answer2 - PRACTICE EXAM QUESTION SEMESTER 2 2008 Question...

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PRACTICE EXAM QUESTION SEMESTER 2 2008 Question One The drawer of the following bill of exchange seeks your advice as to whether it can be made liable by the purchaser of it. Mercantile Acceptances signed below as acceptor and then indorsed it to Third Party Services which paid Mercantile acceptances $49,000 for it. This sum was passed onto George Smith who later on put Mercantile Acceptances in funds to the extent of $50,000 on the 1/1/03. The acceptor, Mercantile Acceptances, went in to liquidations on 1/2/03. No notice of dishonour has been given to the drawer. Your discussion should cover whether the bill is an accommodation one. Suggested answer Your exam does not involve accommodation bills but the same principles relate to normal commercial bills with some minor exceptions so it is worthwhile to look at this. In particular the chain of liabilities is relevant here. This is so since the question is whether the drawer can be made liable on this bill. The bill appears to be an accommodation bill since it appears to be drawn for the financial accommodation of George. The purchaser of the bill would be the holder who is seeking to get payment under the bill. (It is useful to identify the parties to a bill in an answer.) The money raised by the sale of the bill was passed on to George. He knows he must pay it back within a certain time frame He does so by passing the money onto Mercantile Acceptances with the intention that it be passed on to the holder. (Note this is not necessarily unusual since the drawer who is financially accommodated knows they have to pay the money back and this will be to the acceptor if the acceptor pays the holder. The intention here is the money be paid to the holder and therefore remove the necessity for the acceptor to pay and then seek recovery from the drawer.) Unfortunately the acceptor goes into liquidation and therefore the money paid by George to the acceptor is not available to pay the holder. This is disastrous for George since he is now required to pay the holder under his secondary liability (see s60 (1) BEA). Under a commercial bill all other parties in the chain of liabilities are required to be served with a notice of dishonour before they become liable. This is not necessary for an accommodation bill. In To Mercantile Acceptances 1/9/02     Merchantile Acceptances 180 days from acceptance Pay mercantile Acceptances or order the sum of Fifty Thousand Dollars $50,000 George Smith
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short George as the drawer can be made to pay the holder, which is a disastrous position for him given that he has already reimbursed the acceptor. Questions 2 Aussie Exports Pty Ltd (Aussie) in Melbourne has received a large export order for woollen seat covers from Indonesia with payment at sight on CIF terms. Woolly Manufacturers Pty Ltd in Ballarat in Victoria is prepared to provide the goods on similar terms at a reduced price.
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