary. It follows, therefore, that when a document is obtained by fraud or force, or given to a servant for collection of the amount there is no delivery and the property in the instrument does not pass. Delivery ordinarily implies acceptance by the endorsee, but if the endorsee sends back the instrument the endorsement is declined and not accepted and the contract is incomplete.

Delivery of promissory note and bill

In the case of a promissory note the execution of which is the act of the maker, delivery to the payee or to the beneficiary under the note completes the contract, although delivery is not required in the case of acceptance of a bill of exchange which is written on the drawee’s paper. But this distinction has been wiped out by the present section which requires delivery in the case of both to complete the contract. It is submitted, however, that this section and section 7 are difficult to reconcile. According to the present section delivery is a condition precedent to the completion of the contract in case of acceptance of a bill of exchange but under section 7 acceptance may be completed either by delivery or by notice given by the acceptor of his signing as an acceptor which act amounts in law to constructive delivery. But constructive delivery being also a form of delivery, the latter decision, it would seem, makes the clause beginning with “or notice” in section 7 altogether superfluous.

Delivery actual or constructive

The English Bill of Exchange Act, section 2 defines delivery as a transfer of possession, actual or constructive, from one person to another. Delivery is actual when the instrument is handed over by one person to another or to his agent. In actual delivery, parting of actual physical possession is indispensable which is not necessary in constructive delivery. Thus, when the maker of a note or the drawer of a bill, after signature, keeps the note or the bill as agent of the payee or the drawee, and does not actually hand over the instrument to one or the other, the contract is complete by constructive delivery.

In constructive delivery actual physical transfer of the document is not required, it will, in the eye of law, be deemed to have been delivered if there is express and unequivocal intention to hold the instrument on behalf of the payee or the transferee.

Apart from the provisions of this Act there is another way of transferring the right and title in these instruments, that is, under the ordinary law of transfer of chattels. Though there were no endorsement and delivery as contemplated under the Negotiable Instrument Act, there was a valid transfer of a GP note by a registered deed of gift and the transferee was entitled to it and to the property referred to in it.

Delivery of the property is not necessary where the gift is by a registered document. The transferee under the general law would, of course, be not in the privileged position of a holder in due course as under this Act.

Delivery by whom?

To make it effective, delivery must be made by the maker, drawer, acceptor or the indorser or by an agent on his behalf. The legal representative of a deceased endorser is not his agent and delivery of a note, endorsed but not delivered by the deceased, cannot be made by his legal representatives without fresh endorsements.1)

Delivery by an agent, without authority, if ratified subsequently even after suit, is effectual. It need not be simultaneous with the endorsement since the contract can be revoked before delivery.

Evidence may be adduced to prove against an immediate party or a remote party who is not a holder in due course that the instrument was delivered neither by the maker or the indorser nor under his authority.

Conditional delivery

The liability in relation to a negotiable instrument accrues by or from delivery. Ordinarily the presumption is in favour of unconditional delivery. But as between the immediate parties it may be shown that the instrument was delivered conditionally or only for a special purpose and not for transferring absolutely the property therein. There is no difference in substance but only in illustration and application between this section and proviso 3 to Sec 92 of the Indian Evidence Act. The view once held in an Allahabad case that a promissory note being an unconditional promise to pay on demand would contravene the provisions of section 92 of the Evidence Act if a party were allowed to prove that the promise to pay was conditional stands discarded and the defendant can prove a separate oral agreement that certain condition precedent to the delivery which completes the contract and gives rise to the liability under a promissory note must be complied with. Here the delivery of the instrument is conditional and the written contract itself, i.e, the promise to pay is not conditional.

When, therefore, an instrument is delivered on condition that liability under it will arise on the happening of a certain event, eg., balancing of accounts of a certain transaction against the defendant and that does not happen, there is no liability, or when the maker of a note delivered it to the payee on condition that it would be given effect to after the maker had been provided with a post and the payee failed to do so, there was no liability.

Delivery for special purpose

Evidence is also admissible to prove that there was an oral agreement that the delivery of the note was made for a specific purpose only, as for instance, as a collateral security for running accounts, or as a security for future instalments which have been paid. Endorsement for a special purpose does not pass the property in the bill when it is so intended. But when a note was given for goods and the stipulation was that the amount should be paid irrespective of the goods, or where it was given for capital of a partnership between the plaintiff and the defendant and the stipulation was that the amount should be paid irrespective of the assets of the partnership, the principle has obviously no application. If the instrument delivered to a person conditionally or for a special purpose is misappropriated by him, the owner can recover it from any holder not being a holder in due course.

As between such parties, etc.

The words as between such parties and a holder of the instrument other than a holder in due course mean as between the maker and the payee or the endorser and any holder other than a holder in due course , or as between any of such parties and any other near or remote.

Delivery by post

According to the postal regulations a letter once posted cannot be reclaimed. The post office is, therefore, deemed to be the agent of the addressee as soon as the letter is posted and the sender has no liability if it is lost during transmission. Therefore, where delivery is made through post a delivery of the instrument to the office is sufficient delivery to the addressee. But there must be authority,express or implied, to the sender to send it by post, otherwise the post office will not be regarded as his agent till it is actually delivered to the addressee. Thus, where the plaintiff sent a cheque in a letter by ordinary post endorsed in favour of T it was held that the plaintiff had an interest left in him in the cheque as there was no delivery.2)

Section 57
Jugnban v Nagar Central Bank, 50 Bom 118