47-3605

47-3605. Discharge of indorsers and
accommodation parties

A. In this section, the term "indorser" includes a drawer having the obligation
described in section 47-3414, subsection D.

B. Discharge, under section 47-3604, of the obligation of a party to pay an
instrument does not discharge the obligation of an indorser or accommodation party having
a right of recourse against the discharged party.

C. If a person entitled to enforce an instrument agrees, with or without
consideration, to an extension of the due date of the obligation of a party to pay the
instrument, the extension discharges an indorser or accommodation party having a right of
recourse against the party whose obligation is extended to the extent the indorser or
accommodation party proves that the extension caused loss to the indorser or
accommodation party with respect to the right of recourse.

D. If a person entitled to enforce an instrument agrees, with or without
consideration, to a material modification of the obligation of a party other than an
extension of the due date, the modification discharges the obligation of an indorser or
accommodation party having a right of recourse against the person whose obligation is
modified to the extent the modification causes loss to the indorser or accommodation
party with respect to the right of recourse. The loss suffered by the indorser or
accommodation party as a result of the modification is equal to the amount of the right
of recourse unless the person enforcing the instrument proves that no loss was caused by
the modification or that the loss caused by the modification was an amount less than the
amount of the right of recourse.

E. If the obligation of a party to pay an instrument is secured by an interest in
collateral and a person entitled to enforce the instrument impairs the value of the
interest in collateral, the obligation of an indorser or accommodation party having a
right of recourse against the obligor is discharged to the extent of the impairment. The
value of an interest in collateral is impaired to the extent the value of the interest is
reduced to an amount less than the amount of the right of recourse of the party asserting
discharge or the reduction in value of the interest causes an increase in the amount by
which the amount of the right of recourse exceeds the value of the interest. The burden
of proving impairment is on the party asserting discharge.

F. If the obligation of a party is secured by an interest in collateral not
provided by an accommodation party and a person entitled to enforce the instrument
impairs the value of the interest in collateral, the obligation of any party who is
jointly and severally liable with respect to the secured obligation is discharged to the
extent the impairment causes the party asserting discharge to pay more than that party
would have been obliged to pay, taking into account rights of contribution, if impairment
had not occurred. If the party asserting discharge is an accommodation party not
entitled to discharge under subsection E of this section, the party is deemed to have a
right to contribution based on joint and several liability rather than a right to
reimbursement. The burden of proving impairment is on the party asserting discharge.

G. Under subsection E or F of this section, impairing value of an interest in
collateral includes:

1. Failure to obtain or maintain perfection or recordation of the interest in
collateral;

2. Release of collateral without substitution of collateral of equal value;

3. Failure to perform a duty to preserve the value of collateral owed, under
chapter 9 of this title or other law, to a debtor or surety or other person secondarily
liable; or

4. Failure to comply with applicable law in disposing of collateral.

H. An accommodation party is not discharged under subsection C, D or E of this
section unless the person entitled to enforce the instrument knows of the accommodation
or has notice under section 47-3419, subsection C that the instrument was signed for
accommodation.

I. A party is not discharged under this section if:

1. The party asserting discharge consents to the event or conduct that is the basis
of the discharge; or

2. The instrument or a separate agreement of the party provides for waiver of
discharge under this section either specifically or by general language indicating that
parties waive defenses based on suretyship or impairment of collateral.