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CMA Intermediate · Financial Accounting · Bills of Exchange

A drawee refuses to accept a bill when it is presented for acceptance by the holder. Which statement correctly describes the consequence?

Refusal by the drawee to accept means the bill is dishonoured by non-acceptance. The holder may then claim from the drawer and prior endorsers right away, without waiting for maturity. The drawee incurs no liability on the bill because he never signed.

  1. AThe bill is treated as dishonoured by non-acceptance and the holder may claim from the drawerCorrect
  2. BThe drawee becomes liable as the principal debtor anyway
  3. CThe bill automatically becomes a promissory note
  4. DThe bill is cancelled and the drawer's liability ends

Explanation

If the drawee refuses to accept, the bill is dishonoured by non-acceptance, and the holder can immediately proceed against the drawer and endorsers without waiting for maturity. The drawee has not signed, so no liability arises on him. The bill does not become a promissory note, and the drawer remains liable.

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