Explain the Law Related to Ambiguous and Inchoate Instruments
Introduction
The Negotiable Instruments Act, 1881 governs the use of financial documents like cheques, promissory notes, and bills of exchange in India. Among the many legal concepts under this law, the terms “ambiguous instruments” and “inchoate instruments” are important. These instruments refer to documents that are either unclear in form or incomplete in their details, yet may still carry legal implications.
What is an Ambiguous Instrument?
An ambiguous instrument is a document that can be interpreted in more than one way. It is not clearly a promissory note or a bill of exchange and may contain confusing or conflicting terms. Because of its ambiguity, it gives the holder the option to treat it as either of the two.
Example:
An instrument reads: “I promise to pay A or order ₹10,000 or to deliver goods worth ₹10,000.” This is ambiguous because it mixes two types of obligations—money and goods. The holder may choose to treat it as a promissory note if they wish.
Legal Provision:
Section 17 of the Negotiable Instruments Act deals with ambiguous instruments. It states that when an instrument may be interpreted either as a promissory note or a bill of exchange, the holder may treat it as either.
Key Points:
- The instrument must be made in writing.
- It should be signed by the maker or drawer.
- There must be uncertainty in whether it is a promissory note or bill of exchange.
What is an Inchoate Instrument?
An inchoate instrument is an incomplete negotiable instrument that is signed and delivered by the maker or drawer but lacks some essential details. The person in possession of the instrument is authorized to complete it within the limits permitted.
Legal Provision:
Section 20 of the Negotiable Instruments Act deals with inchoate stamped instruments. It states that when a person signs and delivers a stamped but incomplete negotiable instrument, the holder is allowed to complete it for any amount not exceeding what the stamp covers.
Example:
A signs a blank cheque and gives it to B, authorizing B to fill in the amount later. If B fills in ₹5,000 and presents it to the bank, the cheque is valid as long as it does not exceed the authority and stamp limit.
Conditions for Validity:
- The instrument must be signed and delivered voluntarily.
- It must be stamped as per law.
- The person completing it must not exceed the authority given.
Holder in Due Course Protection:
If an inchoate instrument is wrongfully completed but passes into the hands of a “holder in due course” (a person who takes it in good faith for value), then the instrument remains enforceable against the original signer.
Difference Between Ambiguous and Inchoate Instruments
| Aspect | Ambiguous Instrument | Inchoate Instrument |
|---|---|---|
| Meaning | Unclear in its nature—whether it is a promissory note or a bill | Incomplete instrument lacking key details |
| Governed by | Section 17 of the Act | Section 20 of the Act |
| Authority | Holder chooses how to treat it | Holder is authorized to complete it |
| Risk | Confusion about rights | Risk of unauthorized completion |
Conclusion
Ambiguous and inchoate instruments are special types of negotiable documents that have unique legal treatments under the Indian law. Ambiguous instruments create confusion regarding their nature, while inchoate instruments are incomplete but can be made complete by the authorized holder. Both are covered under the Negotiable Instruments Act to ensure fair treatment and legal clarity in financial transactions.