(1) The holder discharges any party to the instrument to the extent that without such party's consent the holder

1. (a) without express reservation of rights releases or agrees not to sue any person against whom the party has to the knowledge of the holder a right of recourse or agrees to suspend the right to enforce against such person the instrument or collateral or otherwise discharges such person, except that failure or delay in effecting any required presentment, protest or notice of dishonor with respect to any such person does not discharge any party as to whom presentment, protest or notice of dishonor is effective or unnecessary; or
2. (b) unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse.

(2) By express reservation of rights against a party with a right of recourse the holder preserves

1. (a) all his rights against such party as of the time when the instrument was originally due; and
2. (b) the right of the party to pay the instrument as of that time; and

3. (c) all rights of such party to recourse against others.

   SECTION 36-3-606 provides no protection to a corporation in an action to foreclose a mortgage given as additional security for a purchase money debt where the deed of trust note was executed by a corporate principal in his individual capacity; since the corporation was not a party to the deed, it could not invoke SECTION 36-3-606. D.R. Allen & Son, Inc. v. Harwal, Inc. (S.C.App. 1992) 307 S.C. 315, 414 S.E.2d 805.

   In order for an agreement under Section 36-3-606 to have legal consequences, the agreement must be a binding one, supported by consideration. Seven Lakes Inv. Group, Inc. v. Crowe (S.C. 1989) 297 S.C. 534, 377 S.E.2d 576.

   An Unconditional Continuing Guarantee did not satisfy the requirements of a "negotiable instrument" and, therefore, the guarantor was not a "party to the instrument" under Section 36-3-606 and could not assert an impairment of collateral defense. Sunrise Sav. & Loan Ass'n v. Mariner's Cay Development Corp. (S.C. 1988) 295 S.C. 208, 367 S.E.2d 696.

   Section 36-3-606 applies only where the party claiming discharge has a right of recourse against a person who has libeled on the instrument or has given collateral for it, and "recourse," as applied to checks, means the right of a holder or an endorser, upon dishonor, to require the drawer or any prior endorser to pay the instrument according to its tenor at the time it was drawn or endorsed by that person. First American Bank of Virginia v. Litchfield Co. of South Carolina, Inc. (S.C.App. 1987) 291 S.C. 240, 353 S.E.2d 143.

   The drawer of a check, as the party ultimately liable to pay the instrument, has no recourse against the payee, any subsequent endorser who takes up the instrument, or the holder. First American Bank of Virginia v. Litchfield Co. of South Carolina, Inc. (S.C.App. 1987) 291 S.C. 240, 353 S.E.2d 143.

   In an action by a lender to recover a debt owed by a corporation, the evidence showed that a lease never became collateral for the loan and therefore, under Section 36-3-606, the lender could not have impaired collateral that did not exist. Costas v. First Federal Sav. and Loan Ass'n (S.C. 1984) 283 S.C. 94, 321 S.E.2d 51.

   PART 7. ADVICE OF INTERNATIONAL SIGHT DRAFT