Opinion ID: 571285
Heading Depth: 2
Heading Rank: 3

Heading: Release of Collateral.

Text: 49 The Court next must resolve the issue of whether Guinn's liability as a guarantor of the Associated Nursery debt was discharged when the FDIC released the collateral securing the debt without the consent of or prior notice to Guinn. Generally, a guarantor of a debt is discharged if the creditor releases the collateral securing the debt. 38 Am.Jur.2d Guaranty § 84 (1968); See also, Union Planters Nat'l Bank of Memphis v. Markowitz, 468 F.Supp. 529, 533 (W.D.Tenn.1979) (court stating that the general rule is that the guarantor is discharged to the extent of any loss caused by the failure of the creditor to perfect a security interest in collateral). The rationale behind this general rule is that [t]he creditor, having thus had security for payment of the debt, is deemed to have stood toward the guarantor in the position of trustee and, because he has breached that trust duty, may not hold the guarantor liable. 38 Am.Jur.2d Guaranty § 84 (1968). In addition, the guarantor, if the security had not been lost, would have been subrogated to the creditor's right to resort thereto; and hence, having been deprived of this right by the creditor's act, the guarantor is not liable on the contract of guaranty. Id. 50 An exception to this general rule of discharge is that the guarantor is not discharged if he or she has consented to the release of the collateral. Id. The parties to the present case concede the fact that Guinn was not notified prior to the sale of the assets of Associated Nursery nor did Guinn give his express consent to the particular transaction. The FDIC argues, however, that by signing the guaranty agreement which he signed, Guinn consented in advance to the release of the security for the Associated Nursery debt and that, accordingly, Guinn was not discharged from liability by the release of the collateral. As was indicated above in the Court's opinion, the terms of the guaranty agreement control the guarantor's obligations. Accordingly, the Court turns to the continuing guaranty agreement to determine whether in fact consent was given to the release of the collateral. 51 The continuing guaranty agreement provides that the Bank may, in its sole and absolute discretion, ... take and give up security ... [and] make any changes of any sort whatsoever in the terms of its contract or manner of doing business with Debtor and/or the other parties and securities in relation thereto, and without any notice to or consent from me (us), may also apply any monies received from Debtor and/or others, or from securities, as Bank may think best, without in any way altering, affecting, limiting or lessening the liability of the undersigned ... pursuant to this Continuing Guaranty. The language of the guaranty is unambiguous. By its express terms, Guinn, as guarantor, gave his consent to the FDIC's giving up of the collateral securing the Associated Nursery note. Because Guinn gave prior consent to the release of the collateral, Guinn was not discharged from liability as guarantor when the assets of Associated Nursery were sold. 6 52 Guinn makes the additional argument that he is discharged from liability because the FDIC failed to follow its own internal guidelines when it released the collateral without giving Guinn notice or obtaining Guinn's consent. Guinn argues that a federal agency is bound by its own regulations. Guinn states that a failure to comply with regulations is a fatal flaw to administrative action. Guinn relies in part upon the case of Kelly v. Railroad Retirement Bd., 625 F.2d 486 (3d Cir.1980) for the proposition that an agency is bound by its regulations and [f]ailure to comply with regulations is a fatal flaw to administrative action. Id. at 491-92 (citations omitted). 53 The FDIC argues in response that it did indeed comply with its internal guidelines. The FDIC further argues that it is not bound by its internal guidelines because the guidelines do not have the force or effect of law. 54 The FDIC internal guideline at issue provides that [i]f there are guarantors involved in an asset, the account officer should seek legal advice from the Legal Division to determine FDIC's rights to release or sell collateral security if consent from the guarantors cannot be obtained for the sale or release(s). The Court finds that FDIC did in fact comply with its internal guidelines in the present case. The guideline instructs an account officer to seek legal advice before releasing collateral security if consent from a guarantor cannot be obtained. Under the internal guideline, the account officer working on the Associated Nursery account did not need to consult the legal department prior to releasing the collateral because, as was found above, Guinn, the guarantor of the note, had already given his consent to the release of the collateral. 7 55