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An accommodation paper is a negotiable instrument that one party cosigns, without receiving any consideration. The cosigner acts as a surety for the principal debtor who remains primarily liable. In other words, it is a negotiable instrument that provides a third party promise of payment in the case that the original borrower does not fulfill the terms of the original transaction.
Accommodation papers are generally used when the cosigner is more creditworthy than the original borrower. Such papers support one party's creditworthiness through endorsement by a second party with a better credit rating. An accommodation paper functions as a negotiable instrument that
can be used to secure financing.
An accommodation paper is also termed as accommodation bill or accommodation note. The third party in an accommodation paper is often referred to as the accommodation party.
The bona fide holder for value of accommodation paper taken in the regular course of business canenforce it against the makers, although he knew when he received it that it was accommodation paper. [Evans v. Speer Hardware Co., 65 Ark. 204 (Ark. 1898)].