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Accomodation Parties: Liability of The Principal

An accommodation party signs a negotiable instrument to lend their name as credit support for another party. There are two types of accommodation parties: 1) An accommodation maker who signs on behalf of the instrument's maker and is primarily liable. 2) An accommodation indorser who signs on behalf of a payee or holder to make the instrument more negotiable, and is secondarily liable. An agent can bind their principal to a negotiable instrument by signing in a way that clearly indicates they are signing on behalf of the principal. The principal is liable unless the agent signs without indicating their agency status, in which case the agent may be personally liable.

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Lucía Martínez
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124 views2 pages

Accomodation Parties: Liability of The Principal

An accommodation party signs a negotiable instrument to lend their name as credit support for another party. There are two types of accommodation parties: 1) An accommodation maker who signs on behalf of the instrument's maker and is primarily liable. 2) An accommodation indorser who signs on behalf of a payee or holder to make the instrument more negotiable, and is secondarily liable. An agent can bind their principal to a negotiable instrument by signing in a way that clearly indicates they are signing on behalf of the principal. The principal is liable unless the agent signs without indicating their agency status, in which case the agent may be personally liable.

Uploaded by

Lucía Martínez
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Negotiable Instruments

Accomodation Parties
An accommodation party is one who signs an instrument for the purpose of lending his or her
name as credit to another party on the instrument. This is aimed at securing the negotiable
instrument against nonpayment.

 Maker: Accommodated party


‘Accommodated’ is a past participle functioning as an adjective, as it’s the recipient of
the action ‘to accommodate’; it’s the passive or stative counterpart.
 Cosigner: Accommodating party
‘Accommodating’ is a present participle functioning as an adjective. It’s the active
counterpart; the dynamic version of the adjective.

1. Accommodation maker: The accommodation party signs on behalf of the maker of an


instrument.

 The accommodation maker is primarily liable on the instrument. The creditor can seek
payment directly from the accommodation party.

2. Accommodation indorser: The accommodation party signs on behalf of a payee or a holder


(so as to make the instrument more marketable)

 The accommodation indorser is secondarily liable on the instrument. The creditor


must pursue the accommodated party before seeking payment from the
accommodation party. If the latter pays the amount due ON the note, the
accommodation party will have a right to reimbursement from the accommodated
party.

Authorized Agent’s Signatures


An agent is a person who agrees to represent or act for another, called the principal.
Generally, the agent’s signature binds the principal.

To hold the principal liable on the instrument, the agent must be authorized to sign the
document on the principal’s behalf.

UCC Presumption: The agent’s signature is authorized and genuine

Liability of the principal

The agent’s signature binds a principal ON an instrument if the agent clearly names the
principal in the signature, and that the signature is made on behalf of a specific principal. The
agent is not liable on the instrument. For example:

o Martínez, by Havanna, agent.


o Martínez

If the Agent (Havanna) signs just his own name, he will be personally liable to an HDC who has
no notice of the agency status. To escape liability, the agent must prove that the original
Negotiable Instruments

parties did not intend the agent to be liable on the instrument. If the party entitled to enforce
the document can prove the agency relationship, the principal is bound.

Liability of the agent

An authorized agent may be held personally liable on a negotiable instrument in the following
situations:

1. If the agent signed his own name without any indication that he was signing
as an agent.

2. If the agent signed in both the agent’s name and the principal’s name but
nothing on the instruments indicates the agency relationship:
o Lucía Martínez, Laura Havanna.
o Martínez, Havanna.

3. The agent indicates agency status in signing a negotiable instrument, but


fails to name the principal
o Laura Havanna, Agent.

Checks signed by agents

If an agent signs his or her name on a check that is payable from the account of the principal,
and the principal is identified on the check, the agent will not be personally liable on the check.
If Havanna is authorized to draw checks on Martínez’s behalf, using preprinted checks,
Havanna won’t be held personally liable on the check.

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