Question

When a negotiable instrument is delivered conditionally or for a special purpose as a collateral security or for safe custody only, and not for the purpose of transferring absolutely property therein, it is called

• A. Fictitious Bill
• B. Inchoate instrument
• C. Escrow
• D. Clean Bill

Hint:

In the context of negotiable instruments, remember that 'conditional delivery' or 'delivery for a special purpose' points directly to the concept of 'escrow'. This is a key principle under Section 46 of the NI Act.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The question describes a specific type of delivery of a negotiable instrument where the transfer of property in the instrument is not immediate or absolute, but is contingent upon certain conditions or is for a specific limited purpose. This concept is governed by the Negotiable Instruments Act, 1881.
Step 2: Detailed Explanation:
According to Section 46 of the Negotiable Instruments Act, 1881, the making, acceptance, or indorsement of a promissory note, bill of exchange, or cheque is completed by delivery. The section clarifies that as between the immediate parties, the delivery can be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the instrument.
Such a conditional delivery of a legal instrument is known as a delivery in escrow. An escrow is a deed or instrument delivered to a third person to be held by them until the fulfillment of a condition, upon which it becomes effective and is delivered to the grantee. The instrument has no effect until the condition is performed.
- Fictitious Bill: A bill where the name of the drawer or payee is fictitious.
- Inchoate Instrument: An incomplete or blank instrument that is signed and delivered, which the holder can then fill up.
- Clean Bill: A bill of exchange with no other documents attached.
The scenario described in the question perfectly matches the definition of an escrow.
Step 3: Final Answer:
When a negotiable instrument is delivered conditionally and not to transfer property absolutely, it is known as a delivery in escrow. Therefore, option (C) is the correct answer.