§490:3-605  Discharge of indorsers and
accommodation parties.  (a)  In this section, the term "indorser"
includes a drawer having the obligation described in section 490:3-414(d).



(b)  Discharge, under section 490:3-604, 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 (i) 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 (ii) 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), 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), impairing
value of an interest in collateral includes (i) failure to obtain or maintain
perfection or recordation of the interest in collateral, (ii) release of
collateral without substitution of collateral of equal value, (iii) failure to
perform a duty to preserve the value of collateral owed, under article 9 or
other law, to a debtor or surety or other person secondarily liable, or (iv)
failure to comply with applicable law in disposing of collateral.



(h)  An accommodation party is not discharged
under subsection (c), (d), or (e) unless the person entitled to enforce the
instrument knows of the accommodation or has notice under section 490:3-419(c)
that the instrument was signed for accommodation.



(i)  A party is not discharged under this
section if (i) the party asserting discharge consents to the event or conduct
that is the basis of the discharge, or (ii) 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. [L 1991, c 118, pt of
§1]



 



Case Notes



 



  Impairment of collateral defense under subsection (f)
inapplicable where creditor was not under a duty to perfect its security
interest.  82 H. 106 (App.), 919 P.2d 1018.