Business, Legal & Accounting Glossary
An Accommodation Party is a person who signs a negotiable instrument or commercial paper or agreement for the purpose of being a surety for another party (known as the accommodated party) to the instrument to help the accommodated party obtain a loan or an extension of credit.
The accommodation party is the person who signs an accommodation bill as a drawer, acceptor or endorser and also acts as the guarantor.
One who signs a commercial paper for the purpose of lending his or her name and credit to another party to the document—the accommodated party—to help that party obtain a loan or an extension of credit.
A person wanting to obtain a car loan, for example, may offer a finance company a promissory note for the amount of the requested loan, promising to repay the amount over a number of years. If the company does not consider the person a good credit risk (one who will be able to repay the loan), it will request that someone else sign the note to ensure that the company will be repaid. Such a person may be an accommodation endorser because he or she endorses the note after it has been completed, or an accommodation maker, because he or she must sign the note with the accommodation party.
An accommodation party is liable to the person or business that extended credit to the accommodation party, but not to the accommodated party. The accommodation party is liable for the amount specified on the accommodation paper. If an accommodation party repays the debt, he or she can seek reimbursement from the accommodated party.
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This glossary post was last updated: 8th October, 2021 | 171 Views.