Important rules lay down by the Negotiable Instruments regarding accommodation bill are as follows:
1. An accommodation bill creates no obligation of payment between the parties to the transaction. In other words, the accommodation party is not liable on the bill to the accommodated party on maturity date, if the bill is in the hands of the accommodated party because of subsequent endorsement in his favour, or if the bill has been paid by the accommodated party (i.e., the drawer) on its dishonour by the acceptor (i. e., the accommodation party), as the contract between them is not based on any consideration.
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ADVERTISEMENTS:
2. The accommodation party is liable on the bill to any subsequent ‘holder for value,’ even if such a holder knew at the time of taking the bill that it is an accommodation bill (Sec. 43). Of course the accommodation party is entitled to recover from the accommodated party whatever he pays on the bill.
3. An accommodation bill can be negotiated after maturity (i.e., when it becomes overdue), with all benefits of a ‘holder in due course’ to the transferee (i.e., the transferee acquiring a better title than the transferor) (Sec. 59). (The transferee of an overdue ordinary bill of exchange gets no better title than his transferor as he cannot be a ‘holder in due course.’ Section 9 provides that a ‘holder in due course’ should acquire the instrument before maturity).
4. Non-presentation of an accommodation bill to the acceptor for payment does not discharge the drawer. [Section 76 (d) provides that presentation is not necessary when drawer could not suffer damage.] It is an exception to the general rule contained in Section 64 whereby a bill must be presented for payment to the acceptor by the holder otherwise other parties thereto are not liable thereon to such a holder.
5. When an accommodation bill is dishonoured, failure to give notice of dishonour does not discharge the liability of prior parties, as it does in the case of an ordinary bill [Sec. 98 (c)].