Skip to main content

Whitlow Enterprises, Inc. v. Amen

A-2153-03T3 (N.J. Super. App. Div. 2004) (Unpublished)

NOTES; GUARANTIES—When two partners jointly sign a note so that they can use the funds for their partnership, neither is an accommodation party for the other.

Two partners, as co-makers, each signed a promissory note for a loan that they would use for their partnership’s business. One year later, the lender demanded payment, and neither partner paid. A default judgment was entered against the partners. One partner then renegotiated his indebtedness with the lender, including other funds he owed to the same lender. The lender then released the judgment lien against him and sued the second partner to collect the debt. The second partner claimed that he was merely an accommodation party and only signed the note as temporary security while the first partner was out of the country. Under the Uniform Commercial Code (UCC), one is an accommodation party if assists another party who in fact receives the benefit of the instrument, it signs an instrument for the purposes of incurring liability without being a direct beneficiary of the instrument. The lower court found that the second partner was not an accommodation party because, as a partner in the company, he received a benefit from the loan.

On appeal, the Appellate Division also concluded that the second partner was a co-maker of the note and not an accommodation party. According to the Court, the note was neither signed to accommodate the first partner, nor was it for the direct benefit of the other partner. Rather, its purpose was to advance additional working funds to the partnership, even though the partnership was not a party to the note. As partners of the company, each indirectly received the benefit of the loan. The Court further held that the consolidation of the first partner’s loans did not release the second partner from his obligation on the note that he signed as a co-maker. The second partner retained the right to seek contribution from the first partner for satisfying the judgment in question. Therefore, the Appellate Division affirmed the lower court’s decision, holding that the second partner was directly a co-maker of the note and was therefore liable under the note.

66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 •