"|T]he surety must prove two elements in order to be entitled to a discharge — ‘that the holder of the note was responsible for the loss or impairment of the collateral, and the extent to which the impairment results in loss.’ "
How later courts described this case
- "|T]he surety must prove two elements in order to be entitled to a discharge — ‘that the holder of the note was responsible for the loss or impairment of the collateral, and the extent to which the impairment results in loss.’ "
- Under Arkansas general suretyship law, a creditor must preserve a surety’s right of recourse in collateral.
Written by the judges who cited it.
The opinion
Supplemental Opinion on Rehearing
November 16, 1987
[Rehearing denied December 14, 1987.]
741 S.W.2d 624
Secured transactions — impairment of collateral — court ERRED IN ORIGINAL OPINION — APPELLANT WAS DISCHARGED AS guarantor as a matter of law. — The Supreme Court erred in the original opinion in this case in concluding that appellant was responsible for impairment of the collateral, as the court’s concern should have been limited to the activities of the appellee creditor, who failed to preserve appellant’s right of recourse in the collateral by discharging its claim against all parties in possession with prejudice; thus, regardless of appellant’s involvement in the movement of collateral, appellee, in dismissing the claim with prejudice, discharged appellant as guarantor as a matter of law.
Jack Holt, Jr., Chief Justice. Under Arkansas Supreme Court and Court of Appeals Rule 20(g), we consider petitions for rehearing which call our attention to specific errors of law or fact which our opinion is thought to contain. In doing so, we find a mistake in law in our opinion because we considered the wrong issue; that is, we concentrated on Myers’ activity as surety, rather than on what First State Bank of Sherwood (“FSB”) as creditor did with respect to the collateral.
In our opinion, we noted that a creditor has an obligation to preserve a surety’s right of recourse in the collateral. First Nat’l Bank v. Waddell, 74 Ark. 241 , 85 S.W. 417 (1905). However,we qualified this proposition by stating:
While we agree that in ordinary circumstances a creditor will discharge a guarantor when it releases parties in possession of collateral securing a note, this rule should not discharge a guarantor when he is found by the trial court to be a person who at least in part created the problem.
We disagree with Johnnie’s contention that it was FSB which was “responsible for the loss or impairment of collateral.” Or, in the language of First Nat’l Bank, supra, that the collateral was “lost through the negligence or want of ordinary diligence of the creditor.” Instead, it was the disbursement of the collateral by CISI, of which Johnnie was the chairman of the board of directors, and by Mary, Johnnie’s daughter, which caused the impairment and led to the dismissal of FSB’s claims for possession of the collateral.
In doing so, we erred in concluding that Myers was responsible for impairment of the collateral as our concern should have been limited to the activities of FSB as creditor. FSB failed to preserve Myers’ right of recourse in the collateral by discharging its claim against all parties in possession with prejudice. Regardless of Myers’ involvement in the movement of collateral, the fact remains that FSB, in dismissing the claim with prejudice, discharged Myers as guarantor as a matter of law. First Nat’l Bank v. Waddell, supra.
Rehearing granted.
Hays and Glaze, JJ., dissent.