he surrounding circumstances.
A guarantor's liability will not be extended by implication beyond the terms of his or her contract. "A guarantor is a favorite in the law and is not bound beyond the strict terms of the engagement. Moreover, a guaranty of a particular debt does not extend to other indebtedness not within the manifest intention of the parties."
Under Indiana common-law principles, when parties cause a material alteration of an underlying obligation without the consent of the guarantor, the guarantor is discharged from further liability whether the change is to his or her injury or benefit. In Yin v. Society Nat'l Bank of Indiana, 665 N.E.2d 58, 64 (Ind.Ct.App.1996), trans. denied, the court summarized the following rules relating to material alteration of a guaranty:
"Guarantors and sureties are exonerated if the creditor by any act, done without their consent, alters the obligation of the principal in any respect or impairs or suspends the remedy for its enforcement." Moreover, when the principal and obligee cause a material alteration of the underlying obligation without the consent of the guarantor, the guarantor is discharged from further liability. A material alteration which will effect a discharge of the guarantor must be a change which alters the legal identity of the principal's contract, substantially increases the risk of loss to the guarantor, or places the guarantor in a different position. The change must be binding.
Id. at 585-86 (emphases added, some internal citations omitted).
Here, Heritage/M.G. is the principal obligor. The Keeslings are guarantors on the original note payable to the Henke I.R.A., which was the original obligee. As guarantors, the Keeslings are accommodation parties. See Ind.Code § 26-1-3.1-419 (defining accommodation party as someone who signs an instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument).
Heritage Land is also an accommodation party. Heritage Land *1252 signed the