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Difficulty: HardMeans of Payment in Home Trade

In home trade transactions involving an inland bill of exchange, a seller draws an unconditional order requiring the buyer to pay a specific sum at a future date. Which action must the drawee perform to render the instrument a legally binding payment obligation?

  1. A
    Endorsing the reverse side of the instrument and transferring it to a holder in due course
  2. Writing 'accepted' across the face of the instrument and appending a signatureAnswer
  3. C
    Discounting the instrument with a commercial bank prior to the maturity date
  4. D
    Presenting the instrument to a notary public for formal notation and protesting

Answer

Writing 'accepted' across the face of the instrument and appending a signature
An inland bill of exchange is drawn by the seller (drawer) directing the buyer (drawee) to pay a stated sum on demand or at a fixed future date. The drawee incurs no legal obligation to pay until formal acceptance occurs, which is legally executed by writing the word 'accepted' across the face of the bill accompanied by the drawee's signature.

Step-by-Step Solution

1
Identify the role of the drawee in a bill of exchange transaction.
The drawee is the party (buyer/debtor) to whom the order to pay is addressed by the drawer (seller/creditor).
Understanding the legal duties of each party clarifies what action creates liability.
2
Evaluate the legal requirement for making an unaccepted bill of exchange enforceable against the drawee.
Until acceptance, the bill is merely a request to pay. Upon writing 'accepted' across the face and signing, the drawee becomes the 'acceptor' and assumes primary legal liability.
An unaccepted bill imposes no contractual obligation on the drawee to pay the specified sum.

Key Concept

Acceptance of an Inland Bill of Exchange
Estimated Time:2m 0s
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Topics

Means of Payment in Home Trade

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