Court Opinion

ID: 9461135
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:06:45.151745+00
Date Added: 2024-06-11T17:36:54.523912
License: Public Domain

*958GODBOLD, Circuit Judge
(dissenting) :
I respectfully dissent.
The keystone of the majority opinion is that the guarantors waived whatever rights they may have to protection of their subrogation interests except to a limited extent.1 By finding waiver the majority avoid the substantive issue. The quoted provision relied upon as a waiver will not support the reliance my brothers place upon it. Fully stated, the clause reads:
The obligations of the undersigned hereunder, and the rights of Bank in the collateral, shall not be released, discharged or in any way affected, nor shall the undersigned have any rights against Bank by reason of the fact that any of the collateral may be in default at the time of acceptance thereof by Bank or later; nor by reason of the fact that a valid lien in any of the collateral may not be conveyed to, or created in favor of, Bank; nor by reason of the fact that any of the Liabilities may be invalid for any reason whatsoever; nor by reason of the fact that the value of any of the collateral, or the financial condition of the Debtor or of any obligor under or guarantor of any of the collateral, may not have been correctly estimated or may have changed or may hereafter change; nor by reason of any deterioration, waste, or loss by fire, theft, or otherwise of any of the collateral unless such deterioration, waste, or loss be caused by the willful act or willful failure to act of Bank. (emphasis added.)
The majority extract the language “deterioration, waste or loss” resulting from the “willful act or willful failure to act of [the] Bank” and conclude that the guarantors waived all rights in the security not included in this phraseology. I think this is a misconstruction. The provision is not a waiver clause. It is a release of rights by the [undersigned] guarantors. It is not a recognition that they have no rights existent aliunde this provision. What it is, and all it is, is a statement that in specified circumstances the guarantors are not released of their obligation and are not to have rights created in their favor. The particular circumstances centered upon are “deterioration, waste, or loss.” First, it is incorrect analysis to imply a plenary waiver of all of one’s rights from the exception to a clause that negatives the existence of rights in a particular circumstance. Second, the “deterioration, waste, or loss” provision is limited to physical loss or deterioration of the collateral. Austad v. United States, 386 F.2d 147 (CA 9, 1967).2 This same conclusion was reached in United States v. Houff, 202 F.Supp. 471 at 478-480 (W.D.Va., 1962), construing the same provision of the SBA guaranty form, and by the Supreme Court of New Hampshire construing the same language in a form of the Reconstruction Finance Corporation, RFC v. Faulkner, 101 N.H. 352, 143 A.2d 403 (N.H.1958).3 *959Since the provision on which the majority focus specifically negatives the existence of rights in the guarantor arising from physical loss or destruction of collateral (except that willfully caused) it leaves in effect rights of the guarantor existent under the law and arising from other types of damage to or destruction of collateral by the creditor.
The preceding portions of the provision, as quoted above, cover non-physical matters such as absence of a valid lien, equities and claims in favor of others, (etc.). If, as my. brothers would have it, the “willful act or failure” exception impliedly excluded all other rights, these earlier provisions would be surplusage. Additionally, the guaranty agreement contains another provision which the majority opinion does not consider. It provides that “obligations of the undersigned hereunder shall not be released, discharged or in any way affected, nor shall the undersigned have any rights or recourse against Bank, by reason of any action Bank may take or omit to take under the foregoing powers.” The “foregoing powers” are grants by the guarantors to the creditor of authority to perform actions which, if taken by a creditor without the surety’s consent, will discharge the surety. Among the enumerated grants of power are power to change the terms of the indebtedness, to grant extensions or renewals, to substitute, exchange or release collateral, and power to purchase collateral for the bank’s own account. This clause is important for more than one reason. Its subject matter, as just pointed out, is to protect the creditor from consequences normally visited upon him by his failure or wrong with relation to the security. This subject matter, specifically dealt with, is the same subject matter that the majority consider to be dealt with by implication in the “deterioration, waste or loss” provision. Second, the several acts enumerated in the grant of the “foregoing powers” do not include that here involved, withholding the security documents from recording.
The guaranty agreement seems to me to leave intact the responsibility of the creditor to record the security interests, if that is what lawyers and nonlawyer loan officers do under the practices of the jurisdiction. Ejusdem generis un-dergirds that reading.
With waiver aside, I would reach the substantive issue not reached by the majority and would hold that it is for a trier of fact to determine whether the bank in failing to file a financing statement fell below Alabama’s standard of care for a prudent creditor in like circumstances and with similar security. Despite indications to the contrary, including statements by this court,4 the Supreme Court has settled that, absent overriding federal interests, the law governing SBA loans is the law of the state where the transaction occurs, either ex proprio vigore or by adoption as federal law. United States v. Yazell, 382 U.S. 341, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966). There is no need to set out in this opinion what I view to be the clear Alabama law that if — and the if is for a trier of facts — the bank was negligent, the guarantors’ obligation is reduced pro tanto.

. The majority do not question, indeed the guaranty agreement itself recognizes, that the guarantors are subrogated to the rights of the bank, and therefore of the SBA, if they discharge the debt.

. Austad is the obverse of this case. The guarantor claimed that the government’s action (allegedly willful forbearance from realizing on the collateral) was within the “willful act or willful failure” exception, that is, the exception was relied upon as the source of rights. In the instant case the guarantors do not rely upon this provision as a source of rights but upon the law of subro-gation and suretyship.

. As one ground of decision, United States v. Vince, 270 F.Supp. 591 (E.D.La., 1967), applied the “willful act or failure” language to exclude responsibility by the creditor for alleged failure to collect pledged accounts receivable. The court did not address itself to the question of whether the provision is limited to physical damage and did not refer to ilouff or Faulkner. Austad was decided a few months later. This court affirmed per curiam on the separate ground that the provision of the guaranty agreement granting power to the creditor to realize or not realize on collateral at its discretion, operated as a waiver of more narrow rights provided *959by Louisiana law. Vince v. United States, 394 F.2d 462 (CA5 1968).

. First National Bank, Henrietta v. SBA, 429 F.2d 280 (CA5, 1970).