
    Manly Roberts v. John B. Thompson and Samuel Clark.
    3.'where a pariy reoeives a note as collateral security for an existing debt, without any special agreement, he is bound to use ordinary care and diligence in collecting it, and is responsible for any' loss which may happen to the other party by reason of a want of such care and diligence.
    2. The rights and liabilities of the parties in such cases, are governed by the general law of agency, and not by the strict rules of commercial law, applicable to negotiable paper. And where there is a special agreement between the parties, its terms will control the general rule.
    3. Where a debtor assigns to his creditor, as collateral security, a negotiable promissory note of a third party, before maturity, and by the terms of the assignment waives demand and notice of nonpayment, such creditor, acting in good faith, is not bound to demand or insist upon payment of the security before its maturity, though he may know, at the time, that payment would be made, if insisted on.'
    Error to the court of common pleas of Muskingum county. Reserved in tbe district court.
    The original action was brought in tbe court of common pleas, by tbe plaintiff in error, against tbe defendants here, as tbe joint makers of a promissory note for $1000, executed and delivered by them to tbe plaintiff, April 10, 1856, and payable two years after date, with interest at ten per cent, per annum, payable annually. Tbe petition admitted a payment of $100, on the note, March 30, 1857, and asked judgment for the balance of principal and interest due thereon.
    The defendants claimed a further credit or deduction of $572 from the amount appearing due upon the note, upon the grounds stated in an amended or additional answer which they filed in the case, and which states in substance that, on April 10, 1856, the defendants, at the plaintiff’s request, indorsed and transferred to him, as collateral security for the payment of the note described in the petition, two certain notes, for six hundred dollars each, made by one J. H. Palmer, dated December 7, 1855, payable to the defendants, or order, the first note being payable on or before April 1,1857, and the other, on or before April 1,1858, both payable with interest, annually, from April 1, 1856; and that the transfer was evidenced by a certain written receipt signed by plaintiff, a copy of which is set out. The receipt describes the notes, and acknowledges their transfer by the defendants to the plaintiff, (demand and notice of nonpayment being waived), together with a mortgage on a certain lot in Zanesville, and a polipy of insurance on the house upon the lot. The receipt further states, that the notes, mortgage, and policy of insurance were to be held by the plaintiff as collateral security for 'the payment ■ of the note described in the petition. The answer claims that, by reason of the premises, the plaintiff was bound to receive the sums to become due on the two notes, when the same should be tendered or offered to him, and then states, that on April 1,1857, Palmer was able and willing to pay the interest on both notes, and the principal of the one payable on or before that day, and that’ then having more than six hundred and seventy-two dollars, offered to pay the plaintiff six hundred and thirty-six dollars on 'the note payable on or before that day, and the further sum of thirty-six dollars, being the interest on the note payable on or before April 1, 1858; and that of the six hundred and seventy-two dollars thus offered by Palmer to the plaintiff, the latter received only one hundred dollars, and declined and neglected to receive from Palmer, the five hundred and seventy-two dollars, the balance of the sum thus tendered. That, at that time Palmer was solvent, and able to pay the amount he tendered, but subsequently became insolvent, and paid no part of the amount of the said two notes, except the one hundred dollars received by the plaintiff. That to pay the interest on the two notes the plaintiff applied seventy-two of this one hundred dollars, and the remaining twenty-eight, in part payment of the principal of the note first due; and that the real estate mortgaged is wholly inadequate to pay the said two notes and interest, and one other for six hundred dollars, made by Palmer, payable on or before April 1, 1859, and which was also embraced in said mortgage; that the mortgaged premises were not worth, and would not bring more than twelve hundred and thirty-three dollars. That the defendants sustained damages in the sum of five hundred and seventy-two dollars and interest thereon, from April 1,1857, by reason of the plaintiff’s negligence in not receiving that sum from Palmer, when he offered it to him on April 1,1857, whereby the defendants lost that sum, which, with interest, they claim as a setoff to the plaintiff’s demand.
    To this answer the plaintiff replied: That he was not bound to receive the sums mentioned in the collateral notes, whenever the same were tendered to him; that he was not bound to receive the same, or any part thereof, before the 1st day of April, 1857; that Palmer was not then able and willing to pay the note payable on or before that day, nor had he :hen enough money to pay the note; that Palmer never offered to pay to the plaintiff the amount of that note, nor did the plaintiff then, or at any other time, neglect or decline to receive the -amount of said note, or any part thereof; that the plaintiff does not know whether Palmer was then insolvent, nor whether he afterward became so, or not; that plaintiff applied the one hundred dollars, paid to him by Palmer, to the payment of the interest due from the defendants; that plaintiff believes the real estate to be insufficient to pay the three notes, to secure which it was mortgaged; that the defendants have sustained no damage by any neglect of the plaintiff.
    
      The case was tried by a jury, who, by their verdict, found the allegations of defendants’ answer true, and that defendants were entitled to a credit of five hundred and seventy-two dollars, on the account stated in said answer, and found in favor of the plaintiff for the balance appearing due upon the note, after deducting this additional credit; — and judgment was rendered accordingly.
    Upon the trial, the following bill of exceptions was taken by the plaintiff:
    “ Upon the trial of this cause, the plaintiff gave in evidence to the jury the promissory note set forth in the petition, and rested his case. The defendants then gave in evidence the receipt signed by the plaintiff, dated October 10, 1856, which is set forth in the defendants’ amended answer. The defendants then introduced evidence tending to show that in the 30th day of March, 1857, the said Palmer, maker of the notes mentioned in the receipt, offered to pay to the plaintiff the amount of the note which, by its tenor, was payable on or before April 1,1857, that he had sufficient money on his person to pay said note, of which he told plaintiff then, and would have paid it, had the payment been insisted on by the plaintiff; that he did pay him one hundred dollars, which the plaintiff received and credited as interest upon the note of $1000 made by defendants to him. It was then admitted by the plaintiff that the property mortgaged to secure the three notes for $600 each, made by said Palmer, set forth in the answer, is insufficient to pay said notes to the amount of $572 and interest from March 30, 1857, and that the said Palmer, maker of the notes, had become insolvent, and had not any means to pay said indebtedness except the mortgaged property and the money offered. It further appeared in evidence that the defendants and Palmer resided in Zanesville during all these transactions, and that the plaintiff resided ten miles therefrom.
    “ The court charged the jury that if they were satisfied from the evidence that on the 30th day of March, 1857, the said Palmer offered to pay to the plaintiff the amount of the note which by its tenor was payable on or before April 1, 1857, and was then able and willing to pay it, and that he would have paid it, had the plaintiff insisted on the payment, and the plaintiff declined or neglected to receive it, though he neglected to receive it at the solicitation of said Palmer; and if they were satisfied from the evidence that Palmer had since become insolvent, and that the mortgage deed was not sufficient security in the sum of $572 for all the notes described in it, then that the jury should allow a credit to the defendants in this suit in the said sums of money which the said Palmer offered to pay, and which the plaintiff did not receive. And the court further charged the jury that to make this defense available, it was not necessary for defendants to prove a tender, by taking the money from his pocket by Palmer, to the plaintiff; and that proof that the mortgaged premises had not deteriorated in value since the mortgage was given, would make no difference.”
    The plaintiff excepted to this charge of the court, and in his petition in error filed in the district court to reverse the judgment, assigned said charge for error.
    The district court reserved the case for decision here.
    
      Goddard and Bunker, for plaintiff in error:
    1. The written undertaking set out by defendants, must fix the liability of Roberts. Roberts by his receipt admits that he received of the defendants the two notes on Palmer, the mortgage and the policy of insurance, which he was to hold as “ collateral security for the payment of a note” described, and then adds, “ said two notes having been assigned to me, and demand and notice of nonpayment waived ” by defendants This then is a mere pledge which the defendants placed in th< hands of the plaintiff, to remain in his hands at the risk of thi pledgors until the $1000 debt should be paid. The plaintiff did not undertake to collect but only to hold the notes pledged; and no intimation is given in the contract that he was to rev ceive any portion of his claim before it was due. The defendants agreed that the notes and mortgage of Palmer should lie in the hands of the plaintiff awaiting the maturity of his debt, and at the risk of the defendants. They understood that the plaintiff should so hold it. They assumed the risk, tlu plain, tiff contracts for the security.
    2. The note of Palmer was not 'due until April 3,1857 All that was ever said by Palmer in respect to the payment of it was said March 30, 1857. The plaintiff could not then properly demand payment of the note. Palmer might have tendered payment, but he did not do that. No money was tendered or refused. 8 Ohio Rep. 172; 10 East, 101.
    3. It was error in the court below to tell the jury, that if they found from the evidence, that, on 30th March, 1857, Palmer offered to pay the plaintiff the amount of the note, and was able and willing to pay it, and that he would have paid it had the plaintiff insisted upon it, and he neglected and declined to receive it, he was liable, although he neglected to receive it at Palmer’s solicitation. The note not being then due it was payable then only on the demand of Palmer, and if at his instance, Roberts did not receive the money, it could not be negligence on his part. The note had not matured without the demand. This charge as a whole was calculated to mislead the jury, as was also the charge that if they found Palmer involvent and that if the mortgage was not sufficient to pay all the debts it was given to secure by the sum of $572, then that they should credit defendants, etc. The questions thus submitted to the jury were calculated to prejudice their minds and to draw them from the real question in issue, which was — ■ Did Palmer tender the money — Did Roberts refuse to receive it on the day alleged ? The rest was for the court.
    
      A. P. Blocksom, for defendants in error :
    The law is well settled that the bailee of a note or any other property is bound to use proper care for its preservation.
    The mere holding of the note in a secure place, is no preservation of the security.'
    It is said that the plaintiff was simply to hold the notes as collateral. If so, he had no power to collect.
    The receipt will receive a more liberal construction, and will be found to mean that the bailee was to hold the note for the purpose for which it was given — the payment of money.
    
      The object of the waiver of demand and notice was, doubtless, to hold the defendants liable en their indorsements, without being compelled to be punctual on the third day of grace; but there was no waiver of the plaintiff’s duty to receive the money tendered.
    
    The plaintiff undertook to collect the money when due or whenever tendered to.him. If such undertaking affected the terms of the $1000 note and required the plaintiff to' receive payment of it before its maturity, he can not complain.
    But a collection from Palmer would not, necessarily, have operated as a payment of the $1000 note. He could have held the money, just as he held the note, as collateral, in his capacity of trustee, until the $1000 note matured. He did collect and hold the $100 as trustee, for twelve 'days, when he entered it as a payment of interest.
    As to the plaintiff’s power to insist on payment from Palmer, March 30, 1857, the date of the tender: True, the plaintiff could not then demand payment, but Palmer had the right to tender payment at any time; he did tender it then, and the plaintiff declined to receive the money, whereby he became liable. And it makes no difference whether a bystander or Palmer solicited the plaintiff to neglect his duty by not taking the money. The charge of the court to the jury is substantially this: If you find a tender was made by Palmer, who at
    the same time solicited of Roberts the further use of the money, thus leaving it to the plaintiff’s option to accept the money or not, the plaintiff, by neglecting to receive the money, became liable, if Palmer afterward became insolvent.
   Scott J.

— The general rule is, that where a party receives a note as collateral security for an existing debt, without any special agreement, the party receiving such note must use ordinary care and diligence in collecting it; and if any loss should happen to the other party, by reason of a want of such care and diligence, the law will compel him to make good the loss. Such cases are not governed by the strict rules of commercial law applicable to negotiable paper; but fall under the general law of agency, which must determine the rights and liabilities of the parties. But, where there is a special agreement between the parties, they will be bound by such special agreement, and not by the general rule. Lawrence v. McCalmont, 2 Howard, U. S. R. 426; Lee v. Baldwin, 10 Geo. Rep. 208.

In the case before us, the collaterals were assigned and delivered on the 10th of April, 1856, at the time of executing the note which they were intended to secure, and which was payable two years after its date, but with interest payable annually. The notes assigned were negotiable in character, and, counting days of grace, the first one would mature, April 4, 1857; and the second, one year later; and they were each bearing interest, payable annually.

• Evidence having been offered by the defendants, on the trial, tending to prove the state of facts contemplated by the charge of the court, the jury was instructed that “ if they were satisfied from the evidence, that on cue 80th day of March, 1857, the said Palmer offered to pay to the plaintiff the amount of the note, which by its tenor was payable on or before April 1, 1857, and was then able and willing to pay it, and that he would have paid it had the plaintiff insisted on the payment, and the plaintiff declined or neglected to receive it, though he neglected to receive it at the solicitation of said Palmer; and if they were satisfied from the evidence that Palmer had since become insolvent; and that the mortgage deed was not sufficient security in the sum of $572 for all the notes described in it; then, that the jury should allow a credit to the defendants in this suit, of the said sums of money which the said Palmer offered to pay, and which the plaintiff did not receive.”

Neither the answer of the defendants, nor the evidence in the case, charged the plaintiff with actual fraud, or intentional bad faith. It is nowhere intimated that he had reason to suspect the ultimate insolvency of Palmer ; or that he was aware of the insufficiency of the mortgage security which Palmer had given to the defendants, and which they had transferred to the plaintiff." The charge of the court proceeds on no such supposition. Nor do the instructions given to tne jury, place the liability of the plaintiff on the ground of his duty to receive the amount of the notes held by him as collateral security, upon the legal tender of the same by the maker. The case stated by the court, supposes that Palmer did not in fact desire to make payment, but that having it in his power to make present payment, he expressed his willingness to do so, if insisted on by the plaintiff; and the jury was told, in effect, that though, as against Palmer, the plaintiff had then no legal right to demand payment, the note having still four days to run, yet that it was his duty, under these circumstances to insist upon, and thus obtain payment; and that his failure to do so, constituted such want of proper care and diligence as would render him liable to the extent of the payment which he might have obtained, for the loss occasioned by the subsequent insolvency of Palmer.

Do the instructions thus given, truly present the law of the case ? We think they do not.

It may properly be conceded, that the plaintiff having received the notes in question as collateral security, his duty was not limited to their safe keeping; but that he was bound so to conduct himself, in regard to them, as by no fault of commission or of omission to prejudice the legal rights of his debtors from whom they were received. But, even in the absence of any special agreement, we see no legal right of the defendants, for the protection of which they could reasonably expect or require their assignee to demand and insist upon payment by Palmer, before the expiration of the time given by the express terms of the note. Having agreed with Palmer that he might make payment, according to his own convenience, at any time, not later than the 4th of April, was it the duty of their assignee, and agent, without instructions, not only to demand, but to insist upon an earlier payment ? It is clear that none of their legal rights were waived, or at all affected, by this failure of the plaintiff to require, at Palmer’s hands, more than the performance of his contract.

But the agreement of the parties to the assignment was, in this case, special. The notes assigned were not due, and the defendants, by the terms of their assignment, waived demand and notice of nonpayment.

This assignment was an absolute guaranty of payment, and the plaintiff was thereby relieved from all obligation to demand payment when the note matured; and if so, much more was he under no obligation to demand and insist upon an earlier payment, even by the strict rules of commercial law governing ordinary indorsements.

Judgment of the court of common pleas reversed, and case remanded.

Peck, C.J., and G-holson and Brinkerhoee, JJ., concurred.

Ranney J., dissented.  