CHAPTER 56

THE FORMATION OF THE CONTRACT OF PARTIES FOR ACCOMMODATION AND FOR HONOR

§ 446. Accommodation party defined.

§ 447. Acceptance for honor.

§ 448. Payment for honor.

§ 446. (Nego. Instru., Sec. 54.) Accommodation party defined.

Case 459. Negotiable Instruments Act, Sec. 29. "An accommodation party is one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of making the instrument knew him to be only an accommodation party."

Question 459: Define an accommodation party. In what capacity does he sign? For what purpose? If he signs a note as maker to a payee as accommodated party, is he liable to the payee if the payee does not transfer the paper? Is he liable to a person who takes the paper for value, if such person knows that he signed for mere accommodation? Why?

(Note: A person may be an accommodation party even though he receives value for signing if he receives no value for the instrument. Thus if I sign a note for $1,000 in order to lend my credit to the payee, I am an accommodation party though he pays me $10 for my act and I would not be liable to him on the note.)

(Note: Marling v. Jones, 138 Wisconsin 82 held that an accommodation maker may be held on the note by a person to whom the accommodated party indorsed it for value even though such purchaser took it after maturity and with knowledge of its accommodation character.

That this is a dangerous holding is recognized by the same Court in Comstock v. Buckley, 141 Wisconsin 228, in which the Court said: "The rule in the Marling case that the true construction of the contract authorized the accommodatee to borrow once on the accommodator's credit, even after the maturity of the note, was recognized as highly burdensome to the latter and fraught with much peril of inconvenience to commerce from its naturally deterrent effect on the granting of such accommodations. The weight of authority, however, was found to be so overwhelming as to overcome the countervailing considerations."

But there are decisions to the contrary which the Wisconsin Court could have consistently followed, and thus rendered a service to the commercial world. That the view of the Wisconsin case is not compulsory under the Negotiable Instruments Act, and contrary to the weight of authority is the belief of eminent critics. In Illinois, by an addition to this section, a purchaser after maturity may hold the accommodator if transfer after maturity was intended. It is certainly unfortunate that the sponsors of the act did not so phrase it as to leave no doubt as to its meaning.)

§ 447. (Nego. Instru., Sec. 55.) Acceptance for honor. Case 460. Uniform Negotiable Instruments Act, Secs. 161-170.

"[Sec. 161.] Where a bill of exchange has been protested for dishonor by non-acceptance, or protested for better security and is not overdue, any person not being a party already liable thereon, may, with the consent of the holder, intervene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn. The acceptance for honor may be for part only of the sum for which the bill is drawn, and where there has been an acceptance for honor for one party there may be a further acceptance by a different person for the honor of another party.

"[Sec. 162.] An acceptance for honor supra protest must be in writing and indicate that it is an acceptance for honor, and must be signed by the acceptor for honor.

"[Sec. 163.] Where an acceptance for honor does not expressly state for whose honor it was made, it is deemed to be an acceptance for the honor of the drawer.

"[Sec. 164.] The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted.

"[Sec. 165.] The acceptor for honor by such acceptance engages that he will, on due presentment, pay the bill according to the terms of his acceptance: Provided, it shall not have been paid by the drawee: And provided, also, that it shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him.

"[Sec. 166.] When a bill payable after sight is accepted for honor, its maturity is calculated from the date of the noting for non-acceptance and not from the date of the acceptance for honor.

"[Sec. 167.] Where a dishonored bill has been accepted for honor supra protest or contains a reference in case of need, it must be protested for non-payment before it is presented for payment to the acceptor for honor or referee in case of need.

"[Sec. 168.] Presentment for payment to the acceptor for honor must be made as follows:

"1. If it is to be presented in the place where the protest for non-payment was made, it must be presented not later than the day following its maturity.

"2. If it is to be presented in some other place than the place where it was protested, then it must be forwarded within the time specified in section 104.

"[Sec. 169.] The provisions of section 81 apply where there is delay in making presentment to the acceptor for honor or referee in case of need.

"[Sec. 170.] When the bill is dishonored by the acceptor for honor, it must be protested for non-payment by him."

Question 460: (1) What is acceptance supra protest? How must it be made?

(2)

(3)

Where not stated, for whose honor is it presumed made? To whom is acceptor for honor liable? Provided what? § 448. (Nego. Instru. Act, Sec. 56.) Payment for honor. Case 461. Uniform Negotiable Instruments Act, Secs. 171-177.

"[Sec. 171.] Where a bill has been protested for nonpayment, any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn.

"[Sec. 172] The payment for honor supra protest in order to operate as such, and not as a mere voluntary payment, must be attested by a notarial act of honor, which may be appended to the protest or form an extension to it.

"[Sec. 173.] The notarial act of honor must be founded on a declaration made by the payer for honor or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays.

"[Sec. 174.] Where two or more persons offer to pay a bill for the honor of different parties, the person whose payment will discharge most parties to the bill is to be given preference.

"[Sec. 175.] Where a bill has been paid for honor, all parties subsequent to the party for whose honor it is paid, are discharged, but the payer for nonor is subrogated for, and succeeds to, both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter.

"[Sec. 176.] Where the holder of a bill refuses to receive payment supra protest, he loses his right of recourse against any party who would have been discharged by such payment.

"[Sec. 177.] The payer for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill itself and the protest."

Question 461: What is payment for honor? How is it made? What is its effect on rights and liabilities?

PART III

OPERATION OF THE CONTRACT

Chapter 57. Negotiation.

Chapter 58.

Holder in Due Course.

Chapter 59.

Chapter 60.

Defenses Against Holder in Due Course.
The Obligations of the Parties.

A. In General of Negotiation and Indorsement.

§ 449. (Nego. Instru., Sec. 57.) Meaning of negotiation. Case 462. Uniform Negotiable Instruments Act, Sec.

30.