Which of the Following Is True Regarding Discharge by Impairment

question 24

Multiple Choice

Which of the following is true regarding discharge by impairment of collateral?

• A) Discharge cannot occur through impairment of collateral.
• B) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.
• C) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument regardless of the extent of the damage to the collateral.
• D) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument only if the instrument is in an amount less than $500; otherwise, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.
• E) If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument only if the instrument is in an amount less than $1,000; otherwise, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.

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