Introduction
The Negotiable Instruments Act, 1881 governs various types of financial documents used in trade and commerce, including promissory notes, bills of exchange, and cheques. Two critical concepts under this Act are ambiguous instruments and inchoate instruments. Understanding these helps in identifying the legal status and enforceability of such documents.
Main Body
1. Ambiguous Instruments
Section 17 of the Negotiable Instruments Act deals with ambiguous instruments. An ambiguous instrument is one which can be interpreted either as a promissory note or as a bill of exchange. The ambiguity arises due to unclear drafting or structure.
Legal Provision:
According to Section 17, where an instrument may be interpreted as either a promissory note or a bill of exchange, the holder may at his discretion treat it as either and the instrument shall be treated accordingly.
Example:
If A draws a bill on B but also signs it as acceptor, it may be ambiguous whether A is the drawer or the maker. The holder can elect how to treat it.
Key Points:
- Ambiguity must arise from the face of the document.
- Holder has the right to choose its treatment.
- Once elected, it is binding for that transaction.
2. Inchoate Instruments
Section 20 of the Negotiable Instruments Act covers inchoate stamped instruments. These are incomplete instruments that are signed and handed over with authority to fill in the blanks later.
Legal Provision:
When a person signs and delivers a stamped but incomplete negotiable instrument, he thereby gives prima facie authority to the holder to fill up the blanks to make it complete for a sum not exceeding the amount covered by the stamp.
Essentials:
- Must be stamped as per law
- Must be signed by the maker or drawer
- Must be delivered with intent to authorize completion
Example:
A signs a blank stamped promissory note and gives it to B with authority to fill Rs. 10,000. If B fills Rs. 12,000, A is liable for Rs. 10,000 only (unless a holder in due course is involved).
Liability:
The signer is liable only to the extent he authorized or, in case of holder in due course, to the full amount completed within the stamp limit.
Comparison Table
| Feature | Ambiguous Instrument | Inchoate Instrument |
|---|---|---|
| Meaning | Can be interpreted as either PN or BoE | Incomplete but signed instrument |
| Governing Section | Section 17 | Section 20 |
| Holder’s Role | Chooses treatment | Fills in the blanks |
| Legal Effect | Binding as per holder’s choice | Binding to the extent of stamp and authority |
Conclusion
Ambiguous and inchoate instruments represent special categories under negotiable instruments law that can impact the rights and liabilities of parties. While ambiguous instruments allow holder discretion, inchoate instruments must be handled with care as to authority and stamp value. Understanding their legal implications ensures secure and effective financial transactions.