1. (a) The obligation of a party to pay the instrument is discharged as stated in this article or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.

2. (b) Discharge of the obligation of a party is not effective against a person acquiring rights of a holder in due course of the instrument without notice of the discharge.

   OFFICIAL COMMENTS

3. UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
4. Subsection (a) replaces subsections (1) and (2) of former Section 3-601. Subsection (b) restates former Section 3-602 [see now 55-3-601 NMSA 1978]. Notice of discharge is not treated as notice of a defense that prevents holder in due course status. Section 3-302(b) [55-3-302 NMSA 1978]. Discharge is effective against a holder in due course only if the holder had notice of the discharge when holder in due course status was acquired. For example, if an instrument bearing a canceled indorsement is taken by a holder, the holder has notice that the indorser has been discharged. Thus, the discharge is effective against the holder even if the holder is a holder in due course.

History: 1978 Comp., § 55-3-601, enacted by Laws 1992, ch. 114, § 151.

ANNOTATIONS

Repeals. — Laws 1992, ch. 114, § 237 repealed former 55-3-601 NMSA 1978, as enacted by Laws 1961, ch. 96, § 3-601, relating to discharge of parties, effective July 1, 1992. Laws 1992, ch. 114, § 151, enacted a new section, effective July 1, 1992. For provisions of former section, see the 1991 NMSA 1978 on NMOneSource.com.

Discharge of endorser. — Where payee used part of advance made at time of execution of note in paying accrued interest owing by maker, contrary to agreement, endorser of note, who was president of corporation which was maker of the note, was discharged from liability on his endorsement notwithstanding his failure to protest such diversion on learning of it two months later, and benefit derived by him in use by maker of part of advance in discharging another of its obligations which he had guaranteed. Pacific Nat'l Agric. Credit Corp. v. Hagerman, 1935-NMSC-088, 39 N.M. 549, 51 P.2d 857, 101 A.L.R. 1301 (1935)(decided under former law).

Discharge of principal debtor does not include discharge by limitations, and a surety is not released from his liability to pay, by such limitations, against the principal. Romero v. Hopewell, 1922-NMSC-037, 28 N.M. 259, 210 P. 231 (decided under former law).

A common law contract defense, such as impairment of an accommodation party's right of recourse, may be raised by the accommodation party where such defense does not contradict the provisions of this chapter. Venaglia v. Kropinak, 1998-NMCA-043, 125 N.M. 25, 956 P.2d 824.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 11 Am. Jur. 2d Bills and Notes §§ 525, 901, 904, 912, 929, 930, 933, 952, 961, 963.

Endorsing payment upon note before maturity as releasing surety or endorser, 37 A.L.R. 477.

Taking of demand note in renewal as releasing surety or endorser, 48 A.L.R. 1222.

Payment voidable under bankruptcy act as discharge of surety, guarantor or endorser, 56 A.L.R. 1363.

Agreement by holder with principal not to put paper in course of collection for a specified time as releasing endorser, 63 A.L.R. 1532.

Failure or delay by holder of note to enforce collateral security as releasing endorser, 74 A.L.R. 129.

Mortgagee's purchase of equity of redemption as releasing endorser on secured note, 82 A.L.R. 764.

Consent of party secondarily liable to release of party primarily liable as affecting release of former, 169 A.L.R. 753.

Renewal note signed by one comaker as discharge of nonsigning comakers, 43 A.L.R.3d 246.

What constitutes unjustifiable impairment of collateral, discharging parties to a negotiable instrument under UCC § 3-606(1)(B), 61 A.L.R.5th 525.

10 C.J.S. Bills and Notes § 231 et seq.