Opinion ID: 2354364
Heading Depth: 2
Heading Rank: 2

Heading: The collateral was lost through ADFA's negligence.

Text: Appellants next contend that ADFA negligently lost or failed to protect the Red River collateral before going to the individual guarantors for satisfaction of their personal guaranties and that based on this negligence the appellants should be released from their liability under the personal guaranties. Specifically, appellants assert that ADFA should have taken actions such as repossessing or selling land or equipment owned by Red River in an attempt to satisfy Red River's outstanding debt before attempting to enforce appellants' personal guaranties. ADFA responds to this assertion by contending that the provisions of the guaranty agreements did not require such actions. Specifically, ADFA cites Section 2.4 of the guaranty agreement which provides: In the event of a failure by the company [Red River] to repay authority [ADFA] in full within the time called in section 2.1 hereof, authority without further notice or demand and in its sole discretion, shall have the right to proceed first and directly against the guarantor under this agreement without proceeding against or exhausting any other remedies which it may have and without resorting to any other security held by the authority or the trustee. The foregoing language, which was approved by appellants, expressly authorizes the actions taken by ADFA. Specifically, the language from the guaranty agreement does not require ADFA to repossess, secure, or sell property or equipment owned by Red River to satisfy Red River's debt. Accordingly, ADFA properly proceeded against the guarantors. ADFA also makes the argument that because it was a creditor not in possession of the collateral it had no duty to protect the collateral for the benefit of the appellants. ADFA's contention is well taken. We have explained that a creditor in possession of collateral is held to a high standard of care. See First National Bank v. Waddell, 74 Ark. 241, 85 S.W. 417 (1905). However, we have also explained that a creditor is not obligated to preserve the right of recourse in collateral of a surety. Id. Finally, we have stated that a creditor has no duty to repossess collateral to protect or for the benefit of a guarantor. Moore v. Luxor, 294 Ark. 326, 742 S.W.2d 916 (1988). In light of applicable principles of law, we conclude that ADFA, as a creditor not in possession of the collateral, was not required to protect the collateral for the benefit of the guarantors.