2006 Ohio Revised Code - 1303.59. (UCC 3-419) Instruments signed for accommodation.

§ 1303.59. (UCC 3-419) Instruments signed for accommodation.
 

(A)  If an instrument is issued for value given for the benefit of a party to the instrument and another party to the instrument signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party "for accommodation." 

(B)  An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser and, subject to division (D) of this section, is obliged to pay the instrument in the capacity in which the accommodation party signs. 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. Except as provided in section 1303.70 of the Revised Code, the obligation of an accommodation party to pay the instrument is not affected by the fact that the person enforcing the obligation had notice when the instrument was taken by that person that the accommodation party signed the instrument for accommodation. 

(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. 

(2) The other party is insolvent or in an insolvency proceeding. 

(3) The other party cannot be served with process. 

(4) It is otherwise apparent that payment cannot be obtained from the other party. 

(E)  An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. An accommodated party who pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party. 

(F)  As used in this section: 

(1) "Accommodated party" means the party to an instrument for the benefit of which the instrument is issued for value. 

(2) "Accommodation party" means a party to an instrument other than the accommodated party. 
 

HISTORY: 145 v S 147. Eff 8-19-94.
 

Not analogous to former RC § 1303.59 (129 v S 5; 131 v 424), repealed 145 v S 147, § 2, eff 8-19-94.

Former RC § 1303.59 is now RC § 1303.61.

 

Official Comment

1. Section 3-419 replaces former sections 3-415 and 3-416. An accommodation party is a person who signs an instrument to benefit the accommodated party either by signing at the time value is obtained by the accommodated party or later, and who is not a direct beneficiary of the value obtained.  An accommodation party will usually be a comaker or anomalous indorser.  Subsection (a) distinguished between direct and indirect benefit.  For example, if X cosigns a note of Corporation that is given for a loan to Corporation, X is an accommodation party if no part of the loan was paid to X or for X's direct benefit.  This is true even though X may receive indirect benefit from the loan because X is employed by Corporation or is a stockholder of Corporation, or even if X is the sole stockholder so long as Corporation and X are recognized as separate entities. 

2.  It does not matter whether an accommodation party signs gratuitously either at the time the instrument is issued or after the instrument is in the possession of a holder. Subsection (b) of section 3-419 takes the view stated in comment 3 to former section 3-415 that there need be no consideration running to the accommodation party: "The obligation of the accommodation party is supported by any consideration for which the instrument is taken before it is due. Subsection (2) is intended to change occasional decisions holding that there is no sufficient consideration where an accommodation  party signs a note after it is in the hands of a holder who has given value. The :accommodation] party is liable to the holder in such a case even though there is no extension of time or other concession." 

3.  As stated in comment 1, whether a person is an accommodation party is a question of fact.  But it is almost always the case that a comaker who signs with words of guaranty after the signature is an accommodation party.  The same is true of an anomalous indorser.  In either case a person taking the instrument is put on notice of the accommodation status of the comaker or indorser.  This is relevant to section 3-605(h).  But, under subsection (c), signing with words of guaranty or as an anomalous indorser also creates a presumption that the signer is an accommodation party.  A party challenging accommodation party status would have to rebut this presumption by producing evidence that the signer was in fact a direct beneficiary of the value given for the instrument. 

4.  Subsection (b) states that an accommodation party is liable on the instrument in the capacity in which the party signed the instrument.  In most cases that capacity will be either that of a maker or indorser of a note.  But subsection (d) provides a limitation on subsection (b).  If the signature of the accommodation party is accompanied by words indicating unambiguously that the party is guaranteeing collection rather that payment of the instrument, liability is limited to that stated in subsection (d), which is based on former section 3-416(2). 

Former article 3 was confusing because the obligation of a guarantor was covered both in section 3-415 and in section 3-416.  The latter section suggested that a signature accompanied by words of guaranty created an obligation distinct from that of an accommodation party.  Revised article 3 eliminates that confusion by stating in section 3-419 the obligation of a person who uses words of guaranty. Portions of former section 3-416 are preserved.  Former section 3-416(2) is reflected in section 3-419(d) and former section 3-416(4) is reflected in section 3-419(c). 

5.  Subsection (e) restates subsection (5) of present section 3-415.  Since the accommodation party that pays the instrument is entitled to enforce the instrument against the accommodated party, the accommodation party also obtains rights to any security interest or other collateral that secures payment of the instrument.