Legal Definitions - accommodation paper

An accommodation paper is a type of negotiable instrument where one party cosigns, without receiving any payment, as a surety for another party who remains primarily liable. This is typically done when the cosigner has better creditworthiness than the principal debtor.

For example, let's say that John wants to borrow money from a bank, but he has a poor credit score. His friend, Jane, has a good credit score and agrees to cosign on the loan as an accommodation paper. This means that if John fails to repay the loan, the bank can go after Jane for payment.

Another example could be a business owner who needs to lease a property but has a weak financial history. The landlord may require an accommodation paper from a more financially stable individual to ensure that the rent will be paid.

Overall, an accommodation paper is a way for a less creditworthy party to obtain credit or enter into a contract by having a more creditworthy party cosign as a guarantor.