Question

A/An .......................... is one which is drawn by one person and accepted by another, without consideration, merely to enable the drawer to raise money on the bill by discounting it.

• A. Bills in sets
• B. Documentary bill
• C. Bearer instrument
• D. Accommodation bill

Hint:

In Negotiable Instruments Law, distinguish between a genuine trade bill (drawn against a real trade debt) and an accommodation bill (drawn without consideration to raise finance). The parties to an accommodation bill are liable to a holder in due course just like in a regular bill.

Answer 1

The Correct Option is D

The giveaway phrase in the question is "without consideration, merely to enable the drawer to raise money", which points to a specific, well known category of bill.

1. Bills in sets: a foreign-trade practice of drawing multiple copies of the same bill for safety in transit, unrelated to consideration.
2. Documentary bill: a bill accompanied by title documents like a bill of lading, again unrelated to whether consideration passed.
3. Bearer instrument: describes payability to whoever holds it, not the presence or absence of consideration.
4. Accommodation bill: exactly matches, someone lends their name as acceptor without receiving value, purely so the drawer can discount the bill and obtain cash.

The correct answer is Accommodation bill.

Answer 2

It's useful to picture the practical purpose behind each of these four terms, some describe how a bill travels or is paid, while only one describes why a bill was created in the first place.

1. Bills in sets: concerned with duplicating a bill for safe transmission across borders, a logistical feature, not a statement about consideration.
2. Bearer instrument: concerned with who can claim payment, anyone holding it, again a feature of transfer and payment, not of why the bill was created.
3. Documentary bill: concerned with linking payment to handing over documents of title to goods, a trade-finance feature tied to a genuine underlying sale, the opposite of a bill made without consideration.
4. Accommodation bill: concerned specifically with the motive behind the bill's creation, one party accepts it purely as a favour, receiving nothing in return, so that the other party can raise finance by discounting it, this is the only option describing purpose rather than mechanics.

Since the question is really asking about the motive for creating a bill without consideration, the correct answer is Accommodation bill.