Accommodation Paper – Definition

Cite this article as:"Accommodation Paper – Definition," in The Business Professor, updated September 27, 2019, last accessed May 31, 2020, https://thebusinessprofessor.com/lesson/accommodation-paper-definition/.

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Accommodation Paper Definition

Accommodation paper is a third-party pledge attached to a promissory note which ensures that the recipient of the promised payment gets paid. Usually, the third party lends their credit rating power to support a borrower having a lower rating.

A Little More on What is Accommodation Paper

An accommodation paper simplifies money lending to a borrower who may have difficulty getting a loan as a result of a lack of credit worthiness. In signing the paper, either the accommodator or the accommodation party promises the lender of a timely loan repayment in a situation where the borrower cannot make the payment. The borrower is also referred to as the accommodated party. For legal reasons, the accommodator retains primary liability for the debt repayment even if the third party makes payment.

Another advantage of an accommodation paper to the primary borrower is the likelihood of a better loan offer. When a third party having a strong credit rating gets involved in a transaction, the exposure of the lender to default risk increases. The lender would then be more interested in extending a lower interest rate or negotiating lesser fees in such a situation.

Accommodation Party and Similar Terms

A co-signer is the most popular instance of an accommodation party. This term is utilized in describing a relative or friend who signs a mortgage agreement alongside the primary borrower. In doing so, the co-signer makes the promise of guaranteeing repayment should the primary borrower not do so. The co-signer gets no monetary benefit in exchange. A co-mortgagor, on the other hand, gets partial ownership of the underlying asset in exchange for supporting the primary borrower. The co-mortgagor is officially a co-borrower and is an equal participant in the mortgage as the other borrower.

It’s obligatory that they complete a full application and pass through a credit assessment on an equal level as the other borrower. A co-mortgagor isn’t, in technical terms, an accommodation party.

Accommodation parties are rarely known as sureties or guarantors. These terms refer to people entering into a loan transaction to underwrite the ability of the borrowers to repay. Guarantors are likely to be corporate bodies and the term is more popular in commercial credit transactions. Usually, it’s obligatory that the lender proves an attempt at collecting from the obligor or borrower before they can meet with the guarantor for collection. There is a surety on the same level with the primary borrower, and the lender can go after them for repayment while doing the same with the accommodated party.

Reference for “ Accommodation Paper”

https://www.investopedia.com › Personal Finance › Mortgages

https://definitions.uslegal.com/a/accommodation-paper/

https://legal-dictionary.thefreedictionary.com/Accommodation+Paper

https://www.yourdictionary.com/accommodation-paper

https://www.collinsdictionary.com/dictionary/english/accommodation-paper

Academics research on “Accommodation Paper”

Commercial paper in economic theory and legal history, Weinberg, H. R. (1981). Commercial paper in economic theory and legal history. Ky. LJ, 70, 567.

Validity of Corporate Mortgages Executed for Accommodation, Curran, E. O. (1938). Validity of Corporate Mortgages Executed for Accommodation. Mich. L. Rev., 37, 1001.

Negotiable Instruments Law a Rejoinder to Dean Ames, Brewster, L. D. (1901). Negotiable Instruments Law a Rejoinder to Dean Ames. Harv. L. Rev., 15, 26.

The discount policy of the Bank of England during the suspension of cash payments, 1797-1821, Duffy, I. P. (1982). The discount policy of the Bank of England during the suspension of cash payments, 1797-1821. Economic History Review, 67-82. The article re-interprets the directors’ well-known public statements about discount policy in the light of fresh information derived from the Bank’s archives. It challenges the usual view that the directors collectively espoused the real bills doctrine and argues that they appreciated the need to regulate discounts in order to limit the note circulation. It maintains that the relatively low level of discounts during the Restriction reflects the success of this policy and that the Bank’s occasional excesses were products of maladministration, not of unenlightened beliefs.

Antebellum Commercial Law: Common Law Approches to Secured Transactions, Freyer, T. (1981). Antebellum Commercial Law: Common Law Approaches to Secured Transactions. Ky. LJ, 70, 593

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