NORTHWESTERN NAT. BA,NE:
could not be said to have affected or changed the terms of payment provided for in the original contract, nor to have impaired Hayes' ability to pay for the beer shipped under that contract to him before and after the period covered by the letter. The purpose of the plaintiff company in indefinitely extending the time in which Hayes might pay for the car loads of beer received during the period covered by the letter was to enable him to meet advantageously the increased freight rates which the company knew might be established by the railway lines in the immediate future. Under that view of the import of the letter, the sureties were benefited, rather than damaged, by the prolongation of the time for Hayes to pay for increased shipments. It seems reasonable to suggest that Hayes, by selling the large quantities of beer for which he did not have to pay cash, would be in a better financial condition to more readily meet the obligations in which his sureties were interested. In the line of that suggestion, it would follow that Hayes' sureties were benefited, rather than damaged, by the creditor's indulgence. These views lead to the conclusion that the court below erred in instructing the jury, over the objection of the plaintiff, that the letter in question operated an entire release of the sureties, and in refusing the second request for instructions asked by the plaintiff, as hereinbefore given. The judgment of the circuit court is reversed, and the cause is remanded, with instructions to award a new trial, and thereafter proceed in accordance with the views expressed in this opinion, and otherwise as law and justice shall require.
NORTHWESTERN NAT. BANK OF ABERDEEN v. J. THOMPSON & SONS MANUF'G GO.
(Circuit Court of Appeals, Eighth CirCUit. No. 686.
December 16, 1895.)
A person having notes In his possession as collateral security for a debt Is bound, so far as the general owner of the notes is concerned, to use reasonable diligence to protect the security so held, and see that it is not outlawed. A bank baving in its cUlltody, as collateral security for a debt, notes secured by a chattel mortgage on live stock and farming implements on necessarily negligent, as respects the owners of. the notes, a f!trm, Is because it rans to collect the notes as they mature, though the mortgaged property is at that time adequate for the purpose, since, under certain conditions, such as a, failure of crops, a prUdent creditor woulll allow the mortgagor some,
In Error to the' Circuit (')ol1rt of the' United States for the District of S01,1th Dakota. '' ,
ThisactioIl arose upon 'the following state of facts: On September 25, 1889. B. L. Adamson executed a chattel mortgage in favor of O. B. Willard to the payment of thrl;le j:}otes,--Obe for $1,500" due December 1, 18\J0; on,e, fO, r, 511,5()O, due l and one for $2,000, due Decembe,I' 1, 1'h.e mortgage covered certain livestock, sucb ,as horses, cattle,and
., . 'v.71F.no.l-'-8
county, N;' D., and certaIn ··farmIngf;utenslls and Implements then In use on said farm. Subsequently, on November 5, 1889, O. J;J. Willard,the mortgagee, pledged the Adamson notes aforesaid to the Northwestern National Bank, of Aberdeen, S. D., the plaintiff irierror, to secure the payment of a debt which he then' owed to said bank. 'At a later date, to wit, on May 4, 1800, O. B. Willard assigned to the J. Thompson & Sons Manufacturing Company, the defendant in error, the aforesaid Adamson's notes, which were then in the possession of the Northwestern National Bank of Aberdeen, which assignment was made by Willard stlbject to ,the prior lien of the bank, and to secure the payment of $2,271.82, then due from Willard to the J. Thompson· & Sons Manufacturing CompallY; The chattel mortgage executed by Adamson as aforesaid was tiled for record in Dickey county, N. D., on October 2, 1889, and under the laws of North Dakota remained It lien upon the mortgaged property for the period of three years. The laws of North Dakota provide, in substance, that a chattel mortgage shall cease to be It lien after the expiration of 3 years from the date of recording the same, unless within not less than 10 nor more than 30 days before the expiration of that period the mortgage be renewed by tiling in the office of the register of deeds of the proper county a copy of such mortgage, together with a statement of the amount or balance due thereon, subscribed and sworn to by the then owner of the mortgage, his agent or attorney. Laws N. D.1800, c. 41, pp. 147, 148. The notes executed by Adamson, and secured by the aforesaid chattel mortgage, were not paid, nor was the mortgage renewed at the expiration of three years from the date of recording the same in the mode prescribed by the aforesaid statute. After the expiration of that period, to wit, on October 15, 1892, Adamson executed a second mortgage on the property to secure a debt due to W. B. Allen in the sum of $4,000. By reason of the execution of the second mortgage in favor of Allen, after the expiration of the lien of the first mortgage, the security held by the Northwestern National Bank for its own benefit and for the benefit of the J. Thompson & Sons Manufacturing Company became utterly valueless. This action was brought by the J. Thompson & Sons Manufacturing Company, hereafter termed the "Manufacturing Company," against the Northwestern National Bank, hereafter termed the "Bank," to recover damages for the loss of the security in the manner aforesaid. The complaint charged, In substance, that the security held by the bank-that is to say, the Adamson notes and chattel mortgage-was lost, and became valueless in consequence of the negligence of the bank in failing to renew the mortgage in the mode provided by law prior to the expiration of the lien thereof. The complaint also charged the bank with negligence in faillng to enforce the payment of the mortgage debt as the several installments thereof became due. The plaintiff below recovered a judgment against the bank for $1,965.41, to reverse which the bank has SUed out a writ of error.
1:i6gS,i tbenon Adamson'·· farm In
H. H. Potter, for plaintiff in error. Joe Kirby filed brief for defendant in error. Before CALDWELL, SANBORN,and THAYER, Circuit Judges. THAYlUR, Circuit Judge, after stating the case as above, delivered the opinion of the court. . We cannot assent to the view that an error was committed either in refusing to exclude all the evidence that was offered by the plaintiff below or in declining to direct a verdict in favor of .the defendant. In om' judgment, the case was necessarily left to the jury to decide, and the question to be considered is whether it was submitted to the jury under proper instructions. With reference to the duty devolved upon the defendant bank by reason of its having the :cotes of Adamson in its possession, the circuit court charged the jury, in substance, as follows: That by vir-
NORTHWESTERN NAT. BANK". 1. THOMPSON & SONS MANUF'G CO.
tue of having such notes in its custody as collateral security "it agreed to exercise diligence in the protection of the security"; that a person having notes in his possession as collateral security for a debt is bound, so far as the general owner of the notes is concerned, "to use reasonable diligence to protect the security (so· held), and see that it does not outlaW." It further the jury, in substance, that when the manufacturing company received an assignment of the Adamson notes from Willard, subject to the prior lien of the bank, it had the same rights as against the bank that its assignor, Willard, had; that is to say, that the bank was bound to respond to the manufacturing company for any damage which the latter sustained in con· sequence of a loss of the securities by the bank's negligence. It also charged the jury, in substance, that in assessing the damages, in case the verdict was against the bank, they should deduct from the value of the securities which were held by the bank and lost by its negligence the amount of the bank's claim against Willard, for which the notes were pledged as collateral security, and that the manufacturing company could only recover the value of the collateral over and above the amount of such claim. These several instructions were excepted. to by the defendant bank, and have been made the subject of several assignments of error, but we are of the opinion that, as applied to the facts of the present case, the aforesaid instructions were substantially correct, and are not subject to just criticism. Another exception was duly taken by the defendant to the following portion of the charge, to wit:
"Now, this mortgage, gentlemen, that this bank took, as a legal proposition, the bank was required to exercise caution In reference to it. This mortgage was to secure a note-one note-payable on the 1st day of December, 1890, for $1,500.00. It was the duty of the bank to see that that part of It was collected when It was due, or else to show why it was not collected. If on the 1st day of December, 1890, there was property at that time by which the note could have been paid, it was the duty of the bank to have collected It. There was another note due December I, 1891, for $1,500. Now, It was necessary for the bank at that time not to have deferred it until this other note expired. Considerable has been said, both In the testimony and In the argument, what .this propertY was worth on the 2d day of October or December, 1892. 'l'hat is not the sole question for you to examine, gentlemen. If the bank allowed these notes to run, they cannot come in and say that they should not respond because the property has depreciated in the three years, for they agreed, when they took those, to see that those were collected when due, or to use reasonable diligence to do the same."
Weare not satisfied that the foregoing instruction was correct as applied to the state of facts developed by the testimony. On the contrary, we think it most probable that the law as therein declared misled the jury, and was prejudicial to the defendant. The trial court appears to have instructed the jury, in substance, that when the first note held by the defendant bank matured on December 1, 1890, it was the duty of the bank to have enforced the payment of the same if the mortgaged property was then adequate for that purpose; that it was also in duty bound to have taken similar action on December 1, 1891, when the second note matured; and that, if the bank failed to take such action on either of these occasions, it was guilty
negUgence as rendered itl.tCcountable to the plalntUf. But, the character of the. mortgaged property, the fact that it conilfated of live stock and farming implements, .by means of which was enabled to wor'k his farm, it cannot be admitted, we think, .that it the duty of the bank, under all circumstances, to' proceedtoforeclose the mortgage,whenever a single installment of the debt became pue, and was not promptly paid. The mortgagor probato discharge the mortgage debt by the sale of the products oflliafarm, which he shouldlSucceed in raising by the use of the mQrtgi'l-ged property.. He may .havehad no .other meallS of paying tile deijt. In case of a failure o.f crops, therefore, and under many othefH0J;l,ditions that maybe suppol!led"a prudent creditor would very have deemed it the partof defer foreclosing the and, to treat the mOrtgagor wi'Ul. some indulgence. If· the bank had taken possession of the Jl1,ortga,ged prpperty·QU ·Pecember 1, 18!;},Q, ari,d had proceeded to fOJ;'eclose tl;J:Epportgage at that time, such action o;n its part might in ,a total loss of the interest wbJch #Ie manuiacturin,g company tlleJl' pad in the Adamson notes, . and in theproperty which was pledged t,o SeCure the payment of the ·. stJ,me. But,be tbisas.Jt may, we thetrialcourt erred in. deelarlng asa matter of law that it was the duty of thebank,to have proceeded to collect the first andsecond ii).j>tallmentsof the mortgagor's debt as' they hecamedue, witlWut refere.n,ce to the mortgagee's financial condition at that tin,le,.aJ;ld without re1'eJ.\eJ1ce to the' consequeJ;lcel!l of SUch ,Instead of giving an instruction to that effect, we' are of the opini(;\n t.hat.th¢jury should have been left aCUberty to determine as a matter of fact, and in view of all the circumstances of the case which were by the testimony, whether the bank was guilty of in failing to mortgage at an earlier datEl... ,IUs Jl1,ost probable, we think, ,.t}iat the verdict which was rendered against :the defendant bankwa:s due to the action of the trial court in giving t1;1e aforesaid instruction. For the error committed ib giving the, same, the judgment is accordingly reversed; and tile case is remanded for a new trial. . .
FIDELITY'& OASUALTYCO. OF N'EW YORK T. CONSOLI'b.A.TED NAT.
(Circuit Court of Appel1ls, 'I'hird Circrtlt.
FOR EMPLOYE·. "
A bank employe's bond, conditioned for the reimbursement of any loss sustained by reason of fraud or dishonesty in with his duties, provided' tbat any claim under the bond should embrace' and cover oniy acts, and.defaultscommitte,d during its currency, au(j, within 12 months next the date. of discovery of the act or default upon which such claim walYbased. Held, that the bond did not cover a default committed more than 12 months 'prlor to its discovery, which would, however, han been discovered within a year from its: commission had not such dil!'· covery been prevented by the act of the employ6 in falsifying the bQOks during the year preceding the discovery. 67 Fed. 874, reversed.