§ 25-3-605. Discharge of indorsers and accommodation parties.
§25‑3‑605. Discharge of indorsers and accommodation parties.
(a) In this section,the term "indorser" includes a drawer having the obligation describedin G.S. 25‑3‑414(d).
(b) Discharge, underG.S. 25‑3‑604, of the obligation of a party to pay an instrumentdoes not discharge the obligation of an indorser or accommodation party havinga right of recourse against the discharged party.
(c) If a personentitled to enforce an instrument agrees, with or without consideration, to anextension 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 ofrecourse against the party whose obligation is extended to the extent theindorser or accommodation party proves that the extension caused loss to theindorser or accommodation party with respect to the right of recourse.
(d) If a personentitled to enforce an instrument agrees, with or without consideration, to amaterial modification of the obligation of a party other than an extension ofthe due date, the modification discharges the obligation of an indorser oraccommodation party having a right of recourse against the person whoseobligation is modified to the extent the modification causes loss to theindorser or accommodation party with respect to the right of recourse. The losssuffered by the indorser or accommodation party as a result of the modificationis equal to the amount of the right of recourse unless the person enforcing theinstrument proves that no loss was caused by the modification or that the losscaused by the modification was an amount less than the amount of the right ofrecourse.
(e) If the obligationof a party to pay an instrument is secured by an interest in collateral and aperson entitled to enforce the instrument impairs the value of the interest incollateral, the obligation of an indorser or accommodation party having a rightof 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 valueof the interest is reduced to an amount less than the amount of the right ofrecourse of the party asserting discharge, or (ii) the reduction in value ofthe interest causes an increase in the amount by which the amount of the rightof recourse exceeds the value of the interest. The burden of proving impairmentis on the party asserting discharge.
(f) If the obligationof a party is secured by an interest in collateral not provided by anaccommodation party and a person entitled to enforce the instrument impairs thevalue of the interest in collateral, the obligation of any party who is jointlyand severally liable with respect to the secured obligation is discharged tothe extent the impairment causes the party asserting discharge to pay more thanthat party would have been obliged to pay, taking into account rights ofcontribution, if impairment had not occurred. If the party asserting dischargeis an accommodation party not entitled to discharge under subsection (e) ofthis section, the party is deemed to have a right to contribution based onjoint and several liability rather than a right to reimbursement. The burden ofproving impairment is on the party asserting discharge.
(g) Under subsection(e) or (f) of this section, impairing value of an interest in collateralincludes (i) failure to obtain or maintain perfection or recordation of theinterest in collateral, (ii) release of collateral without substitution ofcollateral of equal value, (iii) failure to perform a duty to preserve thevalue of collateral owed, under Article 9 or other law, to a debtor or suretyor other person secondarily liable, or (iv) failure to comply with applicablelaw in disposing of collateral.
(h) An accommodationparty is not discharged under subsection (c), (d), or (e) of this sectionunless the person entitled to enforce the instrument knows of the accommodationor has notice under G.S. 25‑3‑419(c) that the instrument was signedfor accommodation.
(i) A party is notdischarged under this section if (i) the party asserting discharge consents tothe event or conduct that is the basis of the discharge, or (ii) the instrumentor a separate agreement of the party provides for waiver of discharge underthis section either specifically or by general language indicating that partieswaive defenses based on suretyship or impairment of collateral. (1899,c. 733, s. 120; Rev., s. 2270; C.S., s. 3102; 1965, c. 700, s. 1; 1995, c. 232,s. 1.)