Accommodation Paper

Also found in: Dictionary, Financial.

Accommodation Paper

A type of Commercial Paper (such as a bill or note promising that money will be paid to someone) that is signed by another person—the accommodation party—as a favor to the promisor—the accommodated party—so that credit may be extended to him or her on the basis of the paper.

Accommodation paper guarantees that the money lent will be repaid by the accommodation party on the date specified in the commercial paper if the accommodated party fails to repay it. A lender often uses an accommodation paper when the person who is seeking a loan is considered a poor credit risk, such as a person who has a history of being delinquent in the payment of installment loans. By having a person who is a good credit risk cosign the promissory note, the lender's financial interests are protected.

An accommodation bill and an accommodation note are two types of commercial papers.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.
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