(a) If an instrument is issued for value given for the benefit of a party to the instrument ("accommodated party") and another party to the instrument ("accommodation party") 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 Subsection (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 55-3-605 NMSA 1978, 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: (i) execution of judgment against the other party has been returned unsatisfied; (ii) the other party is insolvent or in an insolvency proceeding; (iii) the other party cannot be served with process; or (iv) it is otherwise apparent that payment cannot be obtained from the other party.

(e) If the signature of a party to an instrument is accompanied by words indicating that the party guarantees payment or the signer signs the instrument as an accommodation party in some other manner that does not unambiguously indicate an intention to guarantee collection rather than payment, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument in the same circumstances as the accommodated party would be obliged, without prior resort to the accommodated party by the person entitled to enforce the instrument.

(f) An accommodation party that pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. In proper circumstances, an accommodation party may obtain relief that requires the accommodated party to perform its obligations on the instrument. An accommodated party that pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party.

OFFICIAL COMMENTS

1. UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
2. 1. Section 3-419 [55-3-419 NMSA 1978] 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 co-maker 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.
3. 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 [55-3-419 NMSA 1978] 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."
4. 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 co-maker 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 co-maker or indorser. This is relevant to Section 3-605(h) [55-3-605 NMSA 1978]. 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.
5. An accommodation party is always a surety. A surety who is not a party to the instrument, however, is not an accommodation party. For example, if M issues a note payable to the order of P, and S signs a separate contract in which S agrees to pay P the amount of the instrument if it is dishonored, S is a surety but is not an accommodation party. In such a case, S's rights and duties are determined under the general law of suretyship. In unusual cases two parties to an instrument may have a surety relationship that is not governed by Article 3 because the requirements of Section 3-419(a) are not met. In those cases the general law of suretyship applies to the relationship. See PEB Commentary No. 11.
6. 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).
7. Former Article 3 was confusing because the obligation of a guarantor was covered both in Section 3-415 and in Section 3-416 [55-3-415 and 55-3-416 NMSA 1978, respectively]. 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 [55-3-419 NMSA 1978] 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) [55-3-419 NMSA 1978] and former Section 3-416(4) is reflected in Section 3-419(c) [55-3-419 NMSA 1978]. See PEB Commentary No. 11.
8. 5. Subsection (e) restates Subsection (5) of present Section 3-415 [55-3-415 NMSA 1978]. 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. See PEB Commentary No. 11.
9. 6. In occasional cases, the accommodation party might pay the instrument even though the accommodated party had a defense to its obligation that was available to the accommodation party under Section 3-305(d) [55-3-305 NMSA 1978]. In such cases, the accommodation party's right to reimbursement may conflict with the accommodated party's right to raise its defense. For example, suppose the accommodation party pays the instrument without being aware of the defense. In that case the accommodation party should be entitled to reimbursement. Suppose the accommodation party paid the instrument with knowledge of the defense. In that case, to the extent of the defense, reimbursement ordinarily would not be justified, but under some circumstances reimbursement may be justified depending upon the facts of the case. The resolution of this conflict is left to the general law of suretyship. Section 1-103 [55-1-103 NMSA 1978]. See PEB Commentary No. 11.
10. 7. Section 3-419 [55-3-419 NMSA 1978], along with Section 3-116(a) and (b) [55-3-116 NMSA 1978], Section 3-305(d) [55-3-305 NMSA 1978] and Section 3-605 [55-3-605 NMSA 1978], provides rules governing the rights of accommodation parties. In addition, except to the extent that it is displaced by provisions of this Article, the general law of suretyship also applies to the rights of accommodation parties. Section 1-103 [55-1-103 NMSA 1978]. See PEB Commentary No. 11.

History: 1978 Comp., § 55-3-419, enacted by Laws 1992, ch. 114, § 144; 2009, ch. 234, § 8.

ANNOTATIONS

Repeals. — Laws 1992, ch. 114, § 237 repealed former 55-3-419 NMSA 1978, as enacted by Laws 1961, ch. 96, § 3-419, relating to conversion of instrument and innocent representative, effective July 1, 1992. Laws 1992, ch. 114, § 144, enacted a new section, effective July 1, 1992. For provisions of former section, see the 1991 NMSA 1978 on NMOneSource.com. For present comparable provisions, see 55-3-420 NMSA 1978.

The 2009 amendment, effective January 1, 2010, added Subsection (e) and added the second sentence in Subsection (f).

A party is an accommodation party when he or she signs a promissory note the purpose of which is to allow another signatory to enter into a real estate contract with a seller, and the party will not benefit directly from the transaction; the party's status as an accommodation party may also be presumed where his or her signature appears under the heading "GUARANTORS (individually)." Venaglia v. Kropinak, 1998-NMCA-043, 125 N.M. 25, 956 P.2d 824.

Discharge. — This section does not say that 55-3-605 NMSA 1978 provides the exclusive grounds on which an accommodation party may be discharged and does not restrict discharges requiring knowledge, as opposed to notice, to those provided under this chapter. Venaglia v. Kropinak, 1998-NMCA-043, 125 N.M. 25, 956 P.2d 824.

Remedies of guarantors. — A contributing guarantor has the right to seek reimbursement, restitution or subrogation against a defaulting principal debtor to the extent of his or her contribution. Randles v. Hanson, 2011-NMCA-059, 130 N.M. 362, 258 P.3d 1154.

Rights of co-guarantors. — A co-guarantor who has fulfilled a duty of contribution to a performing co-guarantor is entitled to recourse against a principle debtor as though the contributing co-guarantor had performed the guaranty to the same extent as his or her contribution. A performing co-guarantor’s claim against a principal debtor is reduced to the extent that he or she receives contribution from another co-guarantor. Randles v. Hanson, 2011-NMCA-059, 150 N.M. 362, 258 P.3d 1154.

Rights of a contributing guarantor. — Where five individuals, including plaintiff, personally guaranteed a $500,000 bank loan to a third party; the five guarantors entered into an agreement which provided that each guarantor was jointly and severally liable for all unpaid amounts on the loan and that each guarantor would be responsible for paying an equal share of any unpaid amounts; when the third party defaulted on the loan, plaintiff refused to pay a pro-rata share of the amount due; three of the guarantors paid the $500,000 due on the loan and recovered a judgment against plaintiff for plaintiff’s $100,000 pro-rata share, which plaintiff paid; and the third party subsequently reimbursed the three guarantors the $500,000 they had paid on the loan, plaintiff was entitled to receive $100,000 of the amount received by the three guarantors. Randles v. Hanson, 2011-NMCA-059, 150 N.M. 362, 258 P.3d 1154.

Allowing plaintiff to collect from guarantors on a debt that the district court found had been satisfied runs afoul of New Mexico's public policy against windfall damages in breach of contract actions. — Where plaintiff brought an action to recover rent and maintenance fees it claimed were owed to it under the terms of a commercial lease agreement with defendants, a limited liability company (tenant) and guarantors, the owners of the LLC who personally guaranteed the tenant's payment under the lease, and where, following a bench trial, the district court concluded that the amounts the landlord failed to pay the tenant for work performed under the terms of the lease exceeded the amount the tenant owed in rent and maintenance fees and therefore offset amounts owed to tenant under the lease for tenant improvements against the amount plaintiff proved remained unpaid in rent, and where plaintiff claimed that the district court erred as a matter of law in concluding that the guarantors' waiver of any defense violates public policy, the district court did not err in refusing to enforce the guaranty agreement, because requiring guarantors to compensate plaintiff a second time when the district court found that plaintiff had been fully compensated under the terms of the lease would violate New Mexico's public policy against windfall damages in breach of contract actions. Central Market, Ltd. v. Multi-Concept Hospitality, LLC, 2022-NMCA-021.