Myers v. First State Bank

Tom Glaze, Justice, dissenting. Recently, this court had occasion to change a long-standing rule in creditor-debtor cases by deciding a secured creditor’s right to a deficiency judgment under the Uniform Commercial Code is absolutely barred if the creditor failed to notice the debtor as required under the Code. First State Bank of Morrilton v. Hallett, 291 Ark. 37 , 722 S.W.2d 555 (1986). In my view, the majority, by granting appellant’s rehearing, is modifying Arkansas’s settled general surety law as it pertains to a creditor’s obligation to preserve a surety’s right of recourse in collateral. It does so by applying Arkansas’s surety law to protect a guarantor — appellant in this case — whose actions were never intended to be protected under that law.

This court in First National Bank v. Waddell, 74 Ark. 241 , 85 S.W. 417 (1905) stated the applicable rule of law as follows:

The creditor who has effects of the principal in his hand or under his control for the security of the debt is a trustee for all parties concerned; and if such effects are lost through the negligence or want ofordinary diligence of the creditor, the surety is discharged, to the extent that he is injured, the same as if the effects had been lost by the positive act of the creditor.

In such case he is bound to be diligent in preserving such effects, to the same extent that any other trustee, similarly situated, is bound to use diligence. The kind of diligence required will be governed by the circumstances of each particular case. (Emphasis supplied.)

In the present case, the appellant — not the appellee — was responsible for any impairment to the collateral securing the CISI loan. As pointed out in our earlier opinion, appellant was the sole incorporator and is the chairman of the board of CISI. He was deeply involved in his daughter and CISI obtaining the loans in issue here from the appellee. At the least, appellant as an officer of CISI must be imputed with the knowledge of his daughter’s disposal of the loan collateral. At most, a strong inference exists that appellant had actual knowledge of the disposition of the collateral, since his own wife acquired some of the assets (collateral), not to mention the acquisitions made by his other relatives. The evidence supports the conclusion that it was appellant’s and CISI’s actions that were responsible for any collateral impairment, not the actions or negligence of appellee. The trial judge’s holding is consistent with such a finding.

The trial judge’s decision is in keeping with Arkansas’s general surety law when holding the appellant liable under his guarantee agreement with the appellee. This court should not (and I cannot) say the trial court was clearly erroneous — which is necessary to justify the reversal of this case. Of course, this court’s granting of appellant’s petition for rehearing in this case also reverses this case. In reversing, we permit the ones who caused the wrongful disposal and impairment of the collateral to benefit from their wrong.

Appellee’s only mistake (other than making the loan to appellee’s daughter and CISI in the first place) was its concerted, but unsuccessful, effort to locate the loan collateral. Appellee’s attempt in this respect accorded appellant a favor to which he was unentitled by law. For this, the majority court punishes appellee by cancelling appellant’s surety obligation even though appellant was a co-author of disposing of the collateral, in part, to some of his relatives. While Arkansas’s law favors guarantors so as to protect their right of recourse, such actions as those manifested here by appellant-guarantor were never intended to be covered under that law.

In conclusion, I would add that my major difference with our earlier opinion was that it appeared this court was holding that the Code did not apply, but the opinion then proceeded to discuss § 85-3-606 as if that Code provision did apply. In doing so, the opinion made reference to Van Balen v. Peoples Bank & Trust Co., 3 Ark. App. 243 , 626 S.W.2d 205 (1981), which involved that statute. After having applied our state general surety law, I believe we were in error for discussing the Code any further. Todo so served only to confuse any reader of the opinion, leaving them to wonder what law we actually used in reaching our decision. My opinion then, and now, is that the general surety law controls, and Code provisions §§ 85-9-606 and -9-311 have no application to the facts of this case.

I would deny the petition for rehearing.

Hays, J., joins in this dissent.