Acceptance of a Bill and Liability of a Drawee and Acceptor:
First, this note will discuss the meaning of acceptance, its primary effect, and the forms it may take after a drawee is ordered to pay a sum certain in money to another.
Further, the note will discuss the liability of an acceptor (a drawee who has accepted to pay a bill).
A bill of exchange is
an unconditional order in writing , addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.
The drawee is the party to whom the unconditional order is addressed and who is required to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer. If a negotiable instrument is a cheque, the drawee would be the paying bank. If it is a bill of exchange, the drawee is likely a debtor (a buyer who has not paid for goods).
The drawee becomes the acceptor once he accepts the bill or undertakes to pay it, and he does this by signing the bill inter alia .
Meaning of Acceptance of a Bill:
Section 15(1) of the Bills of Exchange Act, 1961 (Act 55) defines acceptance of a bill as the “signification by the drawee of his assent to the order of the drawer.” When a drawer gives an unconditional order to another (the drawee) to pay to another (payee or bearer) a sum certain in money, the drawee must signify his assent to pay money to the payee pursuant to the order. If the payee signifies such assent, he has accepted the bill.
Need for Acceptance of a Bill (Liability of a Drawee and an Acceptor):
First, acceptance is essential to a bill of exchange transaction because the liability of a drawee to pay a bill is directly linked to whether or not he accepted the bill. Per section 51, “A bill, of itself, does not operate as an assignment of funds in the hands of the drawee available for the payment thereof, and the drawee of a bill who does not accept as required by this Act is not liable on the instrument. ”
Secondly, it is only when the drawee accepts the bill and becomes an acceptor that the provisions in section 52 on the liability of an acceptor can apply to him as an acceptor. Section 52 provides that:
The acceptor of a bill by accepting it-
(a) engages that he will pay it according to the tenor of his acceptance;
(b) is precluded from denying to a holder in due course-
(i) the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill;
(ii) in the case of a bill payable to drawer's order the then capacity of the drawer to endorse, but not the genuineness or validity of his endorsement;
(iii) in the case of a bill payable to the order of a third person, the existence of the payee and his then capacity to endorse, but not the genuineness or validity of his endorsement.
The liability of the acceptor begins once he accepts the bill, and his liability is not dependent on a holder presenting the bill for payment, especially when the bill is accepted generally [see section 50(1) ].
Finally, the purpose of a bill of exchange is to enable a holder obtain money, and Act 55 generally recognizes that acceptance must precede presentment for payment (see section 37).
When Acceptance is not Needed:
1. When the Drawer and Drawee are the Same Person: The need for acceptance envisages that the drawer and the drawee are different parties and in order for the order of one party to be binding on another party, that other party must accept to pay the value of the bill. This need no longer exists when the drawer and the drawee are the same person pursuant to the provisions in section 3(2).
2. When it is Negotiated (through delivery of bearer bills or through endorsement and delivery of order bills): Once a bill has been accepted, any holder can negotiate (transfer) it to another person without the need for the drawee to accept to pay the transferee (the new holder). The need for endorsement only arises when the drawer draws the bill and intends to make the drawee liable on the bill. Once this liability is established, it remains effective for all subsequent holders of the bill.
3. Demand Bills:An example of a demand bill is a cheque. Usually, the acceptance and presentment for payment of a cheque happen simultaneously and there is often no need for the drawer to present it to the drawee bank for acceptance before handing it over to the payee. The payee simply walks to the bank, presents the cheque, and gets paid. The key characteristic of a cheque is that it is payable on sight. It follows that bills that are payable on sight do not need to be presented for acceptance, and if a drawee does not wish to be liable, he can simply refuse to pay thereby dishonouring the bill by non-payment.
When an Acceptance of a Bill is Valid:
When the drawer delivers a bill to the drawee for acceptance, the drawee’s acceptance must be of a particular form in order to be valid. Section 15(2) provides the conditions under which acceptance is (in)valid.
(2) An acceptance is invalid unless it complies with the following conditions, namely
(a) It must be written on the bill and be signed by the drawee . The mere signature of the drawee without additional words is sufficient.
(b) It must not express that the drawee will perform his promise by any other means than the payment of money.
Per the provision in section 15(2)(a), if a drawee takes a look at an instrument and says “Okay, I will pay on the due date. Trust me, bro” without more (appending his signature), the acceptance would be considered invalid. While the drawee can sign the bill and as well write the word “accepted” on it, it suffices if he signs the instrument without additional words.
Per the provision in section 15(2)(b), if a drawee signifies that he shall comply with the order through any other means other than the payment of money, such as giving shares in his company to the payee when payment is due, such signification would not constitute valid acceptance.
Time for Acceptance:
This refers to when a drawee may accept a bill. Per the provision in section 16, a drawee may accept a bill before it is signed by the drawer or before it is completed by the drawer, may accept an overdue bill among others. The section (supra) fully reads:
(1) A bill may be accepted-
(a) before it has been signed by the drawer or while otherwise incomplete;
(b) when it is overdue or after it has been dishonoured by a previous refusal to accept or by non-payment.
(2) When a bill payable after sight is dishonoured by non-acceptance and the drawee subsequently accepts it the holder in the absence of any different agreement is entitled to have the bill accepted as of the date of first presentment to the drawee for acceptance.
Rules as to Presentment for Acceptance, And Excuses for Non-presentment:
There are several rules governing how, when, and to whom a bill must be presented for acceptance. The full list of these rules can be found in section 39. Some of these rules are presented below:
1. The presentation must be done by the holder or his agent, to the drawee or his agent. If the drawee is dead, presentment may be made to his personal representative.
2. It must be done at a reasonable hour on a business day and before the bill is overdue.
3. If there are more than one drawee who are not partners, presentment for acceptance must be made to them all.
4. A bill may, if authorized by agreement or usage, be presented to the drawee for acceptance through the post office.
Forms of Acceptance:
An acceptance may be general or qualified [section 17(1)].
According to section 17(2), “A general acceptance assents without qualification to the order of the drawer…”
Thus, the acceptance of a drawee is said to be a general acceptance if he agrees to pay the full amount stated on the bill and he agrees to do so without the need for the fulfilment of any condition.
According to section 17(2), a qualified acceptance is one that in “…express terms varies the effect of the bill as drawn.” It adds that
In particular, an acceptance is qualified which is-
(a) conditional, that is to say, which makes payment by the acceptor dependent on the fulfilment of a condition therein stated;
(b) partial, that is to say, an acceptance to pay part only of the amount for which the bill is drawn;
(c) local, that is to say, an acceptance to pay only at a particular specified place: an acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere;
(d) qualified as to time;
(e) the acceptance of some one or more of the drawees, but not of all.
If a drawee only accepts to make payment to the payee or bearer if a particular condition is met, the acceptance is qualified acceptance because it is conditionally accepted [s. 17(2)(a)].
If the drawer orders the drawee to pay Ghc 10,000 and the drawee only accepts to pay Ghc 5,000, the acceptance is qualified because it is partially accepted [s. 17(2)(b)].
If the drawee only accepts to only pay at a particular place and no other place, then the acceptance is qualified because it is locally accepted [s. 17(2)(c)].
If the drawee only accepts to pay at a particular time, then the acceptance is qualified as to time [s. 17(2)(d)].
If the bill has two or more drawees pursuant to section 4 , and some accept the bill but others do no not, it also amounts to a qualified acceptance [s. 17(2)(e)].
Effects of a Qualified Acceptance:
All the above types of qualified acceptance still impose some liability on the acceptor. For instance, if the drawee accepts to only pay part of bill, he is liable to pay that part. Also, if the drawee accepts to pay only at a particular place, then he is liable to pay at that place. If a drawee seeks to exclude his liability completely, he would not be deemed to have accepted the bill.
When the drawee only gives a qualified acceptance of the bill, section 42(1) provides that “The holder of a bill may refuse to take a qualified acceptance, and if he does not obtain an unqualified acceptance may treat the bill as dishonoured by non-acceptance. ”
The phrase “dishonoured by non-acceptance” is discussed below.
If a drawee fails to accept a bill generally or accepts it with qualifications and seeks to exclude all liability, he would be deemed to not have accepted the bill.
If a bill is presented for acceptance and it is not accepted, it is deemed to be dishonored by non-acceptance. Section 41(1) provides that
(1) A bill is dishonoured by non-acceptance-
(a) when it is duly presented for acceptance, and such an acceptance as is prescribed by this Act is refused or cannot be obtained; or
(b) when presentment for acceptance is excused and the bill is not accepted.
When a bill is dishonoured by non-acceptance, section 41(2) provides that
Subject to the provisions of this Act, when a bill is dishonoured by non-acceptance, an immediate right of recourse against the drawer and endorsers accrues to the holder, and no presentment for payment is necessary.
In addition, the drawee is not liable on the instrument (per section 51 discussed earlier) because he did not accept to pay under it.
In conclusion, acceptance of a bill of exchange is crucial for determining the liability of the drawee and acceptor. It signifies the drawee's willingness to pay the specified amount and triggers the provisions regarding the acceptor's responsibility. Without acceptance, the drawee is not liable on the instrument. Valid acceptance must comply with specific conditions, and qualified acceptance still imposes some liability. Non-acceptance of a bill leads to dishonor, granting the holder recourse against the drawer and endorsers.