Accommodation party -- One who signs a negotiable 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 (for a consideration paid in money or otherwise), notwithstanding
that such holder knew him to be only an accommodation
party. An accommodation indorser may place his name on the
Paper with an understanding that it is a mere formality and
that he is not to be called upon for payment in any event; in
another case there may be an understanding that the paper is
to be used for some particular purpose and for no other. In
the first case the accommodation indorser is not liable to the first holder in any event; in the second case he is not liable to
the first holder if the paper is with the knowledge of that
holder diverted from the purpose for which it was issued.
But in either case he is liable to any subsequent holder who
lias taken the paper in good faith and with no knowledge of the
restriction or limitation. The instrument cannot be enforced
by any person who takes it in violation of such terms and conditions
when notice thereof has been given.
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