Question

A and B have a business arrangement wherein the latter would lend money to another through A who would appear in the promissory note as the lender. A would indorse the note to B. Is there an accomodation party in the transaction between A and B?

A. A is the accomodation party for signing in behalf of B
B. B is the accomodation party because he benefits in the business arrangement
C. Both A and B are accomodation parties
D. Neither of A and B is accomodation party

Answer 1

In the business arrangement between A and B, where A appears as the lender on the promissory note but then indorses it to B, the actual funder, A is the accommodation party because A is assisting B in lending the money without receiving a direct benefit from the loan transaction.

Step-by-step explanation:

In the scenario described, if "A" appears on the promissory note as the lender and then indorses the note to "B," who is actually funding the loan, the question of whether there is an accommodation party arises. An accommodation party is someone who signs on to a financial instrument on behalf of another party, without receiving any direct benefit, and does so purely for the purpose of lending their credit to the other party.

In this case, A is the accommodation party (Option A), because A is signing the promissory note to help B lend the money to the third party, though the funds are coming from B. A receives no direct benefit from the loan between B and the borrower. B, on the other hand, is the benefactor in this arrangement, receiving payment or interest from the borrower, thus B cannot be considered an accommodation party, because B benefits financially from the transaction.