THE VALIDITY OF CORPORATE MORTGAGES EXECUTED FOR ACCOMMODATION

Authors

Edward O. Curran, member of the Michigan and New York bars

Abstract

The problem of the validity of an accommodation mortgage executed by a corporation--that is, a mortgage or pledge of the property or assets of the corporation for the benefit of another without the receipt by the corporate mortgagor or pledgor of any consideration for the loan of its credit--is one which appears not to have been explored by writers on legal topics. No reason is readily apparent for the obvious dearth of discussion on this subject; the pertinent cases are not too numerous for ready collation and the accommodation mortgage device is itself of practical importance in certain situations in the field of corporate finance. For example, in the parent-subsidiary corporation relationship this device has frequently been utilized as a step in financing. In some instances the mortgage is executed by the parent corporation to strengthen the collateral behind a security issue of the subsidiary, the so-called downstream mortgage; on the other hand, in certain other situations the subsidiary corporation mortgages its property for the benefit of its parent, an upstream mortgage. Corporations have also frequently executed accommodation mortgages in order to secure the debt of an officer, director or stockholder of the corporation incurred in the purchase of his stock in the corporation, a practice which has been judicially condemned where the corporation derives no benefit from the transaction.

Recommended Citation

Edward O. Curran, THE VALIDITY OF CORPORATE MORTGAGES EXECUTED FOR ACCOMMODATION, 37 Mich. L. Rev. 1001 (1939).
Available at: https://repository.law.umich.edu/mlr/vol37/iss7/2