City Terminal R. & W. Co. v. Trust Co., 82 Fed. 124, 133, 134, 27 C. C. A. 73, 83, 84, and cases there cited; Sioux City Terminal R. & W. Co. v. Trust Co., 173 U. S. 99, 112, 19 Sup. Ct. 341, 43 L. Ed. 628; Garrett v. Burlington Plow Company, 70 Iowa, 697, 29 N. W. 395, 59 Am. Rep. 461; Warfield, Howell & Co. v. Marshall County Canning Co., 72 Iowa, 666, 672, 34 N. W. 467, 2 Am. St. Rep. 263; Beach v. Wakefield, 107 Iowa, 567, 76 N. W. 688, 694, 78 N. W. 197; Farmers' National Bank v. Sutton Mfg. Co., 52 Fed. 191, 195, 3 C. C. A. 1, 17 L. R. A. 595; Bird v. Daggett, 97 Mass. 494.

Another argument which is urged upon our consideration with persistent force is that the Decatur Company defrauded the Transfer Company of these notes and hence the claimant cannot enforce their collection. Let us see. Take the most vulnerable notes, those delivered to the Decatur Company to be substituted by it for original notes of the Transfer Company, or to be sold for the Transfer Company under the agreement that the Decatur Company should remit. the proceeds to the maker of the notes. Concede that the Transfer Company never received anything for these notes, a fact which is by no means satisfactorily established, yet the testimony is undisputed that the Transfer Company signed the notes, that it delivered them to the Decatur Company, and that it authorized that company to discount them and to send the proceeds to it or to substitute them for its original notes. So far as the Decatur Company discounted the notes. and received the proceeds in cash, it acted by the express authority of the Transfer Company, and, if it subsequently converted those proceeds to its own use, that fact constituted no defense to the notes, because the purchaser thereof from the authorized agent of the Transfer Company was not liable for that agent's disposition of the money which the Transfer Company had authorized it to receive on its account.

The Decatur Company, however, was not authorized to use these notes to pay its own debts, and it is said that its delivery of them to Scherer & Co. for that purpose was a fraud upon the Transfer Company which constitutes a defense to the paper. If so, the purchaser of the notes which took them in good faith in reliance upon their apparent validity and upon the Decatur Company's apparent ownership of them must suffer for this fraud, while the Transfer Company which made the notes, which knew they were without consideration, which created their false appearance of validity and the false appearance of their ownership by the Decatur Company, escapes the evil consequences of its participation in the fraud. This would be a reversal of the familiar and salutary rule that one who by his acts or representations, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist, and the latter rightfully acts on such a belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts, is thereby conclusively estopped to interpose such denial. Paxson v. Brown, 61 Fed. 874, 882, 10 C. C. A. 135, 143; Union Pacific Ry. Co. v. United States, 67 Fed. 975, 979, 15 C. C. A. 123, 127; Illinois Trust & Savings Bank v. City of Arkansas City, 76 Fed. 271,

293, 22 C. C. A. 171, 192, 34 L. R. A. 518; Given v. Times Republican Printing Co., 114 Fed. 92, 95, 52 C. C. A. 40, 43; Mechem on Agency, §§ 83, 84. The Transfer Company made these notes. It recited in the face of them that it had made them for value received. It made them payable to the order of, and it delivered them to, the Decatur Company. It intentionally clothed that company with the false appearance of an ownership it did not have, of notes which the Transfer Company had intentionally given a false appearance of having valuable considerations that never existed, and Scherer & Co., and the other claimants who bought such notes, were induced by these false representations to purchase them in payment of their accounts against the Decatur Company. If the Transfer Company had not produced these false appearances, the purchasers would not have bought the notes. If the Transfer Company is now permitted to deny that these appearances represented the truth, the purchasers will suffer the loss of the liability of the Transfer Company and of a dividend from its estate. The Transfer Company intentionally and with culpable negligence made and intrusted these deceitful representations and the power to use them to its agent, the Decatur Company, and if the latter abused that power the Transfer Company and its successor in interest, the trustee, are estopped from denying that its representations were true for the purpose of defeating the claims of the holders of these notes. When one of two parties must suffer loss from the fault of a third, he who wrongfully or with culpable negligence put it in the power of the third to cause the loss must bear it.

It is said that these notes were accommodation paper, that the issue of accommodation paper was beyond the power of the Transfer Company, and that for that reason the notes constitute no valid claim against its estate. The corporation had no power to issue accommodation paper, and this fact would have been a perfect defense to these notes in the hands of any holder who knew they were accommodation paper when he purchased them. But the corporation had power to issue negotiable paper for value. "When a corporation has power under any circumstances to issue negotiable securities, the bona fide holder has a right to presume that they were issued under the circumstances which give the requisite authority, and that they are no more liable to be impeached for any infirmity in the hands of such a holder than any other commercial paper." City of Lexington v. Butler, 14 Wall. 282, 296, 20 L. Ed. 809. The Transfer Company intentionally gave these notes the false appearance of negotiable paper issued by it for value, and thereby induced the claimants to buy them. Where a corporation which has the power to issue negotiable paper puts forth accommodation paper beyond its power, it is estopped from denying that the latter was lawfully issued for value for the purpose of defeating the claim of a bona fide holder of such paper for value. Bank v. Dunn, 6 Pet. 51, 8 L. Ed. 316; In re Troy & Cohoes Shirt Co. (D. C.) 136 Fed. 420, 425, 430, 431; German Savings Bank v. Hanna, 124 Iowa, 374, 100 N. W. 57; Farmers' National Bank v. Sutton Mfg. Co., 52 Fed. 191, 3 C. C. A. 1, 17 L. R. A. 595; Martin v. Niagara Falls Paper Mfg. Co., 122 N. Y. 165, 25 N. E. 303; Holmes et al.

v. Willard, 125 N. Y. 75, 25 N. E. 1083, 11 L. R. A. 170; Tod v. Kentucky Union Land Co. (C. C.) 57 Fed. 47, 52; Morawetz on Private Corporations, § 597; Monument National Bank v. Globe Works, 101 Mass. 57, 3 Am. Rep. 322; Mechanics' Banking Ass'n v. New York & Saugerties White Lead Co., 35 N. Y. 505.

Some of these notes were taken by Scherer & Co. in payment of a past due debt of the Decatur Company, and to these the objection is interposed that the claimant paid no value for them. But one who takes commercial paper before maturity, in payment of or as collateral security for a debt of the seller, due or not due, is a purchaser for value in the ordinary course of business, and protected by the same estoppels as a purchaser for cash. Swift v. Tyson, 16 Pet. 1, 15, 21, 10 L. Ed. 865; Railroad Company v. National Bank, 102 U. S. 14, 22, 28, 26 L. Ed. 61; Robinson v. Lair, 31 Iowa, 9, 14; Code Supp. Iowa 1907, §§ 3060a25, 3060a26; Woodworth & Co. v. Carroll, 104 Minn. 65, 112 N. W. 1054; McMurray v. Moran, 134 U. S. 150, 158, 10 Sup. Ct. 427, 33 L. Ed. 814; American File Co. v. Garrett, 110 U. S. 288, 294, 4 Sup. Ct. 90, 28 L. Ed. 149; Hamilton v. Fowler, 99 Fed. 18, 22, 40 C. C. A. 47; Doe v. Northwestern Coal & Trans. Co. (C. C.) 78 Fed. 62, 68; Wood v. Seitzinger (C. C.) 2 Fed. 843, 844; In re Huddell, Fed. Cas. No. 6,825.

There is a statute of the state of Iowa to the effect that no holder of commercial paper procured by fraud upon the maker shall recover thereon a greater sum than he paid therefor with interest and costs. Ann. Code Iowa 1897, § 3070; Richards v. Monroe, 85 Iowa, 359, 52 N. W. 339, 39 Am. St. Rep. 301. It is contended that Scherer & Co. paid nothing for these notes, but the cash which it advanced, some $1,200, and that this should be the limit of its recovery. The answer is that the Transfer Company and the trustee of its estate are estopped by the inducing false representations of the former from claiming or proving against this claimant that this paper was procured by fraud, and, if this estoppel did not exist, the amount of the debt of the Decatur Company to the claimant, which was paid by these notes and the cash which the claimant advanced, substantially equal the face of the notes. The debt of the Decatur Company was paid for them as much as was the cash, and both may be recovered under the statute. The objections to the claim of Scherer & Co. have now been considered under the concession that the notes which they held were originally without consideration, and our conclusion is that even if that fact were satisfactorily proved these objections cannot be sustained. The fraud in this case was not prepared, inspired, or effected by this claimant. It was the victim, not the perpetrator, of it. The Transfer Company furnished the false representations which accomplished it, and the Decatur Company, its agent, used them. Neither the Transfer Company, nor its creditors, nor the trustee can take advantage of the wrong of that company to deprive the most direct victims of it of their share in its estate. That company had no available defense to this claim when the petition in bankruptcy was filed, and the trustee and the other creditors have none now.

Decisions of state courts have been called to our attention and con

sidered which do not in all things accord with some of the declarations of the commercial law upon which our conclusion rests. But these declarations are supported by controlling authority in this court, by the decisions of the Supreme Court which have been cited, and the duty is imposed upon the national courts to exercise their independent judgment in the determination of all questions of general jurisprudence, of commercial law, and of right under the Constitution and laws of the United States. Railroad Company v. National Bank, 102 U. S. 14, 30, 26 L. Ed. 61; Railroad Company v. Lockwood, 17 Wall. 357, 368, 21 L. Ed. 627; Myrick v. Railroad Co., 107 U. S. 102, 1 Sup. Ct. 425, 27 L. Ed. 325; Carpenter v. Insurance Co., 16 Pet. 495, 511, 10 L. Ed. 1044; Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865; Burgess v. Seligman, 107 U. S. 20, 33, 2 Sup. Ct. 10, 27 L. Ed. 359; Smith v. Alabama, 124 U. S. 465, 478, 8 Sup. Ct. 564, 31 L. Ed. 508; Bucher v. Railroad Co., 125 U. S. 555, 583, 8 Sup. Ct. 974, 31 L. Ed. 795; Liverpool & G. W. Steam Co. v. Phenix Insurance Co., 129 U. S. 397, 443, 9 Sup. Ct. 469, 32 L. Ed. 788.

So far as our conclusion rests upon a construction of the statutes of Iowa, it is not inconsistent with the decisions of the Supreme Court of that state, and it is sustained by those cited above, and by the decision of the Supreme Court in Sioux City Terminal R. & W. Co. v. Trust Company, 173 U. S. 99, 19 Sup. Ct. 341, 43 L. Ed. 628.

The testimony regarding the disallowed claims of the eight other appellants in this case has been considered, and it brings those claims within the decision announced upon the claim of Scherer & Co. They are founded on promissory notes of the Transfer Company indorsed by the Decatur Company and purchased by the claimants before maturity in the regular course of business for debts of the Decatur Company paid thereby, or for cash, and they must be allowed.

The decree of the court below must accordingly be reversed, and this case must be remanded to the District Court with instructions to allow the claims of the appellants in controversy in this appeal upon the same basis as claims of other unsecured creditors are allowed, and it is so ordered.

TOLEDO, ST. L. & W. R. CO. v. KOUNTZ.

(Circuit Court of Appeals, Sixth Circuit. April 14, 1909.)

No. 1,861.

1. MASTER AND SERVANT (§§ 285, 289*)-INJURIES TO SERVANT-RAILROADS-UnBLOCKED FROG CONTRIBUTORY NEGLIGENCE-QUESTION FOR JURY.

In an action for death to a switchman while his foot was caught in an unblocked frog, whether decedent's foot was caught before he was struck by the train, and whether he was at the switch when he gave the signal to the train to approach and caught his foot as he was leaving the switch for his station, or whether he was walking ahead of the train

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes

in a dangerous place and his foot was jammed into the frog after he was struck, held for the jury.

[Ed. Note.-For other cases, see Master and Servant, Dec. Dig. §§ 285, 289.*

Duty of railroad companies to block switches, see note to Hauss v. Lake Erie & W. R. Co., 46 C. C. A. 98.]

2 MASTER AND SERVANT (§ 291*)-INJURIES TO SERVANT-RAILROADS "PROXIMATE CAUSE."

A request to charge that the term "proximate cause" meant the first or efficient cause, and if the jury found that there were several causes contributing to decedent's death, then the proximate cause was the cause coming first which set in motion the other causes producing the accident, was properly refused as susceptible of an interpretation that, if decedent was negligent in crossing defendant's tracks in front of an approaching train, his act was necessarily the proximate cause of the accident, and as overlooking the rule that the proximate cause is the dominant cause from which the injury follows as a direct and immediate consequence; that an act prior in time is not necessarily the proximate cause of an injury, unless the injury is the natural and probable consequence of such act, to be reasonably anticipated therefrom, or if the injury could not have happened but for the intervention of a sufficient and independent cause operating between the first negligent act and the injury.

[Ed. Note.-For other cases, see Master and Servant, Dec. Dig. § 291.* For other definitions, see Words and Phrases, vol. 6, pp. 5758-5769; vol 8, p. 7771.]

& MASTER And Servant (§ 291*)-DEATH OF SERVANT-INSTRUCTIONS.

In an action for death of a switchman whose foot was caught in an unblocked frog as he was crossing the tracks in front of a train, a request to charge that proximate cause was the first or efficient cause, and that if the jury found there were several causes contributing to decedent's death the proximate cause was the cause coming first which set in motion the others producing the accident, was properly refused as eliminating the proposition that an unblocked frog might have been an efficient and independent cause of the accident, without which it could not have happened, though decedent was negligent in crossing the tracks ahead of the train. [Ed. Note.-For other cases, see Master and Servant, Dec. Dig. § 291.*] 4. MASTER AND SERVANT (§ 291*)-DEATH OF SERVANT-RAILROADS-UNBLOCKED FROG

NEGLIGENCE-INSTRUCTIONS.

Where a switchman was killed after catching his foot in an unblocked frog, and the jury were permitted to find for plaintiff only on the theory that decedent's death was caused by the negligent condition of the frog, a request to charge that if decedent, before he attempted to cross the tracks, knew that defendant's train was approaching at rapid speed, and with such knowledge attempted to cross ahead of the train, and that this was the proximate cause of his death, plaintiff could not recover, was properly refused, as charging that plaintiff could not recover if his act in crossing the tracks ahead of the train was the proximate cause of his death, though such crossing was in the regular discharge of his duty and he had no other way to go to his station and was free from negligence.

[Ed. Note. For other cases, see Master and Servant, Dec. Dig. § 291.*] 5. MASTER AND SERVANT (§ 112*)-RAILROADS-SAFETY REQUIREMENTS-STATUTES-UNBLOCKED FROGS.

Rev. St. Ohio, § 3365-18, requiring every railroad operating in the state to block its frogs in yards, divisional and terminal stations, where trains are made up, is designed for the protection not only of employés who may step into them, but also of those dragged or pushed into them by

For other cases see same topic & § NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes 168 F.-53