Accommodation Party:
Noun: A legal term referring to an individual or entity that agrees to lend their name or credit to another party in order to facilitate a financial transaction, typically by endorsing a promissory note or guaranteeing a loan. The accommodation party does not receive any direct benefit from the transaction and assumes the risk of repayment in case the primary party fails to fulfill their obligations. This arrangement is often used to help individuals or businesses with limited creditworthiness obtain financing or secure a loan.
An accommodation party refers to a person or entity who signs a negotiable instrument, such as a promissory note or a check, to provide credit or guarantee payment for another party. The accommodation party does not receive any direct benefit from the transaction but acts as a surety or guarantor for the debtor. By signing the instrument, the accommodation party assumes liability for the debt in case the debtor fails to fulfil their obligations. The accommodation party’s signature on the instrument makes them legally responsible for the debt, and they can be held liable for its payment. However, the accommodation party may have the right to seek reimbursement from the debtor if they end up having to pay the debt. It is important for an accommodation party to fully understand the implications and risks involved before agreeing to provide accommodation.
Q: What is an accommodation party?
A: An accommodation party is a person or entity that agrees to guarantee the payment of a debt or the performance of an obligation on behalf of another party.
Q: Why would someone need an accommodation party?
A: An accommodation party is often required when the primary borrower or obligor does not meet the creditworthiness or financial requirements set by the lender or creditor. The accommodation party provides a guarantee to ensure that the debt or obligation will be fulfilled.
Q: What are the responsibilities of an accommodation party?
A: The accommodation party assumes the responsibility of ensuring that the debt or obligation is paid or performed if the primary borrower or obligor fails to do so. They become legally liable for the debt and may be pursued by the lender or creditor for payment.
Q: Can an accommodation party withdraw their guarantee?
A: Generally, an accommodation party cannot withdraw their guarantee without the consent of the lender or creditor. Once the guarantee is given, it is binding until the debt or obligation is fulfilled or released by the lender or creditor.
Q: What are the risks for an accommodation party?
A: The main risk for an accommodation party is that they may be held liable for the debt or obligation if the primary borrower or obligor fails to fulfill their responsibilities. This can result in financial loss or damage to their creditworthiness.
Q: Can an accommodation party limit their liability?
A: In some cases, an accommodation party may be able to limit their liability by specifying the extent of their guarantee or by including certain conditions in the agreement. However, this is subject to negotiation and agreement with the lender or creditor.
Q: Can an accommodation party be released from their guarantee?
A: An accommodation party can be released from their guarantee if the lender or creditor agrees to release them. This usually occurs when the primary borrower or obligor has fulfilled their obligations or when alternative arrangements have been made.
Q: Can an accommodation party be compensated for their guarantee?
A: It is possible for an accommodation party to receive compensation for their guarantee, especially if they have incurred expenses or suffered losses due to the guarantee. However, this is subject to negotiation and agreement with the primary borrower or obligor.
Q: Can an accommodation party be held responsible for legal fees?
A: Depending on the terms of the agreement, an accommodation party may be held responsible for legal fees incurred by the lender or creditor in pursuing the debt or obligation. It is important to carefully review and negotiate the terms of
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 29th March 2024.
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