Incomplete Instrument

Topics: Contract, Holder in due course, Negotiable instrument Pages: 10 (2846 words) Published: July 31, 2013
Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

APPLICATION OF PROVISION
 Section applies to an incomplete and undelivered instrument
INSTRUMENT NOT VALID AGAINST PARTY BEFORE DELIVERY
 Situation: A signs a blank check, which was subsequently stolen by B and fills up the amount and a fictitious name as payee. He then indorses the same to C, C to D, D to E, and E to F. Can F enforce the instrument against A?  The answer is NO, because against A, whose signature was placed on the check prior to delivery, the instrument is not valid.  The answer would still be the same in case F was a holder in due course. Why? The law doesn’t discriminate on what kind of holder.  However, the invalidity of the instrument is only with reference to parties whose signature appears in the same prior to delivery. As to parties whose signature appears after delivery, it may be valid.

IT IS A REAL DEFENSE
 The possible defense of a party whose signature appears on an instrument prior to delivery is that, as against him, the instrument is not valid for having been incomplete and undelivered  Want of delivery of a mechanically incomplete instrument—defense that cannot only be interposed against one who is not a holder in due course but also a holder in due course DELIVERY IS NOT CONCLUSIVELY PRESUMED WHERE INSTRUMENT IS INCOMPLETE  Section 15 and 16 read together

BUT DELIVERY PRESUMED PRIMA FACIE
 But where an incomplete and undelivered instrument is in the hands of a holder in due course, there is prima facie presumption of delivery which the maker may rebut by proof of non-delivery  Where the custody of an 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 a sufficient delivery to bind the drawer or maker. A real defense is a justification for a maker or drawer not to honor a negotiable instrument even if it has been transferred to a holder in due course (or "HDC") because it makes the instrument “void” according to Uniform Commercial Code §3-305 comment 1,[1] thus it can’t be "cut off" by the transfer to an HDC. Contrast this with personal defenses (such as failure of consideration), which cannot protect the maker against the claims by an HDC. Ten types of real defenses depending upon state law[edit]

1. Fraud inducing obligor to sign instrument without a reasonable opportunity to learn of its fraudulent character or essential terms (also known as “(fraud in the factum”); this depends upon consideration of “all relevant factors”; 2. forgery of a necessary signature;

3. adjudicated insanity which renders the instrument void;
4. material alteration of the instrument, such as the amount; 5. infancy which renders the instrument voidable or void;
6. illegality which renders the instrument void;
7. duress at the time of making the instrument;
8. discharge of obligor in insolvency proceedings, or any discharge known to the HDC; 9. a suretyship defense, such as the holder knew an indorser was signing as a surety or accommodation party; 10. statute of limitation (generally 3 years after dishonor of a draft or 6 years after demand or other due date on a note).

Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if...
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