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Accommodation Paper
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles
J Woelfel
(We recommend this as work of authority and you can order the 10th
Edition here)
A
note or bill signed by a party as maker, acceptor, or endorser to accommodate
another party whose credit is not strong enough to enable him to borrow
on his single name.
Accommodation
paper is quite common in personal and business lending.
Precautions in handling accommodation paper by lenders include:
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of the credit worthiness of the co-maker or accommodation endorser,
as to whether it actually strengthens the obligation.
In lending to closely held corporations, personal
endorsement
by the principal officers or stockholders also has psychological value.
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of the wording of the promise to pay in co-maker notes, to make clear
that the makers are jointly and severally liable, not merely jointly
liable, for collection in full from the co-maker in case of default.
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of the collateral note form as to whether it provides following or
similar continuing scope of collateral as "security for the payment
of this note and any other liabilities, contingent or otherwise, of
the makers, guarantors, endorsers, and any other parties to this note
and each of them, to the holder hereof, now due or to become due or
that may be hereafter contracted."
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in the case of corporate notes, as to the corporation's charter and/or
statutory power to become accommodation guarantor or endorser.
General rule is that such accommodation by a corporation even
if authorized shall be of direct benefit to the corporation in furtherance
of its corporate purposes.
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of the authority of officers to sign on behalf of a corporation, as
evidenced by resolution of the board of directors or stockholder approval.
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in the case of partnership notes, for personal endorsements of all
partners, so that the obligation may rank as both a business and a
personal debt of the individual partners.
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in states which still provide for dower and certsy, for endorsement
of wife or husband, as appropriate, on loans to married individuals.
Under
Paragraph 7.1125, Obligations of Accommodation Parties, of the Interpretive
Rulings of the Comptroller of the Currency, the liability of a maker,
acceptor, drawer, endorser, or guarantor is an obligation within the meaning
of the statute (12 USC 84) when the party has obtained a loan or has sold
or discounted the paper, but not otherwise.
BIBLIOGRAPHY
COMPTROLLER
OF THE CURRENCY. Comptroller's Manual for National
Banks.
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