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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Tessa Co sells machinery to Orlan Co and draws a bill on Orlan Co payable 60 days after sight. Tessa Co presents the bill and Orlan Co writes its signature on it. What is the legal effect of this signature?

Orlan Co becomes the acceptor of the bill. By signing it agrees to the drawer's order, and it is then primarily liable to pay the holder at maturity. The drawer and any endorsers are only secondarily liable if the acceptor dishonours the bill.

  1. AOrlan Co becomes the acceptor and is primarily liable to pay the bill on maturityCorrect
  2. BOrlan Co becomes an endorser and is only secondarily liable if the drawer fails to pay
  3. COrlan Co becomes the holder in due course and may demand payment from Tessa Co
  4. DOrlan Co merely acknowledges receipt, so no liability on the bill arises until the due date

Explanation

Acceptance is the drawee's signed agreement to the order contained in the bill. It makes the drawee the acceptor, who is primarily liable to the holder on the bill. The drawer and any endorsers are only secondarily liable if the acceptor dishonours. Acceptance is therefore not a mere acknowledgment.

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