(a)If a person entitled to enforce an
instrument releases the obligation of a principal obligor in whole or in
part, and another party to the instrument is a secondary obligor with
respect to the obligation of that principal obligor, the following rules
apply:
(1)Any obligations of the principal obligor to the secondary
obligor with respect to any previous payment by the secondary
obligor are not affected. Unless the terms of the release preserve
the secondary obligor's recourse, the principal obligor is
discharged, to the extent of the release, from any other duties to
the secondary obligor under this article.
(2)Unless the terms of the release provide that the person entitled
to enforce the instrument retains the right to enforce the
instrument against the secondary obligor, the secon
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(a) If a person entitled to enforce an
instrument releases the obligation of a principal obligor in whole or in
part, and another party to the instrument is a secondary obligor with
respect to the obligation of that principal obligor, the following rules
apply:
(1) Any obligations of the principal obligor to the secondary
obligor with respect to any previous payment by the secondary
obligor are not affected. Unless the terms of the release preserve
the secondary obligor's recourse, the principal obligor is
discharged, to the extent of the release, from any other duties to
the secondary obligor under this article.
(2) Unless the terms of the release provide that the person entitled
to enforce the instrument retains the right to enforce the
instrument against the secondary obligor, the secondary obligor
is discharged to the same extent as the principal obligor from any
unperformed part of its obligation on the instrument. If the
instrument is a check and the obligation of the secondary obligor
is based on an endorsement of the check, the secondary obligor is
discharged without regard to the language or circumstances of the
discharge or other release.
(3) If the secondary obligor is not discharged under subdivision
(2), the secondary obligor is discharged to the extent of the value
of the consideration for the release, and to the extent that the
release would otherwise cause the secondary obligor a loss.
(b) If a person entitled to enforce an instrument grants a principal
obligor an extension of the time at which one (1) or more payments are
due on the instrument, and another party to the instrument is a
secondary obligor with respect to the obligation of that principal
obligor, the following rules apply:
(1) Any obligations of the principal obligor to the secondary
obligor with respect to any previous payment by the secondary
obligor are not affected. Unless the terms of the extension
preserve the secondary obligor's recourse, the extension
correspondingly extends the time for performance of any other
duties owed to the secondary obligor by the principal obligor
under this article.
(2) The secondary obligor is discharged to the extent that the
extension would otherwise cause the secondary obligor a loss.
(3) To the extent that the secondary obligor is not discharged
under subdivision (2), the secondary obligor may perform its
obligations to a person entitled to enforce the instrument as if the
time for payment had not been extended or, unless the terms of
the extension provide that the person entitled to enforce the
instrument retains the right to enforce the instrument against the
secondary obligor as if the time for payment had not been
extended, may treat the time for performance of its obligations as
having been extended correspondingly.
(c) If a person entitled to enforce an instrument agrees, with or
without consideration, to a modification of the obligation of a principal
obligor other than a complete or partial release or an extension of the
due date, and another party to the instrument is a secondary obligor
with respect to the obligation of that principal obligor, the following
rules apply:
(1) Any obligations of the principal obligor to the secondary
obligor with respect to any previous payment by the secondary
obligor are not affected. The modification correspondingly
modifies any other duties owed to the secondary obligor by the
principal obligor under this article.
(2) The secondary obligor is discharged from any unperformed
part of its obligation to the extent that the modification would
otherwise cause the secondary obligor a loss.
(3) To the extent that the secondary obligor is not discharged
under subdivision (2), the secondary obligor may satisfy its
obligation on the instrument as if the modification had not
occurred, or treat its obligation on the instrument as having been
modified correspondingly.
(d) If the obligation of a principal obligor is secured by an interest
in collateral, another party to the instrument is a secondary obligor with
respect to that obligation, and a person entitled to enforce the
instrument impairs the value of the interest in collateral, the obligation
of the secondary 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
recourse of the secondary obligor, or the reduction in value of the
interest causes an increase in the amount by which the amount of the
recourse exceeds the value of the interest. For purposes of this
subsection, impairing the value of an interest in collateral includes
failure to obtain or maintain perfection or recordation of the interest in
collateral, release of collateral without substitution of collateral of
equal value or equivalent reduction of the underlying obligation, failure
to perform a duty to preserve the value of collateral owed, under IC 26-1-9.1 or other law, to a debtor or other person secondarily liable,
and failure to comply with applicable law in disposing of or otherwise
enforcing the interest in collateral.
(e) A secondary obligor is not discharged under subsection (a)(3),
(b), (c), or (d) unless the person entitled to enforce the instrument
knows that the person is a secondary obligor or has notice under IC 26-1-3.1-419(c) that the instrument was signed for accommodation.
(f) A secondary obligor is not discharged under this section if the
secondary obligor consents to the event or conduct that is the basis of
the discharge, or the instrument or a separate agreement of the party
provides for waiver of discharge under this section specifically or by
general language indicating that parties waive defenses based on
suretyship or impairment of collateral. Unless the circumstances
indicate otherwise, consent by the principal obligor to an act that would
lead to a discharge under this section constitutes consent to that act by
the secondary obligor if the secondary obligor controls the principal
obligor or deals with the person entitled to enforce the instrument on
behalf of the principal obligor.
(g) A release or extension preserves a secondary obligor's recourse
if the terms of the release or extension provide that:
(1) the person entitled to enforce the instrument retains the right
to enforce the instrument against the secondary obligor; and
(2) the recourse of the secondary obligor continues as if the
release or extension had not been granted.
(h) Except as otherwise provided in subsection (i), a secondary
obligor asserting discharge under this section has the burden of
persuasion both with respect to the occurrence of the acts alleged to
harm the secondary obligor and loss or prejudice caused by those acts.
(i) If the secondary obligor demonstrates prejudice caused by an
impairment of its recourse, and the circumstances of the case indicate
that the amount of loss is not reasonably susceptible of calculation or
requires proof of facts that are not ascertainable, it is presumed that the
act impairing recourse caused a loss or impairment equal to the liability
of the secondary obligor on the instrument. In that event, the burden of
persuasion as to any lesser amount of the loss is on the person entitled
to enforce the instrument.