The delivery of an instrument is essential to its taking effect. Delivery consists in any giving over into the control of the other party for the purpose of having it effective.
A negotiable instrument, although complete and regular in form, cannot take effect until it has been unconditionally delivered, that is, put out of the promisor's control by him into the control of the promisee, for the unqualified purpose of having it effective as a legal obligation.
An instrument may be delivered absolutely or upon a condition that it shall not be effective unless a certain event transpires, and such a condition may be orally agreed upon.
Example 26. A delivers his note to B in payment of a premium upon an insurance policy procured by B as broker. A alleges that the insurance was taken out and the note given upon the express condition of B securing A a loan upon the insurance policy which B failed to do, and that such note and policy were not to be otherwise effective. Held, that this could be shown.59
58. Nego. Instru. Law, SEC. 14-16.
Where a completed instrument is in the hands of a holder who has given value, has no notice of lack of delivery, and has purchased the instrument before it is overdue, a valid delivery thereof by all parties prior to him will be conclusively presumed.
Delivery is essential; but a chief purpose of negotiable paper being to protect a holder who buys in due course against irregularities in the prior history of the paper of which he has no knowledge, the law has provided that a delivery by all prior parties may be conclusively presumed.
Example 27. A signed a note payable to B or order. B got possession of it without authority and sold it to C. Delivery by A will be conclusively presumed in favor of C.60
Note that the above instrument was complete when procured by B (see next section), and that it needed no indorsement to make the delivery effective. If a note is delivered by A to B and by B indorsed specially to C, its further negotiation can be accomplished only by the indorsement of C, so that an unauthorized taking of it from C by D could accomplish no advantage to D unless C's indorsement in blank or indorsement to D is on the paper, for otherwise D would have to make the indorsement of C, without any authority, as a forgery or otherwise, and the chain of title would thus be imperfect. This section therefore assumes an unauthorized procuring of paper that is in shape for delivery without further necessary indorsement, i. e., paper already indorsed or payable to the party who gets it without delivery to him, or indorsed in blank, or payable to bearer. And if such is the case, a holder in due course from him may conclusively presume delivery by the prior parties.
59. Smith v. Dotterweich, 200 N. Y. 299, 33 L. R. A. (new series) 829.
60. Clark v. Johnson, 54 111. 296.
Where an instrument is incomplete, that is, not finished as intended by the maker or drawer, and is delivered in that condition by the maker or drawer any person in whose hands it comes has prima facie authority to complete it, but such completion must be strictly in accordance with authority and within a reasonable time. But a holder in due course who comes into possession of it after its completion, may enforce it as though it had been filled up according to authority whether it was or not. But if an instrument in an incomplete state is never delivered and gets into circulation without the owner's fault, it is not good even in the hands of a holder in due course against any person whose signature was made prior to delivery.
In the section just above we have considered the case of the delivery or lack of delivery of an instrument that is complete. We have now under consideration the case of an instrument incomplete in form, that is, not finished as intended by the party liable thereon. In the next section we will have the case of an instrument which is in the finished form intended by the maker or drawer but he has omitted to cancel out the blanks therein.
(1) Delivery of incomplete instrument, prima facie authority to complete.
If the instrument is incomplete, but is actually delivered in that condition, any person in whose hands the instrument comes has prima facie authority to fill it up, and complete it, but must do so strictly within authority and within a reasonable time.61
Example 28. "The maker of a note payable to A which is blank as to the amount, gives it to A with instructions to fill in and negotiate it for an amount not exceeding $100. A takes the note to B in its incomplete state and offers to fill it in for $500 if B will purchase it for that amount. B agrees. A fills in the note for $500 and indorses it to B who pays the $500 to A. B has no notice of the maker's instructions to A. A absconds. According to most American cases B would be protected. It is held that A, having lawful possession of the blank note, has ostensible authority to fill in the blank for any amount (in reason), and that a purchaser may rely upon this ostensible authority, where he has no actual notice that the authority has been exceeded. Huntington v. Branch Bank, 3 Ala. 186; Bank of Commonwealth v. Curry, 2 Dana, 142; Fullerton v. Sturges, 4 Ohio St. 529; Page v. Moerell, 3 Keyes, 117, and see City of Chicago v. Gage, 95 111. 593. According to the English cases, B, under the circumstances supposed, having actual knowledge that the instrument was issued blank as to the amount, would not be protected. He would be deemed to take at his peril as to the extent of A's actual authority. Awde v. Dixon, 6 Exch. 869; Hatch v. Searles, 2 Sm. & Gif. 147; Hogarth v. Latham,
61. Nego. Instru. Law, SEC. 14.
3 Q. B. D. 643. As above stated the English rule is the one adopted in Section 14 of our new act.
"Both English and American cases are agreed that if the note, in the case above supposed, had been filled in before B took it, and B had no notice it was issued in blank, B would be protected." 62
(2) Delivery of incomplete instrument, acquisition by holder in due course.
As explained in the paragraph next above, one who acquires paper which at the time of his acquisition is incomplete is put on notice as to the actual authority to fill it in. But if filled in prior to his acquisition, so that he is uninformed as to the incompleteness when it left the maker's hands, he has a right to enforce the instrument as filled in, notwithstanding it was not filled in pursuant to authority.
(3) Incomplete instrument never delivered.
We saw above that if a completed instrument is obtained from the maker or drawer by an unauthorized taking (as where stolen), and is in a shape to pass without further indorsement by the party from whom taken, a holder in due course acquires rights upon the paper upon the principle that a delivery will be conclusively presumed. If, however, paper is both incomplete and undelivered, it has no validity even in the hands of a holder in due course, even though it is filled up and completed prior to his acquisition and he buys it in perfect innocence of its original history
Example 29. Defendant signed a promissory note, leaving date, payee and amount blank. They were stolen from his desk, and completed, indorsed by the payee and sold to plaintiff. Held that by virtue of Section 15 of the Neg. Instrument Law, he could not recover.63
62. Professor L. N. Greeley in 2 Illinois Law Review, p. 145.
If an instrument intended to be complete, but having spaces and blanks therein is delivered, any filling up of such blanks or spaces is a material alteration, and avoids the instrument, but if such an instrument so altered is sold to a holder in due course the views differ.
This subject is hereafter considered in treating of the rights of a holder in due course. But it is here mentioned for purposes of completeness. We indicate here the transaction in which the instrument is intended to be complete and to be delivered, but there are spaces therein left uncancelled. To fill them up is to alter the instrument. See post, Section 91.
An instrument executed by an agent should be signed by the agent in the name of the principal. If signed by the agent in his own name he is liable thereon.
We know of course from the law of agency that one cannot bind another as his principal unless there is real or apparent authority. Assuming that there is such authority we will note the form in which the agent should execute the instrument in order to bind his principal and not himself personally. First, it is a rule of negotiable paper, that has been strictly adhered to, that no person is bound upon negotiable paper except one who is named therein by his proper or assumed name. Again, there is no rule to prevent an agent binding himself even though he have authority to bind another. So that if the agent executes an instrument in his own name he personally is bound thereon and the principal is not bound. And this is true even though he describe himself as "Agent" or even "Agent of John Jones," for it is considered that the words after his name are merely words of identification or description. The conventional and correct way for him to sign (unless he wants to bind himself) is to sign John Jones by Harry Smith, Agent.
63. Holzman v. Teague, 158 N. Y. Suppl. 211.
The various forms in which one may sign are so numerous in their possibility that it would be difficult to describe them all.
In the present Uniform Act, there has been an attempt to avoid some of the confusion and injustice of the cases, by the provision: "When the instrument contains or a person adds to his signature words indicating that he signs for on behalf of a principal, or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability."64
The evident meaning of this section is to avoid the rule that an agent is liable merely because he does not sign in the absolutely approved form, if in the instrument he discloses the name of his principal, and really has authority to bind him.65 But merely describing himself as agent will not avoid liability on his part, nor will the unnamed principal be liable. However, the only cautious way for an agent to execute an instrument is the way as to the meaning of which there can be no doubt, as hereinabove indicated.
64. Nego. Instru. Law, SEC. 20.
65. Jump v. Sparling, 218 Mass. 324, 105 N. E. 878; Maderia Alliance Assn. v. Lowell Trust Co., 129 N. E. (Mass.) 440; Adams v. Swig, 125 N. E. (Mass.) 857.