§ 41-03-67 — (3-605) Discharge of endorsers and accommodation parties

1. For the purposes of this section, the term "endorser" includes a drawer having the
obligation stated in subsection 3 of section 41-03-51.
2. Discharge under section 41-03-66 of the obligation of a party to pay an instrument
does not discharge the obligation of an endorser or accommodation party having a
right of recourse against the discharged party.
3. 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 endorser or accommodation party having a right of recourse
against the party whose obligation is extended to the extent the endorser or
accommodation party proves that the extension caused loss to the endorser or
accommodation party with respect to the right of recourse.
4. 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 endorser or accommodation
party having a right of recourse against the person whose obligation is modified to the
extent the modification causes loss to the endorser or accommodation party with
respect to the right of recourse. The endorser or accommodation party is deemed to
have suffered loss as a result of the modification 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 less than the
amount of the right of recourse.
5. 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 endorser 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 that 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 that the reduction in value of the interest causes an increase in
the amount by which the amount of the right of recourse exceeds the values of the
interest. 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 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 5, 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.
7. Under subsection 5 or 6, impairing 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; failure to perform a duty to
preserve the value of collateral owed, under chapter 41-01 or other law, to a debtor or
surety or other person secondarily liable; or failure to comply with applicable law in
disposing of collateral.
8. An accommodation party is not discharged under subsection 3, 4, or 5 unless the
person entitled to enforce the instrument knows of the accommodation or has notice
under subsection 3 or 4 of section 41-03-56 that the instrument was signed for
accommodation.
9. A party is not discharged under this section if the party asserting discharge 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 either
specifically or by general language indicating that parties waive defenses based on
suretyship or impairment of collateral.