John borrows $3,000 from Town Credit Union to purchase a used boat.The credit union has John sign a promissory note and takes the boat as collateral.It also asks John's brother,William,to sign the note as an accommodation maker.Later,John tells the credit union he wants to sell the boat and it releases it as collateral.What happens to William's obligation?
A)William is discharged from his obligation for $3,000.
B)William is discharged from his obligation in the amount of the value of the boat.
C)William remains obligated under the note because payment is still due.
D)William remains obligated under the note because he was not part of the collateral release agreement.

Question

Quizplus · Accepted Answer

If collateral secures the obligation of a party to an instrument and a person entitled to enforce the instrument impairs the value of the collateral,the obligation of the indorser or accommodation party having the right of recourse against the obligor is discharged to the extent of the impairment.

John Borrows $3,000 from Town Credit Union to Purchase a Used