
No, not him!

Instead, you want
to borrow money
or obtain goods/
services on credit,
i.e., you need to
become a debtor.

1. Refuse to grant credit

2. Be happy with promise to pay
▪ Promissory note
▪ Open account (account receivable)

3. Obtain collateral
▪ Real property = mortgage (foreclosure)
▪ Personal property = security interest (Article 9) (repossession)

4. Require surety
▪ Promises to pay or perform if debtor doesn’t

Love and affection.

Friendship.

Compensation.

Stupidity (not understanding consequences
of what doing)
Principal
Debtor
Creditor
1. underlying contract
3. Reimbursement
2. Surety
Contract
Surety
Problem 131, p. 426

1. Reimbursement
If surety pays, surety obtains reimbursement
from principal.

2. Exoneration
Surety’s ability to compel principal to perform
at maturity.

3. Subrogation
If surety pays creditor, surety obtains
whatever rights creditor had (e.g., a security
interest in collateral or priority claim in
bankruptcy).

4. Contribution
 Sub-sureties – presumption – recover all from
prior surety (for UCC purposes, presumed if in
chain of title)
 Co-sureties – need express agreement – recover
only proportional or agreed share (for UCC
purposes, presumed if not in chain of title)

5. Strictissimi Juris
Change to underlying agreement discharges
surety.
If creditor releases principal or gives binding
extension of time, the surety is discharged
unless:
 surety consents, or
 creditor “reserves rights” against surety.

Liable in capacity in which accommodation
party signs, such as:
 1. Maker
 2. Indorser (name outside chain of title)

Statute of Frauds irrelevant
 State law requirements for other surety
contracts do not apply.

Consideration not needed.
 The accommodated party need not receive
consideration. It is sufficient that the contract
goes through.

Entitled to reimbursement from
accommodated party.

No liability to accommodated party.

1. Anomalous indorsement
 An indorsement by a non-holder (i.e., a person
outside the chain of title) is notice of
accommodation.

2. Express language

1. Presumed to be a guaranty of payment.
 Accommodation party required to pay; no
requirement holder first try to recover from
accommodated party.

2. Express limitation to collection only.
 Can include express “guaranty of collection only”
language so accommodation party liable only if:
▪
▪
▪
▪
Execution against accommodated returned unsatisfied
Accommodated party insolvent (bankrupt)
Accommodated party cannot be served with process
Apparent that accommodated party cannot pay

Problem 132, p. 429

Problem 133, p. 430

“guarantee [payee] against loss by reason
of nonpayment of this note”

Is this payment or collection guaranty?
Margaret
Maker
Accommodation Party
ONB
Payee
Holder
Portia
Indorser (anomalous – not in
chain of title)
Accommodated Party

Why would a holder refuse a tender of
payment?

1. Effect on person making tender
 On principal = none
 On future interest = discharged

1. Effect on person with right of recourse
against person making tender
 Discharged for amount of tender
Saul
Maker
Accommodated Party
Cather
Accommodation Maker
tender (b)
tender (a), (c)
Stout
Payee
Indorser
Goodwin
Holder

Basic Idea – Certain changes to the contract
between accommodated party and holder
may discharge the accommodation party.

1. Impairment of Collateral -- § 3-605(d)
 Impairment discharges accommodation party
to extent of impairment.
▪
▪
▪
▪
Not perfect interest in collateral
If in possession of collateral, not preserve its value
Not follow rules regarding repossession and resale
Release collateral without getting substitute
collateral
 Problem 136, p. 435

1. Impairment of Collateral -- § 3-605(d)
Chemical Bank v. Pic Motors
Pic
Bank
Borrower
Lender
Siegel
Guarantor
• Not UCC case has guaranty not on note.
• Lender not keep watchful eye on
collateral.
• Guarantor had consented so too bad
collateral impaired.

2. Modifications not covered by special
rules -- § 3-605(c)
 Accommodation party discharged only if
modification causes loss (e.g., any increased
liability caused by the modification).

3. Extension of time to pay -- § 3-605(b)
Accommodation party discharged only if
extension causes loss (e.g., increased
liability).
 Accommodation party’s obligation also
extended, unless
 Party granting extension retained right to
enforce against accommodation party under
original time frame.


1. Reimbursement from accommodated party.

2. Discharge if had right of reimbursement
against person whose tender of payment refused.

3. Collateral impaired.

4. General modification caused loss.

5. Extension of time to pay caused loss.

4. Release -- § 3-605(a)
 If release does not preserve rights against
accommodation party, accommodation party
discharged.
 Accommodation party discharged if loss.
 If check indorser is the accommodation party,
accommodation party discharged.
 If obligor gave consideration for the release (e.g.,
partial payment), the accommodation party is
discharged to that extent.

4. Situations where no discharge -- § 3605(f)
 Accommodation party consents.
 Accommodation party has waived right to use
suretyship defenses.
 Note: Parties often include waivers in original
instrument and get consent to keep
accommodation party liable.

Problem 138 – p. 441
Point
Maker
Accommodated Party
Shadbolt
Accommodation Maker
[skim only, but note subquestion (d)]
Yeoman
National
Bank

Fact Pattern
 Note One becomes due and the maker who is
unable to pay gives the holder Note Two
payable at a later date. Holder retains Note
One as security.
 This is considered an extension of time to pay.
 What is impact on liability of indorsers and
accommodation parties?

Problem 139 – p. 445
 Note #1
▪
▪
▪
▪
Maker = Rex Lear
Accommodation Maker = Cordelia
Payee = Kent
Due 6/8
 Note #2
▪ Maker = Rex Lear (with more collateral)
▪ Payee = Kent (keeping Note #1 as security)
▪ Due 9/25

Problem 140 – p. 445
Marty
Maker
Payee
Dogfish
Sam
Surety
Hammerhead
HDC