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Accommodation parties must be willing to assume risk with little tangible reward.The benefit mostly comes from knowing that the party has helped a friend, relative, or associate secure financing.Business transactions, such as corporate borrowing, also may necessitate third party involvement in securing the funds.
(D) If the signature of a party to an instrument is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the obligation of another party to the instrument, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument only if one of the following applies: (1) Execution of judgment against the other party has been returned unsatisfied.
For instance, if a borrower seeks a mortgage, but is determined to be too much of a credit risk, the financing company may require an accommodation party to become a co-signer before approving the loan.
The borrower in this case is then known as the accommodated party.
The obligation of an accommodation party may be enforced notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation.
(C) A person signing an instrument is presumed to be an accommodation party, and there is notice that the instrument is signed for accommodation if the signature is an anomalous indorsement or is accompanied by words indicating that the signer is acting as surety or guarantor with respect to the obligation of another party to the instrument.