including the note in suit, and delivered them to Mr. Hawk, who forwarded them to the creditors, and thereupon the deed of assignment was canceled, and the stock of goods returned to W. R. Fox, who sold them out, and, without paying his creditors the proceeds, left the country. The following is a copy of the written agreement referred to:

"It is hereby agreed by and between Trounstine Bros. & Co., TennantStribling Shoe Co., the Johnson & Larimer Dry-Goods Co., Southern Mfg. Co., and Tyler & Simpson, of the first part, and F. M. Fox and W. R. Fox, of the second part, that notes signed by parties of the second part, and payable to parties of the first part, of this date, are not to be considered as valid notes unless all of the creditors of W. R. Fox agree to grant said W. R. Fox an extension of four, eight, and twelve months in settlement of his indebtedness to them. When all creditors have so agreed, then the notes aforesaid are to be still further indorsed by J. E. Colbert. Pending the settlement said notes are to be deposited with A. D. Hawk, cashier of the Chickasaw National Bank. Tennent-Stribling Shoe Co., by F. M. Miller.

"The Johnson Larimer Dry-Goods Co., by O. P. Taylor, Asst. Sec. "Trounstine Bros. & Co., per Calloway.

"Tyler & Simpson, per Calloway.

"Southern Manfg. Co., per Humphrey.

"F. M. Fox.

"W. R. Fox."

This action was brought before a United States commissioner in the Indian Territory, who is invested with the jurisdiction of a justice of the peace, on the four-months note payable to the plaintiffs for $52.33. The plaintiffs recovered judgment before the commissioner, from which judgment the defendants appealed to the United States court for the Southern district of the Indian Territory, where the plaintiffs had the judgment. The defendants then appealed the case to the United States court of appeals for the Indian Territory, which affirmed the judgments of the lower courts. 53 S. W. 462. Thereupon the defendants brought the case into this court by writ of error. The defense set up in the answer is that at the time Mr. Hawk received and sent the Fox notes to the creditors all of Fox's creditors had not assented to the extension. The specific allegation of the answer is: "Defendants allege that at the time said notes were so fraudulently and wrongfully delivered by said Hawk to plaintiffs and the other creditors of the said W. R. Fox as aforesaid there were divers and various other creditors of the said Fox who had not agreed to the extension of time as aforesaid, all of which was well known to the said Hawk."

Paul Reiss (J. W. Hocker, Zol. J. Woods, Mr. Davidson, and Mr. Carter, on the brief), for plaintiffs in error.

George W. Lubke (J. F. Sharp, on the brief), for defendants in error. Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

CALDWELL, Circuit Judge, after stating the case as above, delivered the opinion of the court.

In all contracts many things are left to implication. It was necessarily implied in the contract quoted that Fox would furnish the list of his creditors. He alone knew who his creditors were. It is equally obvious that when the contract speaks of "all creditors" it means all mercantile creditors, and does not refer to or include the little bills owing to the butcher, baker, and grocer for current supplies for his table. In Kauffman v. Raeder, 47 C. C. A. 278, 108 Fed. 171, Judge Sanborn, speaking for the court, said:

"The situation of the parties when the contract was made, its subjectmatter, and the purpose of its execution are material to determine the intention of the parties, and the meaning of the terms they used, and that,

when these are ascertained, they must prevail over the dry words of the stipulations."

When the subject-matter of this contract is considered, and the relation of the parties, it is clear that the propositions we have stated are applicable to this case. Fox did furnish to those of his creditors with whom he entered into this arrangement a list of his mercantile creditors. There is no contention but what the assent of all these creditors except two was obtained before the defendants executed their notes, and they knew when they executed and delivered their notes and canceled the deed of assignment and took possession of the goods that these two creditors had not been heard from. By their action they necessarily assented to the suggestion contained in Mr. Miller's letter to Mr. Hawk and in his letter to F. M. Fox, namely, that, if these two creditors "refused to come into the agreement, these two small accounts could be paid off by you [Fox] or the creditors if it is found to be absolutely necessary to do so." When the defendants, with full knowledge of these suggestions, executed and delivered their notes, canceled the deed of assignment, and took possession of the goods, they must be held to have accepted the suggestion contained in the letters, and to have modified their written agreement accordingly. Fox was anxious to have the stock of goods restored to him, but the creditors would not consent to a cancellation of the deed of assignment and the restoration of the goods until the notes mentioned in the contract had been executed and delivered. The assent of the creditors to the cancellation of the deed of assignment, which secured to them the value of the goods, and the restoration of the goods to Fox, was ample consideration for Fox waiving the assent of two of his small creditors to the extension.

The answer does not specify the name or the amount of the debt of a single creditor who did not assent to the extension, nor does it aver that any creditor did not in fact grant the extension, or that any creditor demanded payment of his debt, or sued or threatened to sue therefor, before the expiration of the extension agreed upon, or that the defendants were in any manner damnified by the failure of any creditor to agree to the extension, nor do they prove any of these things. Manifestly, such an answer sets up no defense. Moreover, the defendants having, with full knowledge of all the facts as to what creditors had assented to the extension, executed and delivered their notes and demanded and accepted all the benefits which were to accrue to themselves under the contract, namely, a cancellation of the deed of assignment and the possession of the stock of goods, which they thereafter sold, and appropriated to their own use, they are clearly estopped from setting up the attempted defense. Upon the record before this court the defense has no foundation in law or fact, and the judgment of the United States court of appeals for the Indian Territory and the judgment of the United States court for the Southern district of the Indian Territory are severally affirmed.

(109 Fed. 276.)

O'ROURKE v. WAHL.

(Circuit Court of Appeals, Seventh Circuit. June 6, 1901.)

No. 754.

MORTGAGE-FRAUDULENT PROCUREMENT-BONA FIDE PURCHASER.

Defendant signed and indorsed negotiable notes payable to her own order, and signed, but did not acknowledge, a trust deed securing the same. She then delivered the papers to the clerk of the trustee named in the deed, in the belief that he was the clerk of her.attorney, by whom they were prepared, directing him to tell the attorney to keep the same until she called to acknowledge the mortgage and receive the money. The clerk, by direction of the trustee, filled out and certified to the acknowledgment as notary, and the trustee negotiated the paper to a broker and converted the proceeds. The notes were subsequently sold to complainant, who was a bona fide purchaser for full value and before maturity. Held, that both notes and mortgage were valid and enforceable in the hands of complainant; the same rule governing the notes as commercial paper being applicable to the mortgage, as an incident thereto.

Appeal from the Circuit Court of the United States for the Northern District of Illinois.

This suit was brought to foreclose a trust deed upon certain real estate in the county of Cook, state of Illinois, executed on the 16th day of November, 1897, by the appellant, Ida O'Rourke, to Cornelius Flood, as trustee, and David J. Thompson, as successor in trust, to secure her promissory judgment note of that date for the sum of $3,500, payable to her own order, and by her indorsed, due five years after date, with interest semiannually, according to 10 coupon interest notes, each for $105, signed by her, payable to her own order, and by her indorsed, and due, respectively, on the 16th days of May and November in each year during the running of the note. The defense was a denial of the execution and delivery of the notes and trust deed. In the court below the cause was referred to a master, who reported the evidence and his conclusions of law, finding for the complainant. Exceptions to the report were overruled, and on July 26, 1900, a decree was rendered for the complainant below, from which this appeal is taken. The facts touching the execution of the notes and trust deed are accurately stated by the master, and may be summarized as follows: The appellant desired a loan of $3,500 upon the property described in the trust deed, and applied to one David J. Thompson, an attorney, who undertook to procure such loan. Subsequently the notes and trust deed were made out and placed in the hands of Flood, the trustee named in the trust deed, who sent his clerk to the appellant with a letter from Thompson requesting her to sign and indorse the notes and trust deed. The appellant executed and indorsed the notes, and signed the trust deed, but declined to acknowledge it, and delivered the papers to Walsh, whom she supposed to be the clerk of Thompson, with directions to hand them to Thompson, and to tell him to keep the papers safe in his vault until she should call and go with him to get the money upon them, and that she would then acknowledge the trust deed. Walsh, upon the direction of Flood, filled up and executed the acknowledgment and delivered the papers to Flood, who negotiated and sold them to a firm of brokers for $3,515.75, which was actually paid by them to Flood. On December 12. 1897, the appellee purchased the securities of the brokers, paying the full face value of the principal and accrued interest, and without notice of any equities existing in favor of the maker. Flood converted the proceeds to his own use, and the appellant has received no part of the proceeds from the sale of the securities.

David Sullivan, for appellant.
A. W. Buckwood, for appellee.

Before WOODS, JENKINS, and GROSSCUP, Circuit Judges.

JENKINS, Circuit Judge, after the foregoing statement of the case, delivered the opinion of the court.

The law is well settled that the rights of a bona fide purchaser of negotiable paper procured by fraud or issued in violation of authority will be protected. Delivery, actual or constructive, is indeed essential to the validity of every contract; but in respect of negotiable paper not in fact delivered, and obtained through fraud from the maker, where he has given to it the appearance of validity, he is, as against a bona fide holder for value before maturity, held bounden upon it. And so where the maker has intrusted a negotiable instrument signed by him to another, and that other has fraudulently issued it, and it has come to the hands of a bona fide holder for value, the maker is bound, because he created the agency or trust through which the fraud was committed. The doctrine proceeds upon the equitable principle that, when one of two innocent persons must suffer from the wrong of a third, he whose act has opened the door to the fraud should bear the loss, and he is equitably estopped to deny delivery. With respect to a mortgage securing a negotiable note so fraudulently issued, there is possibly room for doubt, since a few courts hold that the rule stated does not apply, and that such security is taken subject to the equities existing between the parties to the instrument. The generally accepted doctrine is, however, to the contrary, and is upheld by the supreme court of the United States. The debt is the principal thing; the mortgage, the incident. The transfer of the note carries with it the security, without formal assignment or delivery, and the assignee has the same rights as to both. Carpenter v. Longan, 16 Wall. 271, 21 L. Ed. 313; Kenicott v. Supervisors, 16 Wall. 452, 21 L. Ed. 319; Sawyer v. Prickett, 19 Wall. 146, 166, 22 L. Ed. 105; Banking Co. v. Montgomery, 95 U. S. 16, 18, 24 L. Ed. 346; Chicago Ry. Equipment Co. v. Merchants' Nat. Bank, 136 U. S. 268, 283, 10 Sup. Ct. 999, 34 L. Ed. 349. Here the appellant purposely and deliberately signed negotiable paper, and the trust deed securing it. She, through a deceit practiced upon her, delivered the security to the clerk of the trustee named in the deed, supposing him to be the clerk of her attorney, to hand to Thompson, her attorney, for safe-keeping. She was the victim of an infamous fraud. The clerk by direction of the trustee filled up, and as notary signed, the acknowledgment of the deed, and handed it to his principal, the trustee, who negotiated the securities upon the market, and they were eventually and before maturity bought by the appellee, confessedly a bona fide purchaser for value. Through the act of the appellant in delivering possession. of the document to the clerk of the trustee named in the trust deed signed by her, she put it in the power of the trustee to defraud. It is a hard case. One of the two-the maker or the holder of this negotiable paper-must suffer. The loss, under the law, must fall upon the one whose act clothed the trustee with power to make that wrong effective. The decree is affirmed.

(109 Fed. 279.)

PITTSBURGH, C., C. & ST. L. RY. CO. et al. v. KEOKUK & H. BRIDGE CO.

(Circuit Court of Appeals, Seventh Circuit. June 7, 1901.)

No. 729.

GUARANTY-CONSTRUCTION OF CONTRACT.

A provision of a contract of guaranty, by which certain railroad companies agreed to make up to a stated sum any deficiency in the net revenues of a bridge company "after payment for repairs, maintenance, and all the expenses connected therewith, including reasonable cost for operating the bridge and approaches thereto," cannot be construed to cover the expenses of litigation between the parties over the contract itself, which are not taxable as costs.

On Petition for Rehearing.

For former opinion, see 46 C. C. A. 639, 107 Fed. 781.

Before WOODS, JENKINS, and GROSSCUP, Circuit Judges.

WOODS, Circuit Judge. A rehearing is asked for the purpose of obtaining a modification of the opinion handed down in so far as it was held that the second amendment of the contract did not affect the obligation of the railroad companies under the original contract and first amendment "to make good to the bridge company one-fourth of the deficiency of net income from 'railroad freight traffic' for every period of six months, if the amount fell below $40,000." It is made very clear that that construction of the second amendment is not in accord with the understanding and uniform practice of the parties, and it is now conceded by counsel for the appellants that "the amount which the railroad companies have to make up in any one period of six months is to be ascertained by deducting from the amount of interest for that period the net revenues from all sources, instead of merely the net freight earnings as originally provided." The court's mistake in respect to the position of counsel resulted from the fact that the case was allowed to be submitted on the briefs, without argument at the bar of the court. Counsel differ about the construction of the contract and amendments in other respects, which we do not find it necessary to consider. We agree with counsel for the appellants that the expenses of the litigation over the contract of guaranty are not included in the phrase "all the expenses connected therewith," as used in the second amendment. The entire expression is, "The net revenues from all sources of the said bridge company since the day of its being opened for traffic, after payment for repairs, maintenance, and all the expenses connected therewith, including reasonable costs for operating the bridge and approaches thereto." A liberal and fair construction of this would doubtless include attorney's fees and other reasonable expenses (though not taxable as costs) of litigation growing out of or connected with the maintenance or operation of the bridge or the business of the bridge company, but it cannot reasonably be construed to include the expenses incurred in the suits against the appellants to compel performance of the guaranty by which the railroad companies bound them