70A-3-605 - Discharge of indorsers and accommodation parties.
70A-3-605. Discharge of indorsers and accommodation parties.
(1) In this section, the term "indorser" includes a drawer having the obligation describedin Subsection 70A-3-414(4).
(2) Discharge, under Section 70A-3-604, of the obligation of a party to pay an instrumentdoes not discharge the obligation of an indorser or accommodation party having a right ofrecourse against the discharged party.
(3) If a person entitled to enforce an instrument agrees, with or without consideration, toan extension of the due date of the obligation of a party to pay the instrument, the extensiondischarges an indorser or accommodation party having a right of recourse against the party whoseobligation is extended to the extent the indorser or accommodation party proves that the extensioncaused loss to the indorser or accommodation party with respect to the right of recourse.
(4) If a person entitled to enforce an instrument agrees, with or without consideration, toa material modification of the obligation of a party other than an extension of the due date, themodification discharges the obligation of an indorser or accommodation party having a right ofrecourse against the person whose obligation is modified to the extent the modification causesloss to the indorser or accommodation party with respect to the right of recourse. The losssuffered by the indorser or accommodation party as a result of the modification is equal to theamount of the right of recourse unless the person enforcing the instrument proves that no loss wascaused by the modification or that the loss caused by the modification was an amount less thanthe amount of the right of recourse.
(5) If the obligation of a party to pay an instrument is secured by an interest in collateraland a person entitled to enforce the instrument impairs the value of the interest in collateral, theobligation of an indorser or accommodation party having a right of recourse against the obligor isdischarged to the extent of the impairment. The value of an interest in collateral is impaired tothe extent the value of the interest is reduced to an amount less than the amount of the right ofrecourse of the party asserting discharge, or the reduction in value of the interest causes anincrease in the amount by which the amount of the right of recourse exceeds the value of theinterest. The burden of proving impairment is on the party asserting discharge.
(6) If the obligation of a party is secured by an interest in collateral not provided by anaccommodation party and a person entitled to enforce the instrument impairs the value of theinterest in collateral, the obligation of any party who is jointly and severally liable with respect tothe secured obligation is discharged to the extent the impairment causes the party assertingdischarge to pay more than that party would have been obliged to pay, taking into account rightsof contribution, if impairment had not occurred. If the party asserting discharge is anaccommodation party not entitled to discharge under Subsection (5), the party is deemed to havea 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.
(7) Under Subsection (5) or (6), impairing value of an interest in collateral includesfailure to obtain or maintain perfection or recordation of the interest in collateral, release ofcollateral without substitution of collateral of equal value, failure to perform a duty to preservethe value of collateral owed, under Title 70A, Chapter 9a, Uniform Commercial Code -- SecuredTransactions, or other law, to a debtor or surety or other person secondarily liable, or failure tocomply with applicable law in disposing of collateral.
(8) An accommodation party is not discharged under Subsection (3), (4), or (5) unless theperson entitled to enforce the instrument knows of the accommodation or has notice under
Subsection 70A-3-419(3) that the instrument was signed for accommodation.
(9) A party is not discharged under this section if the party asserting discharge consents tothe event or conduct that is the basis of the discharge, or the instrument or a separate agreement ofthe party provides for waiver of discharge under this section either specifically or by generallanguage indicating that parties waive defenses based on suretyship or impairment of collateral.
Amended by Chapter 252, 2000 General Session