Opinion ID: 2354364
Heading Depth: 2
Heading Rank: 1

Heading: The risk of each personal guaranty was increased without consent.

Text: In their next point on appeal, appellants contend that the trial court erred in not releasing appellants from their liability under the personal guaranties when ADFA impaired the collateral. Specifically, appellant claim: (1) that ADFA unlawfully increased the risk of each personal guaranty; (2) that this increased risk constituted a material change to the guaranty agreement; and (3) that this material change should have released them from their guaranty agreements. A material alteration in an obligation, made without the assent of the guarantor, may discharge the guarantor. Smith v. Elder, 312 Ark. 384, 849 S.W.2d 513 (1993). An alteration is not material unless the guarantor is placed in the position of being required to do more than his original undertaking. Id. In determining whether an alteration is material the courts look to see whether the surety has been placed in a position different from that which it promised to guarantee. Carroll-Boone Water Dist. v. M. & P. Equip. Co., 280 Ark. 560, 661 S.W.2d 345 (1983). Appellants argue that ADFA materially altered the guaranty agreement by not preventing the Arkansas Industrial Development Commission from making a loan to Red River Aluminum thereby obtaining a security interest associated with that loan. Additionally, appellants argue that the AIDC loan violated Section 409 of the Trust Indenture. Section 409 of the Trust Indenture provides: [ADFA] covenants that so long as any bonds authorized by and issued under the Indenture are outstanding, [ADFA] will not convey or otherwise dispose of its interest in the mortgaged property, and that [ADFA] will not encumber the same, or any part thereof, or its interest therein, or create or permit to be created any charge or lien on the revenues derived therefrom, except as provided in this Indenture ... it being the purpose of this covenant to limit only a subsequent pledge of the mortgaged property and revenues as defined in this Indenture. Section 101 of the Trust Indenture defines revenues as: The income, including penalties and interest, derived by [ADFA] under the Loan Agreement and from [Red River Aluminum], and also amounts payable under the ADFA Guaranty. Mindful of the foregoing language, we turn to the facts surrounding the AIDC loan. Red River Aluminum, the City of Stamps, and AIDC entered into a development-loan agreement on April 14, 1994. ADFA did not sign this development-loan agreement and there is no evidence that ADFA was a party to the loan. AIDC took a security interest as collateral for the loan separate from the security interest ADFA possessed. There is disputed evidence as to the priority of the AIDC interest and the extent of the collateral securing the AIDC loan. There was documentary evidence that AIDC took a second-priority interest. This question was not resolved in this proceeding. Appellants claim that regardless of the priority, this security interest materially altered the guaranty agreements because there will still remain a lien on the property of Red River Aluminum after the appellants have paid ADFA on the individual guaranties. Appellants promised to pay ADFA if ADFA had to step into the shoes of Red River Aluminum in making payments on the bonds. The individual guaranties provided that ADFA could recover payment from appellants pursuant to the specified dollar amount of each guaranty. The AIDC loan and security interest does not alter the nature of appellants' obligations to ADFA. Appellants remain in the position of guaranteeing ADFA the same dollar amount specified in the guaranties regardless of the AIDC loan. We conclude the AIDC loan did not materially alter the appellants' guaranties, and that appellants' contention is misplaced. Appellants also argue that ADFA violated the Trust Indenture by not objecting to or otherwise preventing the AIDC loan. The Trust Indenture forbids ADFA from allowing a lien or charge to be created on the revenues derived from the mortgaged property. In section 101 of the Trust Indenture, the definition of revenues is limited to the moneys receivable by ADFA under the loan agreement. The Indenture prevents ADFA from pledging such receivables pledged to the payment of the bonds and guaranties as collateral for some other transaction. The Trust Indenture is silent as to whether Red River Aluminum could pledge the mortgage property as security for a subsequent loan for other business purposes. The AIDC loan does not impede or otherwise impair the penalties, interest, or payments to be made to ADFA so as to create a violation of the Trust Indenture. We conclude that ADFA did not materially alter the personal guaranties. Accordingly, the trial court was not clearly erroneous in declining to release appellants from their personal guaranties.