The transcript shows all the evidence offered by either side on the trial. The plaintiff, in support of its case, relied upon the contract and bond, supplemented by the verified itemized account, showing an unpaid balance against Hayes of $5,188.96. This account shows that the first shipment of beer was charged for November 18, 1893, and other shipments were made in each month thereafter until July 31, A. D. 1894, and that the first payment was made December 6, 1893. It appears that Hayes made payments irregularly, and not promptly, on receipt of bill of lading, in each month, until July 2, 1894. After the last payment, two shipments were made. The defendant Hayes, for himself, in his answer, demurred, and denied generally any indebtedness, and set up in a plea, properly verified, that he never signed or executed the bond, or authorized any one to sign for him. The evidence shows that plaintiff company furnished the beer to Hayes, that he received it under the agreement in which he obligated himself to furnish a bond and sureties, and that the bond was signed by his codefendant sureties, and delivered to plaintiff. We think the history of this case, and the law applicable to the facts, shown in the transcript to be undisputed, fail to disclose sufficient legal merit in any of the defenses relied on by Hayes, for himself, to avoid liability on the contract and bond.

The codefendants adopted Hayes' answer and pleadings, and, for themselves, set up a plea that they were released from all liability on the bond because, subsequently to signing it, a change and alteration prejudicial to them, and without their knowledge or consent, was made by the plaintiff company and Hayes in the terms of the bond. To show the change in the terms of the contract, which the sureties contend was prejudicial to them, they rely on two counter propositions of law, stated in their counsel's brief. The first is that the legal effect of a letter introduced in evidence by the defendants, written by plaintiff company to George Hayes, was to release them entirely from all liability on the bond, which letter was written in German, and a literal translation of it is as follows:

"Mr. Hayes, Gentlemen, Galveston: We see you have a contract for the beer depot, and so cheap. Now, the high rate of freight we have to pay we can't make much out of this beer; in other words, to say we do not get enough for our beer; but now on account of, we just got a cut and the freight is so cheap up to the 3rd of next month, we wish you would get all the beer you can that you need until next month on account of freight-perhaps it will be higher again. We hope that you will do a good business and deal square and fair with us; also, we wish that you would say nothing to anybody about this; how cheap we sell you that beer, on account of it being a high fine for us. You don't need to pay for this beer which you order ahead, as provided for in the contract. Klaussman Brewing Branch, John Krause."

The second proposition of law is that "plaintiff in error, having continued shipments of beer after discovering Hayes' default, without notifying his sureties of the same, waived the conditions of the guaranty, and the sureties were discharged." In aid of this proposition a number of authorities are cited in the brief. As all the assignments of error filed by the appellant are of and about the legal effect of that letter, we will for the moment defer its consideration, and dispose of the last proposition of law by suggesting that,

whatever may be the weight of the authorities cited to sustain the contention of counsel on that proposition of law, this court is forbidden to consider or pass upon it, because there is no evidence to show that such notification was not made, even if notice should be held essential in the premises. Now, recurring to the letter: When the case was submitted on the evidence, recited fully for the purpose of the bills of exception in the transcript, the circuit court instructed the jury that the said letter was a new contract, and released the sureties on the bond, and directed that they should find for plaintiff against Hayes, and to find for the sureties by reason of the new contract in said letter. Concurring fully, as we do, with the conclusions of the circuit court as to the liability of Hayes in the contract and bond, the only remaining matter is as to the legal effect of the said letter; that is, whether, in law, that letter imports a release of the sureties, in part or entirely, from liability on the bond. All the assignments of errors of appellant, and the bills of exception upon which they are founded, seem to be substantially embodied in the following assignment, that:

"The court erred in refusing to give the second instruction asked by the plaintiff, as follows, viz.: 'If the jury find from the evidence that any beer was ordered under the terms of the letter, that stated that the contract was not to apply to orders in advance under that letter, then the bondsmen would not be liable for the price of the beer so ordered under said letter; but this would not change the liability of the sureties on the bond for other shipments under the contract, up to $2,500, the amount of the bond.'"

The letter is without date, but Hayes' testimony fixes the date about January 20, 1894. It is not denied that there were shipments of beer made about that time. In the last two lines of the letter, "You don't need to pay for this beer which you order ahead, as provided in the contract," the counsel for the codefendants find ample relief for the sureties. They contend that the purport in law of those words is to show an intention on the part of the brewing company to voluntarily release the sureties on the original contract, and to interpose thereafter a new contract between it and Hayes. Giving the fullest legal effect to the words recited from the letter, we think the authorities cited in appellant's brief warrant us in saying that those words, when illustrated by the context of the letter and other evidence in the case, must be limited to a partial, rather than an entire, release of the sureties. At most, they seem to us to import only a generous forbearance of a creditor to a debtor who, having promised to pay cash for all his purchases, has from time to time become delinquent, until the balance due amounts to nearly half of all the debt incurred by him. The guaranty of the sureties was that Hayes should pay promptly in cash for all the beer purchased by him during the year of his agency. This Hayes does not claim to have done. We fail to see how the creditor's forbearance or indulgence prejudiced the sureties. The relief, forbearance, or prolongation of time given to Hayes in the letter referred to the shipments of beer to be made by plaintiff company to him during the time covered by the letter, independently of the terms of the original contract; and such a relief or forbearance

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 herein before 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 CO.

(Circuit Court of Appeals, Eighth Circuit.

No. 686.

1. PLEDGEE OF NOTES-DUTIES AND LIABILITIES.

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.

2. SAME-NEGLIGENCE.

A bank having in its custody, as collateral security for a debt, notes secured by a chattel mortgage on live stock and farming implements on a farm, is not necessarily negligent, as respects the owners of the notes, because it fails 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 would allow the mortgagor some indulgence.

In Error to the Circuit Court of the United States for the District of South Dakota.

This action 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 secure the payment of three notes,-one for $1,500, due December 1, 1890; one for $1,500, due December 1, 1891; and one for $2,000, due December 1, 1892. The mortgage covered certain live stock, such as horses, cattle, and v.71F.no.1-8

hogs, then on Adamson's farm in Dickey county, N. D., and certain farming utensils and implements then in use on said farm. Subsequently, on November 5, 1889, O. B. Willard, the mortgagee, pledged the Adamson notes aforesaid to the Northwestern National Bank, of Aberdeen, S. D., the plaintiff in error, to secure the payment of a debt which he then owed to said bank. At a later date, to wit, on May 4, 1890, 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 subject 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 Company. The chattel mortgage executed by Adamson as aforesaid was filed for record in Dickey county, N. D., on October 2, 1889, and under the laws of North Dakota remained a 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 a 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 filing 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. 1890, 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 failing 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.

H. H. Potter, for plaintiff in error.

Joe Kirby filed brief for defendant in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges. THAYER, 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 our 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 rotes of Adamson in its possession, the circuit court charged the jury, in substance, as follows: That by vir

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 charged 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 consequence 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 1, 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. That 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."

We are 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