Definition
Qualified acceptance refers to an acceptance of a bill of exchange that varies the effect of the bill as originally drawn. When an acceptor does not agree to the exact terms laid out in the bill of exchange but instead stipulates new conditions, it becomes a qualified acceptance.
Examples
Example 1: Change of Time
A bill of exchange is drawn, payable in 60 days. The acceptor agrees to honor the bill but only if the payment period is extended to 90 days. This modification makes it a qualified acceptance.
Example 2: Payment Location Alteration
A company issues a bill of exchange with a specified payment location, such as their head office. The acceptor agrees to the bill but insists that payments be made at their branch office instead. This change is another form of qualified acceptance.
Example 3: Partial Amount
An acceptor might agree to pay only a part of the bill’s amount instead of the full amount mentioned in the bill of exchange. This partial approval changes the original terms, creating a qualified acceptance.
Frequently Asked Questions
What happens if a holder refuses a qualified acceptance?
If the holder refuses to take a qualified acceptance, the drawer and any endorsers must be notified. Failure to do so releases the drawer and endorsers from liability.
Does accepting a qualified acceptance affect all signatories?
Yes, if the holder agrees to a qualified acceptance, all previous signatories (who did not consent to the new terms) are released from liability.
Can a bill of exchange be partially accepted?
Yes, a bill of exchange can be partially accepted. However, this partial acceptance constitutes a qualified acceptance.
Bill of Exchange
A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum either immediately or on a fixed date.
Drawer
The party that creates a bill of exchange and instructs the drawee to pay a specified amount to the payee.
Endorsers
Individuals or entities that endorse a bill of exchange, transferring rights and obligations to another party.
Online References
- Investopedia: Bill of Exchange
- The Law of Bills of Exchange, Promissory Notes, Checks, etc. - G. C. Geary
Suggested Books for Further Studies
- “The Law of Bills of Exchange, Promissory Notes, Checks, etc.” by G.C. Geary
- “Financial Calculus: An Introduction to Derivative Pricing” by Martin Baxter and Andrew Rennie
Accounting Basics: “Qualified Acceptance” Fundamentals Quiz
### If a bill of exchange is accepted with a different payment period than originally drawn, what is this acceptance called?
- [ ] Simple acceptance
- [x] Qualified acceptance
- [ ] Full acceptance
- [ ] Conditional approval
> **Explanation:** A variety in the original terms of the bill of exchange, such as changing the payment period, results in a qualified acceptance.
### What must be done if the holder refuses a qualified acceptance?
- [x] The drawer and any endorsers must be notified.
- [ ] The bill is automatically cancelled.
- [ ] The payment is delayed.
- [ ] Nothing needs to be done.
> **Explanation:** If the holder refuses a qualified acceptance, failure to notify the drawer and endorsers releases them from liability.
### Who is released from liability if a holder accepts a qualified acceptance without their consent?
- [ ] The holder itself
- [ ] Only the endorser
- [x] All previous signatories who did not consent
- [ ] The drawee
> **Explanation:** By accepting a qualified acceptance, all prior signatories who did not agree to the modified terms are released from liability.
### In which scenario does qualified acceptance occur?
- [ ] Accepting the exact terms of the bill of exchange
- [x] Accepting the bill with modified conditions
- [ ] Rejecting the bill outright
- [ ] Delaying the acceptance
> **Explanation:** Qualified acceptance happens when the acceptor modifies the conditions of the bill of exchange in any manner.
### What does partial acceptance of a bill of exchange signify?
- [ ] Full acceptance is assumed later
- [ ] Acceptance under deception
- [x] Qualified acceptance
- [ ] Acceptance of another bill
> **Explanation:** Agreeing to a part of the bill's amount instead of the full amount is considered qualified acceptance.
### Which term refers to the party that creates a bill of exchange?
- [x] Drawer
- [ ] Acceptor
- [ ] Payee
- [ ] Drawee
> **Explanation:** The drawer is the party that issues a bill of exchange and instructs the drawee to pay.
### Does qualified acceptance mean the drawer and endorsers will always be liable?
- [ ] Yes, they remain liable regardless
- [ ] Only if the bill is unpaid
- [x] No, unless they consent to the qualified acceptance
- [ ] Only for a year
> **Explanation:** Drawer and endorsers remain liable only if they consent to qualified acceptance or are properly notified and do not object.
### What's a major consequence of providing qualified acceptance?
- [x] Signatories who did not consent are released from liability.
- [ ] The term 'qualified acceptance' is void.
- [ ] Acceptance becomes void.
- [ ] The bill has to be paid immediately.
> **Explanation:** Providing a qualified acceptance releases prior signatories who did not consent to the revised terms, from liability.
### Who is an endorser in a bill of exchange?
- [ ] Party who issues the bill
- [x] Individuals or entities that endorse the bill
- [ ] Party who accepts the bill
- [ ] Primary debtor
> **Explanation:** Endorsers are individuals or entities that sign over the bill of exchange, effectively transferring their obligations and rights to another party.
### What type of acceptance modifies the terms but does not release the consented signatories?
- [ ] Simple acceptance
- [x] Qualified acceptance (with consent)
- [ ] Enforced acceptance
- [ ] Untimed acceptance
> **Explanation:** Qualified acceptance modifies the terms while signed consents remain liable. Non-consented signatories are not liable.
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