Notes and Articles for Law students

User Tools

Site Tools


negotiable-instruments:ambiguous-and-inchoate-instruments

Ambiguous and Inchoate Negotiable Instruments

Ambiguous Instrument

Section 17 of the Negotiable Instruments Act

Where an instrument may be construed either as a promissory note or bill of exchange, the holder may at his election treat it as either and the instrument shall be thence forward treated accordingly.

Meaning

When from the form or the terms of an instrument it admits of being construed either as a pronote or as a bill of exchange it is an ambiguous instrument and this section gives the holder of the ambiguous instrument the option to treat it as either. Thus, where in a bill the drawer and the drawee are the same person or where the drawee is a fictitious person or a person incapable of entering into a contract or generally when the instrument is made in term or form so ambiguous that it is doubtful whether it is a pronote or a bill of exchange the holder may, at his option, treat it as either.

  • Bills drawn by an agent on the principal in one branch of a bank on another, are ambiguous documents
  • A person who accepted a hundi, purporting to he a promissory note, was held liable as an acceptor even though his name was not indicated therein as a drawee.
  • When a hundi is ambiguous i.e, when it may be taken as a pronote or as a bill of exchange the holder is entitled to treat it as either.

A hundi is sometimes a pronote and sometimes a bill of exchange. But once the election is made to treat the instrument as a bill of exchange the holder cannot subsequently elect to treat it as a pronote and vice versa.

An ambiguous document must be distinguished from an inchoate instrument. While the former must be construed either as a bill or as a note, the latter will be neither until it is filled up by the holder. And before it is so filled up and made complete, no liability will arise thereunder.

Thus, an instrument containing neither the name of the payee nor of the drawer, though the defendant had accepted it, was neither a bill nor a note.

Stamp chargeable

Section 6 of the Indian Stamp Act provides that where an instrument falls within more than one description and the duties chargeable thereunder are different it will be chargeable only with the highest of such duties. The right of election given to a holder under section 17 of this Act is absolute and is not taken away by section 6 of the Stamp Act Section 17 of this Act is to be read as a proviso to section 6 of the Stamp Act.

Where amount is stated differently in figures and words

Section 18 of the Negotiable Instruments Act

If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.

Meaning

The object of this section is to guard against inadvertent slip or inaccuracy. A man is more likely to commit a mistake in putting the figure than in putting the sum in words. Therefore, greater reliance is placed upon the written words than upon the figures.

Written words prevail

It is customary for bills and notes to have the amount within the figures at the top of the instrument and, in words, in the body of the instrument. Where there is a discrepancy between the two, the sum denoted by the words is the amount payable and evidence cannot be adduced to show that in fact there is a mistake made in writing the words in the body of the instrument. The figure at the top or margin is meant to strike the eye immediately as a note or summary of the contents and may be helpful in supplying the omission. The section has no application where the amount given in the margin is in words and differs from the amount in words in the body of the instrument. In such a case evidence will be admissible to prove the intention of the parties, but it the amount in the body of the instrument be in figures, the applicability of the section becomes doubtful.

It may, however, be submitted that having regard to the underlying principle of trustworthiness of written words over the figures the written words should prevail. Similarly, if the written words on an instrument differ from the printed matter the written words will prevail. Where the words in the body of the instrument are ambiguous the marginal figure and the stamp may be taken into consideration in constuing the words. An omission in the body of the instrument may be added to by super scription. Obvious mistakes or omissions in the written words will not invalidate a document provided the intention of the parties is clear.

Inchoate stamped instruments

Section 20 of the Negotiable Instruments Act

Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount; provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.

Meaning

Persons often lend their mercantile credit to others signing their names in blank papers to be afterwards filled up as completed documents. A person in possession of an incomplete bill in any material particular has a prima facie authority to fill it up and thus he is an agent of the person delivering the blank instrument. Therefore, where a person gives another a blank hundi with his signature he prima facie authorises the latter to fill it up and to give to the world the bill as accepted by him and cannot set up secret stipulations between himself and his agent against a bona fide holder for value. The principle is not so much of agency as that of estoppel. When a bill blank as to the drawer’s name is accepted by one who delivers it to another, the latter is authorised to insert his name as a drawer and to use it and so to give the bill currency.

  • The power to fill up the blank is not cancelled by the death of the acceptor.
  • A party can fill up a blank in an inchoate instrument and sue on it himself after filling it up or endorse it to some one.
  • No suit can he on an inchoate instrument unless the blanks are filled in by the payee, but the plaintiff can sue on the original loan itself.
  • As law does not require a cheque to be stamped the section does not apply to cheques

Incomplete instrument

An instrument may be wholly or partially incomplete. Where the drawer only signs his name, and leaves everything else to be written afterwards it is wholly incomplete. But where he leaves a blank about the amount or the date or the name or the payee, it is partially incomplete. In any case the section authorises the holder to fill up the blanks and complete the document and bind the signer as if he signed a completed document. The name of the payee is usually left a blank to enable the holder to pass on the instrument without personally incurring liability as an indoser. There is no fixed time limit within which the right of completing an instrument is to be exercised but it must be done within a reasonable time. The authority may be exercised by any holder and not necessarily by the person to whom the inchoate instrument is delivered.

Under section 9, the payee is a holder in due course and the privilege of the section extends to him. It can be filled up even after the death of the acceptor. An acceptor cannot setup the plea that either the drawing or the indorsement is a forgery.

Delivery

The condition precedent to the enforcement of liability of a signer is that he should deliver the instrument to another. Where there is no delivery, no question of liability arises. Where a person signed a blank acceptance and placed it in his drawer from where it was stolen, completed and negotiated, it was held he was not liable even to a holder in due course as he never delivered the bill to br filled up by any body.

The section presupposes negotiation on the part of the person signing the blank or incomplete instruments

Stamp paper

The instrument must be stamped at the time of delivery. The stamp must be according to the law for the time being in force in the country for the negotiable instruments. The statutory estoppel will not operate if an unstamped document is signed and delivered. But the signer of an unstamped instrument may be held liable under the general law on the ground that by such signature he makes a representation that he will pay. The estoppel under this section applies only to the papers the signature covers. The delivery of several signed stamps separately does not give prima facie authority to stick them together for the purpose of a single document, much less can unsigned stamps be attached to a signed blank hundi to make thereon a negotiable instrument outside the maximum value covered by the signed stamp. The stamp requires to be crossed by the signature But a document, whose stamp has not been crossed by the signature, may still come under section 20, if the stamp had been cancelled in accordance with section 12 of the Stamp Act.

Amount

No question will arise if the amount is not blank or is determinable. But in case it is blank or not ascertainable the holder will be at liberty to put any amount up to the maximum limit covered by the stamp the instrument bears. Persons other than a holder in due course will not be able to recover more than was intended by the instrument. A holder in due course can recover, under certain circumstances, more than is intended by the drawer up to the maximum limit allowed by the stamp. So long as the amount of a pronote can be found out from the instrument itself without extraneous aid the omission to state it in the body of the pronote does not vitiate its character as such.

Created on 2021/02/04 23:41 by LawPage • Last modified on 2021/02/04 23:41 by LawPage