Sec. 605. (a) If a person entitled to enforce an instrument releases the obligation of a principal obligor in whole or in part, and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply: (1) Any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. Unless the terms of the release preserve the secondary obligor's recourse, the principal obligor is discharged, to the extent of the release, from any other duties to the secondary obligor under this article. (2) Unless the terms of the release provide that the person entitled to enforce the instrument retains the right to enforce the instrument against the secondary obligor, the secondary obligor is discharged to the same extent as the principal obligor from any unperformed part of its obligation on the instrument. If the instrument is a check and the obligation of the secondary obligor is based on an endorsement of the check, the secondary obligor is discharged without regard to the language or circumstances of the discharge or other release. (3) If the secondary obligor is not discharged under subdivision (2), the secondary obligor is discharged to the extent of the value of the consideration for the release, and to the extent that the release would otherwise cause the secondary obligor a loss. (b) If a person entitled to enforce an instrument grants a principal obligor an extension of the time at which one (1) or more payments are due on the instrument, and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply: (1) Any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. Unless the terms of the extension preserve the secondary obligor's recourse, the extension correspondingly extends the time for performance of any other duties owed to the secondary obligor by the principal obligor under this article. (2) The secondary obligor is discharged to the extent that the extension would otherwise cause the secondary obligor a loss. (3) To the extent that the secondary obligor is not discharged under subdivision (2), the secondary obligor may perform its obligations to a person entitled to enforce the instrument as if the time for payment had not been extended or, unless the terms of the extension provide that the person entitled to enforce the instrument retains the right to enforce the instrument against the secondary obligor as if the time for payment had not been extended, may treat the time for performance of its obligations as having been extended correspondingly. (c) If a person entitled to enforce an instrument agrees, with or without consideration, to a modification of the obligation of a principal obligor other than a complete or partial release or an extension of the due date, and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply: (1) Any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. The modification correspondingly modifies any other duties owed to the secondary obligor by the principal obligor under this article. (2) The secondary obligor is discharged from any unperformed part of its obligation to the extent that the modification would otherwise cause the secondary obligor a loss. (3) To the extent that the secondary obligor is not discharged under subdivision (2), the secondary obligor may satisfy its obligation on the instrument as if the modification had not occurred, or treat its obligation on the instrument as having been modified correspondingly. (d) If the obligation of a principal obligor is secured by an interest in collateral, another party to the instrument is a secondary obligor with respect to that obligation, and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of the secondary obligor is discharged to the extent of the impairment. The value of an interest in collateral is impaired to the extent the value of the interest is reduced to an amount less than the amount of the recourse of the secondary obligor, or the reduction in value of the interest causes an increase in the amount by which the amount of the recourse exceeds the value of the interest. For purposes of this subsection, impairing the value of an interest in collateral includes failure to obtain or maintain perfection or recordation of the interest in collateral, release of collateral without substitution of collateral of equal value or equivalent reduction of the underlying obligation, failure to perform a duty to preserve the value of collateral owed, under IC 26-1-9.1 or other law, to a debtor or other person secondarily liable, and failure to comply with applicable law in disposing of or otherwise enforcing the interest in collateral. (e) A secondary obligor is not discharged under subsection (a)(3), (b), (c), or (d) unless the person entitled to enforce the instrument knows that the person is a secondary obligor or has notice under IC 26-1-3.1-419 (c) that the instrument was signed for accommodation. (f) A secondary obligor is not discharged under this section if the secondary obligor consents to the event or conduct that is the basis of the discharge, or the instrument or a separate agreement of the party provides for waiver of discharge under this section specifically or by general language indicating that parties waive defenses based on suretyship or impairment of collateral. Unless the circumstances indicate otherwise, consent by the principal obligor to an act that would lead to a discharge under this section constitutes consent to that act by the secondary obligor if the secondary obligor controls the principal obligor or deals with the person entitled to enforce the instrument on behalf of the principal obligor. (g) A release or extension preserves a secondary obligor's recourse if the terms of the release or extension provide that: (1) the person entitled to enforce the instrument retains the right to enforce the instrument against the secondary obligor; and (2) the recourse of the secondary obligor continues as if the release or extension had not been granted. (h) Except as otherwise provided in subsection (i), a secondary obligor asserting discharge under this section has the burden of persuasion both with respect to the occurrence of the acts alleged to harm the secondary obligor and loss or prejudice caused by those acts. (i) If the secondary obligor demonstrates prejudice caused by an impairment of its recourse, and the circumstances of the case indicate that the amount of loss is not reasonably susceptible of calculation or requires proof of facts that are not ascertainable, it is presumed that the act impairing recourse caused a loss or impairment equal to the liability of the secondary obligor on the instrument. In that event, the burden of persuasion as to any lesser amount of the loss is on the person entitled to enforce the instrument. IC 26-1-4 Chapter 4. Bank Deposits and Collections 26-1-4-101 Short title 26-1-4-102 Applicability 26-1-4-102.5 Application of bank provisions to supervised financial organizations 26-1-4-103 Variation by agreement; measure of damages; action constituting ordinary care 26-1-4-104 Definitions and index of definitions 26-1-4-105 "Bank"; "depositary bank"; "payor bank"; "intermediary bank"; "collecting bank"; "presenting bank" 26-1-4-106 Payable through or payable at bank; collecting bank 26-1-4-107 Separate office of bank 26-1-4-108 Time of receipt of items 26-1-4-109 Delays 26-1-4-110 Electronic presentment 26-1-4-111 Statute of limitations 26-1-4-201 Status of collecting banks as agent and provisional status of credits; applicability of chapter; item endorsed "pay any bank" 26-1-4-202 Responsibility for collection or return; when action timely 26-1-4-203 Effect of instructions 26-1-4-204 Methods of sending and presenting; sending directly to payor bank 26-1-4-205 Depositary bank holder of unendorsed items 26-1-4-206 Transfer between banks 26-1-4-207 Transfer warranties 26-1-4-208 Presentment warranties 26-1-4-209 Encoding and retention warranties 26-1-4-210 Security interest of collecting bank in items, accompanying documents, and proceeds 26-1-4-211 When bank gives value for purposes of holder in due course 26-1-4-212 Presentment by notice of item not payable by, through, or at bank; liability of drawer or endorser 26-1-4-213 Medium and time of settlement by bank 26-1-4-214 Right of charge-back or refund; liability of collecting bank; return of item 26-1-4-215 Final payment of item by payor bank; when provisional debits and credits become final; when certain credits become available for withdrawal 26-1-4-216 Insolvency and preference 26-1-4-301 Deferred posting; recovery of payment by return of items; time of dishonor; return of items by payor bank 26-1-4-302 Payor bank's responsibility for late return of item 26-1-4-303 When items subject to notice, stop-payment order, legal process, or setoff; order in which items may be charged or certified 26-1-4-401 When bank may charge customer's account 26-1-4-402 Bank's liability to customer for wrongful dishonor; time of determining insufficiency of account 26-1-4-403 Customer's right to stop payment; burden of proof of loss 26-1-4-404 Bank not obligated to pay check more than six months old 26-1-4-405 Death or incompetence of customer 26-1-4-406 Customer's duty to discover and report unauthorized signature or alteration 26-1-4-407 Payor bank's right to subrogation on improper payment 26-1-4-501 Handling of documentary drafts; duty to send for presentment and to notify customer of dishonor 26-1-4-502 Presentment of "on arrival" drafts 26-1-4-503 Responsibility of presenting bank for documents and goods; report of reasons for dishonor; referee in case needed 26-1-4-504 Privilege of presenting bank to deal with goods; security interest for expenses
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