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money to be paid upon it, and to control it, in order to protect his right under the assignment.'
If the collateral note is made payable at a designated bank and it falls due before the principal debt, it is the duty of the pledgee to see that the note is presented at that bank for payment, or lodged in that bank for collection when due."
§ 694. A delay of three days after the maturity of a draft held as collateral before presenting it for payment renders the holder liable for a loss occasioned by the insolvency of the drawer occurring immediately after this. "The fair construction of the contract of the parties is, that the creditor will use proper diligence in the collection of the security, and will account for the same, and he is certainly forbidden such negligence as shall produce loss to the debtor who transfers the paper to him. His duties arise out of the transaction. He receives from his debtor a draft or negotiable paper, which, by law, is due on a certain day. It is his duty to present the paper for payment on that day, and, as he has the indorsement of his debtor on the paper, he ought probably to give him notice of the failure to pay; certainly so if he seeks to hold him on the paper or his indorsement. The question of notice to the indorsing debtor in this case is not, however, material. The question is whether there was a neglect of duty on the part of the creditor receiving the draft, by reason of which the debtor has been injured. That this is true is beyond question. If the creditor had received of his debtor a check and failed to present it the principle would have been the same precisely.'
§ 695. A pledgor is not entitled to strict notice of the dishonor of a collateral note, which he has not indorsed, but has delivered without indorsement, or has caused to be made pay
'Hanna v. Holton, 78 Pa. St. 334, 21 Am. Rep. 20, per Agnew, J.; Lyon v. Huntingdon Bank, 12 S. & R. (Pa.) 61, 68, per Tilghman, C. J.; Beale v. Bank, 5 Watts (Pa.) 529.
Bridge Co. v. Savings Bank, 46 Ohio St. 224, 20 N. E. Rep. 339; Ward
v. Smith, 7 Wall. 447; Wallace v.
3 Betterton v. Roope, 3 Lea (Tenn.) 215; Smith v. Miller, 43 N. Y. 171, 3 Am. Rep. 690.
Betterton v. Roope, 3 Lea (Tenn.) 215, per Freeman, J.
able directly to his pledgee.' Although the pledgor in such case continues liable for his own debt in the event of a failure of the maker of the collateral note to pay it, yet he is not, within the custom of merchants, an indorser of it, so as to be entitled to strict regular notice of non-payment. He is not subject to the obligations nor entitled to the advantages which belong to a party to negotiable paper. He stands rather in the position of a guarantor. His original liability remains as it was; and he can avail himself of the negligence of the pledgee to give him notice of the dishonor of the collateral note only to the extent of the loss he may have suffered thereby. If he has suffered no loss by reason of delay or failure to receive notice of the dishonor of the collateral paper, he can not avail himself of this as a defense to his liability to his creditor.
§ 696. The collateral security should be in hand in making demand upon the maker of a note in order to charge an indorser; for it may be essential to have the collaterals deposited as security for the note in readiness to deliver up at the time, if the maker demands them. Thus, a demand by a notary upon the maker of a note, which contains a statement that certain negotiable bonds had been deposited as collateral security, is insufficient to charge an indorser, if the maker at the time of the demand asks for a return of the collaterals, and states that he is ready and willing to pay the note on production of the collaterals, and refuses to pay solely on the ground that they are not produced. It is as much the right of the maker to receive the collaterals upon the payment of the note, as it is to receive a surrender of the note itself; and it would be unreasonable to require him to pay such a note in the absence of the collaterals, and trust to his legal remedies against the holder to recover them."
§ 697. The neglect or omission of an officer of government, who has received a note as collateral security for a debt due
'Chitty on Bills, 441, 498; Hunter v. Moul, 98 Pa. St. 13.
2 Ocean Nat. Bank v. Fant, 50 N. Y. 474.
the state, to perform the duties which the law, in ordinary cases, imposes upon a party so receiving a note, can not be taken advantage of by the debtor. And it would seem that even if the officer expressly assumed the responsibility of prosecuting such note to judgment, the state would not be responsible for his laches.'
§ 698. The character of the transaction is a question of fact for the jury when the circumstances of the case leave it in doubt whether a note was deposited as collateral security or merely for the convenience of the owner; as, for instance, where a note was payable in metal, and the owner left it in care of a creditor, and the owner contended that the note was deposited as collateral security; but the creditor claimed that he received it merely for the owner's convenience, that the metal in which it was payable might be received by him and accounted for by credit on book account.'
$699. The insolvency of the maker of the collateral note has been held not to dispense with a demand of payment within a reasonable time, for the reason that the maker may pay this particular debt, although he is unable to pay all his debts, or is without visible property.
$700. What constitutes negligence in the collection of such collateral security is a question of fact to be determined according to the circumstances of the case. Greater diligence may be required in case the creditor is aware that the maker of the collateral paper is in embarrassed circumstances, than would be required in case the maker were supposed to be wholly responsible. A delay to collect which would amount to negli
1 Seymour v. Van Slyck, 8 Wend. St. 423; Davis v. Alston, 61 Ga. 225. (N. Y.) 403.
2 Sellers v. Jones, 22 Pa. St. 423. 3 Stocking v. Conway, 1 Port. (Ala.) 260.
Word v. Morgan, 5 Sneed (Tenn.) 79; Buckingham v. Payne, 36 Barb. (N. Y.) 81; Sellers v. Jones, 22 Pa.
But it is sometimes said that the degree of diligence required under the circumstances of the case is a question of law. Wakeman v. Gowdy, 10 Bosw. (N. Y.) 208.
* Slevin v. Morrow, 4 Ind. 425.
gence in the former case, might not be so in the latter. gence which is reasonable under the circumstances of the case, and not extraordinary diligence, is what is required.' Ordinary care and diligence must be used, and the circumstances of the case are to be considered in determining the extent of this responsibility. This responsibility is not determined by the strict rules of commercial law applicable to negotiable paper; but rather by the principles of the general law of agency.'
Negligence of the creditor in collecting collateral security may be taken advantage of by the surety of the principal debt as well as by the principal debtor himself, but a general creditor can not complain. The creditor's obligation to collect the collateral ceases upon the payment to him of the principal debt. It is his duty then to return the collateral to his debtor."
A creditor holding negotiable paper as collateral security is required to use a different kind of diligence from that required of one holding merchandise or other corporeal property; and yet the diligence in each case is only such as is appropriate to the nature of the property. If the property be precious stones, safe keeping is all that is required. If it be grain, it must be properly stored and protected from all injury. The diligence required of the holder of promissory notes or other securities for the payment of money has reference to the danger that the
1 Slevin v. Morrow, 4 Ind. 425; Kiser v. Ruddick, 8 Blackf. (Ind.) 382; Whitin v. Paul, 13 R. I. 40.
2 Roberts v. Thompson, 14 Ohio St. 1, 82 Am. Dec. 465; Whitin v. Paul, 13 R. I. 40. So by statute in Georgia, Code 1873, § 2145; Cardin v. Jones, 23 Ga. 175.
Roberts v. Thompson, 14 Ohio St. 1; Commercial Bank v. Martin, 1 La. Ann. 344, 45 Am. Dec. 87. "The duty of a pledgee can not be considered as more onerous and stringent than that of an agent; and the law is well settled that where, in the course and
parties liable on them may become insolvent and unable to pay. A prudent business man will collect such obligations when they are due, or will endeavor to enforce them by suit; if, therefore, a creditor neglects to enforce the collection of such securities held in pledge, and delays till the parties liable become insolvent, he is as much guilty of neglect as if he had suffered grain held in pledge to be destroyed by dampness or heat for lack of proper storage.'
Negligence which will discharge the drawer or indorser of a bill of exchange will make one who holds it as collateral security liable for the loss.
§ 701. Whether the creditor's negligence conclusively makes him liable, as, for instance, whether his failure to protest a note for non-payment at maturity so as to charge an indorser thereby conclusively makes the paper his own, or whether he may show that his debtor sustained no actual damage by failure to charge the indorser, for the reason that the indorser was insolvent when the paper matured, and has continued so up to the time of trial-is a question upon which the authorities are not agreed. On the one hand, it is claimed that to allow such evidence would introduce an element of uncertainty as to the rights and liabilities of parties to negotiable paper, and give rise to much needless litigation. Moreover, the paper may be valuable to the pledgor by way of set-off, although un. collectible by the pledgee. Upon this ground, it is held in Michigan that the creditor is in every case chargeable with the amount of the note."
If the collection of collateral negotiable paper has been lost by operation of the statute of limitations, and such statutory defense has become perfect, the pledgor in an action upon the principal debt may by a counter claim recover the value of his collateral, even though it be not known that the debtor
1 Hazard v. Wells, 2 Abb. N. C. nison v. Parker, 7 Mich. 355, Camp(N. Y.) 444, per Smith, J. bell, J., dissenting; Phoenix Ins. Co. v. Allen, 11 Mich. 501, 83 Am. Dec. 756.
2 Whitten v. Wright, 34 Mich. 92; Rose v. Lewis, 10 Mich. 483, 485; Jen