§ 4-3-605 — Discharge of indorsers and accommodation parties

Colorado § 4-3-605

• Jurisdiction: Colorado
• Title 04: Uniform
• Art.: Negotiable Instruments

Text

(a) In this
section, the term indorser includes a drawer having the obligation described in
section 4-3-414 (d).

(b) Discharge, under section 4-3-604, 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) 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 (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)
of this section unless the person entitled to enforce the instrument knows of the
accommodation or has notice under section 4-3-419 (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.

Legislative History

Source: L. 94: Entire article R&RE, p. 878, � 1, effective January 1, 1995.