The term inchoate instrument means an incomplete instrument. A negotiable instrument properly stamped and signed but blank or incomplete in some respect is called an inchoate instrument. In business, sometimes persons may sign on blank stamped papers to be afterwards duly filled up (the name of the drawee or the date or the rate of interest or the date of repayment, etc. may be left blank) and used as bills of exchange or promissory notes.
Such signatures on a blank paper carry an authority to the holder to fill up and complete the instrument, and when done so, the signer becomes liable in the document in which he signs. By such signature on a blank paper, a person is bound himself as a drawer, maker or acceptor or endorser.
According to section 20, which deals with inchoate stamped instruments, when an incomplete instrument is signed by A and delivered to B. it provides the latter with prima facie authority to complete it and if, in execution of that authority, the instrument is completed, A will be liable on it to a holder in due course. However, this section is not applicable to cheques since they do not require a stamp. The right of filling up the blanks and completing an inchoate instrument is not confined to the first holder and it may be exercised by any of the holders.
Where a promissory note is properly stamped, signed and delivered to another person, and a space is left blank in the note for entering the name of the payee, the person to whom the note is delivered may even, and has authority to fill in his own name as payee.
An inchoate instrument is to be distinguished from an ambiguous instrument. Though a person may incur liability by signing and delivering an inchoate instrument, the liability does not arise until the instrument is filled up. A suit on the basis of a blank promissory note is not maintainable. On the other hand, where an instrument is ambiguous, the holder of it is not thereby precluded from suing upon it. He may elect to treat the instrument as a note or bill and having made the choice, can bring a suit upon it. An instrument in the form of a bill, but without the name of the payee or of the drawer, is an inchoate instrument, though it is addressed to a person and is accepted by him.
