What is an Inchoate Negotiable Instrument?

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When you execute an unfilled up but duly signed negotiable instrument such as a cheque or a promissory note, it is an inchoate negotiable instrument.An inchoate instrument creates an imbalance between the parties to the document, making the giver in a dis

What is an inchoate negotiable instrument?

In your day to day business transactions, a negotiable instrument plays a very vital and significant role. Sometimes, due to your hectic time schedule, you are tempted to handle the negotiable instruments rather recklessly, thereby digging your own grave yard. Some times, taking advantage of your poverty, a usurious money lender, so as to gain undue monetary advantage, may force you to execute an inchoate negotiable instrument in his favor. 

When you sign an unfilled or an incomplete negotiable instrument such as a cheque or a promissory note and negotiate them just like any other negotiable instrument, it is called an inchoate instrument.

Signing and negotiating an inchoate negotiable instrument actually creates a heavy burden on you increasing your liability manifold. On the other hand it eases the burden on the receiver and enhances his chances of realizing more from the inchoate instrument.

However, if you execute a negotiable instrument duly filled up and negotiate it, your liability is restricted to what has been actually filled up in the negotiable instrument and the receiver of the instrument cannot realize more than what is actually mentioned in the instrument. Thus both the giver and receiver of a duly filled up negotiable instrument are at equal footing.

But an inchoate negotiable instrument creates an imbalance putting the giver or the executor of the instrument in a disadvantageous position and making the receiver of the instrument in an advantageous position.

Law also favors only the receiver of the inchoate negotiable instrument. When you hand over a blank cheque or a promissory note duly signed in favor of a person, the receiver of the instrument is at liberty to fill it up with any amount according to his whims and fancies. Having executed and handed over the inchoate instrument, if you deny your liability alleging that no consideration had passed through the alleged instrument, law forsakes you, raising the legal presumption of passing of consideration in his favor who holds the instrument. Therefore, if you have executed and handed over an inchoate instrument in favor of a person and when the latter demands a heavy sum, more than what is actually due to him from you, on the strength of the inchoate instrument, you cannot escape from your forced liability. Your only available defense is that the instrument has been forged. However, your defense will not stand the scrutiny of the law.

Therefore, you should never be a party to an inchoate negotiable instrument. Otherwise, you may have to pay a heavy price.


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Posted on Mar 16, 2012
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Donata L.
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