he cannot recover.

He contends that they are void because of the provisions of section 2116, Rev. St. U. S., which reads:

"No purchase, grant, lease or other conveyance of land, or any title or claim thereto, from any Indian nation or tribe of Indians, shall be of any validity in law or equity, unless the same be made by treaty or convention entered into pursuant to the Constitution," etc.

The section, however, was modified, before the making of these leases, by Act March 1, 1889 (25 Stat. 784, c. 333), which repealed all laws theretofore enacted to prevent the Indian nation in question or any other from lawfully making leases for mining coal for a period not exceding 10 years. The leases in question are for the mining of coal, iron, petroleum, oil, gas, asphaltum, and other minerals. If void as to the other minerals, they are apparently valid as to the coal. For what length of time they purported to run is not shown by the record. If for an indefinite time, the terms of the act would no doubt restrict them to 10 years. It is difficult to see how such leases, which apparently conveyed some rights for a restricted period, can be held to be so utterly valueless as to constitute an entire failure of consideration. These reasons lead to an affirmance.

Some reference has been made to Act June 28, 1898 (30 Stat. 495, c. 517); but, since that was not passed until two years after the leases were assigned to the Wisconsin corporation, it has no bearing on the question here presented.

WALLACE, Circuit Judge (dissenting). I think the judgment should be affirmed, but I do not concur in the opinion of the court. I think the leases were void because the statute declares such leases void, and the repealing act authorizing 10-year leases for mining coal does not change the terms or effect of the original statute. It is well settled that when a conveyance or contract contains conditions, some of which are legal and others illegal, and they are severable and separable as respects consideration and performance, the latter may be disregarded and the former enforced. But the exception to this principle. is equally well settled. As was said by Mr. Justice Storey in United States v. Bradley, 10 Pet. 363, 9 L. Ed. 448:

"The only exception is when the statute has not confined its prohibitions to the illegal conditions, covenants, or grants, but has expressly, or by necessary implication, avoided the whole instrument to all intents and purposes."

The leases here are indiscriminately for the mining of other minerals, as well as coal, and it does not appear that they were not for a period exceeding 10 years. If they had been for that time only, they would, in my judgment, have been void by the terms of the original statute. The case has been argued at the bar as though the action were one by the creditors of a Wisconsin corporation to charge the defendant with individual liability as a stockholder under certain provisions of the Statutes of Wisconsin of 1898, viz., sections 1753 and 1773. An analysis of the complaint, however, shows that it proceeds upon the theory of fraudulent representations made by the defendant, by which the plaintiffs were induced to expend moneys and furnish labor and

materials for the Wisconsin corporation, and thereby sustained damages. The complaint states the following averments.

"That the defendant and certain other persons in 1897 organized a mining corporation under the laws of the state of Wisconsin, whereof the amount of the capital stock was fixed at $1,500,000, divided into shares of the par value of $10 each; that the defendant subscribed for 22,220 shares of the capital stock, and various other persons subscribed and agreed to pay for certain other shares; that neither the defendant nor any of the other persons ever paid 20 per centum of the capital stock of the corporation, nor was that amount ever paid in any way, but that the corporation issued and delivered the 22,220 shares subscribed for the defendant without any consideration; and that said issue of stock to the defendant and all the issues of stock by the corporation to the shareholders thereof were fictitious, and were issued for a pretended and valueless assignment of certain oil and mining leases in Indian Territory, which were valueless or of little value, and were known to be by the defendant and the other subscribers at the time they subscribed for and received the issue of stock."

The complaint then alleges that the defendant and other directors of the corporation fraudulently and falsely represented to the plaintiffs that the corporation had large pecuniary means and valuable property; that upwards of $1,000,000 worth of its stock at par had been subscribed for by persons who were pecuniarily able to pay for same, and some other shares had been paid for in cash; that in fact all the capital stock that had been subscribed for had been issued and delivered without consideration other than the transfer to said corporation of said valueless oil and mining leases and other representations of the defendant were untrue; that thereupon the plaintiffs, being deceived by said misrepresentations, were induced to and did expend money, perform work, and furnish materials for the corporation, and were induced to and did give credit to the corporation in the belief of the truth of the representations stated; and that the corporation and all of its shareholders, except the defendant, are wholly insolvent, and the liability of the corporation to plaintiffs is due and unpaid.

The court found as facts, among other things, that upon the organization of the corporation and in October, 1896, the corporation issued 141,990 of the 150,000 shares of capital stock to a trustee repre senting the defendant and other beneficiaries, and received in payment therefor the assignment of certain charters or leases procured from the Chickasaw Nation of Indians, granting the privilege of mining for coal, petroleum, and other minerals on certain lands within the territory of that nation; that the assignments of the leases were in good faith estimated by the directors and officers of the corporation as more than equal to the par value of the capital stock; that the trustee thereafter duly transferred the stock to the corporation, and in consideration thereof the corporation issued 100,000 shares thereof to the beneficiaries of the trustee, including 22,220 shares to the defendant. The court also found that the defendant had no personal knowledge as to any expenditures of money, performance of work, or furnishing of materials for the corporation by the plaintiffs; that no statements or representations were made by the defendant, or any others, to induce the plaintiffs to enter into the contract; and that the plaintiffs were not induced to expend any moneys or perform any labor or furnish any materials for the corporation, or to give credit to the corporation

by any false or fraudulent statement or representation made to them by the defendant or the officers or directors of the corporation.

It is contended by the plaintiffs in error that upon the facts found there should have been a judgment for the plaintiffs by force of section 1773 of the Wisconsin Statutes of 1898. This section, after providing that in stock corporations the first meeting may be held at any time after one-half of the capital stock has been subscribed, reads as follows:

"No such corporation shall transact business with any others than its members until at least one-half of its capital stock shall have been duly subscribed and at least 20 per centum thereof actually paid in; and if any obligation shall be contracted in violation hereof the corporation offending shall have no right of action thereon; but the signer and signers of the articles and the subscriber and subscribers for stock transacting such business or authorizing the same, or having knowledge thereof, consenting to the incurring of any debt or liability, as well as the stockholders then existing, shall be personally liable upon the same."

The argument for the plaintiffs in error is that the charters or leases transferred to the corporation in payment of its capital stock were void, because of the law of Congress found in section 2116 of the Revised Statutes of the United States; that the transfer of these void leases was not a payment to the corporation in property, such as is authorized by section 1753 of the Wisconsin Statutes of 1898; and that consequently the 20 per centum required by section 1773 of the Wisconsin Statutes of 1898 had not been paid in.

Assuming, for present purposes, that the leases were void, and that when the debt or liability of the corporation to the plaintiffs was incurred the 20 per centum of the capital stock had not been paid in, I can see no ground upon which the plaintiffs were entitled to recover. As I understand the terms of section 1773, no liability rests upon a stockholder unless he has consented to the incurring of the liability sued on with knowledge that the requisite payment of 20 per centum has not been made. The meaning of the section is to make a stockholder liable to the same extent and under the same conditions as a signer of the articles or a subscriber for stock. There is no finding by the court that the defendant knew of the incurring of any liability to the plaintiffs, but the finding explicitly negatives the fact. It follows that, so far as the case was based on any statutory liability of the defendant, the plaintiffs were not entitled to recover, and the judgment was correct.

Irrespective of this consideration, however, the action was one for fraudulent representations, and the plaintiffs were not entitled to recover without proof of actual fraud. The allegations of fraud were found against the plaintiffs. By the Code of Civil Procedure of this state (section 541) there was a failure of proof which was fatal to any recovery by the plaintiff. Where fraud is alleged as the basis of the action, the law will not permit a recovery by proof of a cause of action upon a contractural liability. Degraw v. Elmore, 50 N. Y. 1; Barnes v. Quigley, 59 N. Y. 265. It would have been error to allow an amendment of the complaint changing the cause of action to one on

contract.

For these reasons, I think that plaintiffs were not entitled to recover, and that judgment was properly ordered for the defendant.

DU VIVIER & CO. v. GALLICE et al.

(Circuit Court of Appeals, Second Circuit. November 12, 1900.)

No. 29.

1. BANKRUPTOY-PROVABLE DEBTS-ELECTION OF REMEDIES.

Where a debtor gave to his creditor a series of notes Indorsed by a third person, pursuant to an agreement for the compromise and settlement of the debt, which provided that in case of default in the payment of any of the said notes the whole of the debt, "less any payments made in pursuance of this agreement and any collections by legal proceedings or otherwise made upon any of the said notes shall become due and payable forthwith" the bringing of action on the notes against the principal and indorser after default in their payment was not an election by the creditor between inconsistent remedies, and does not debar him from also proving the original debt, less proper credits, against the estate in bankruptcy of the debtor.

2. CORPORATION SUCCEEDING TO PARTNERSHIP BUSINESS AND PROPERTY— LIABILITY FOR FIRM DEBTS.

A corporation organized by the members of a partnership, to whom all the stock is issued, to take over all of the property of the partnership, and continue its business at the same place is liable for the debts of the partnership, even though they are not expressly assumed.

[Ed. Note. For cases in point, see Cent. Dig. vol. 12, Corporations, 100.]

Appeal from the District Court of the United States for the Southern District of New York.

J. A. Garner, for appellants.

G. Nicholas, for appellee.

Before LACOMBE, TOWNSEND, and COXE, Circuit Judges.

TOWNSEND, Circuit Judge. Petition by Gallice & Co. for review of order of the United States District Court for the Southern District of New York, affirming order of referee disallowing their claim against the bankrupt for any excess over $62,500, with interest.

The report of the referee accurately states the facts relevant to the main question discussed herein as follows:

"Gallice & Co. * filed their proof of debt in this matter for the sum of $471,926, with deductions amounting to the sum of $12,500. The trustee and creditors * moved to reduce the amount of the claim to the sum of $62,500. The facts have been agreed upon between the par ties and show briefly that the claimants, copartners under the name of Gallice & Co., for many years prior to June 30, 1903, had business transactions with Charles A. Du Vivier and another, composing the copartnership of Du Vivier & Co., engaged in the wholesale and retail wine business in New York City; that on June 30, 1903, a corporation was formed under the name of Du Vivier & Co., with a capital stock of $150.000, for the purpose of carrying on a business of wholesale and retail wine merchants, and it continued to carry on said business at 22 Warren Street, in the city of New York, from said 30th day of June, 1903, until November 25, 1904, when it was adjudicated a bankrupt in this district. It also appears that the account of the transactions of the copartnership of Du Vivier & Co., from De cember, 1901, to April, 1903, appear in the private general ledger of the copartnership in an account entitled 'Gallice & Co.,' and which shows that by various transactions the amount upon the ledger became $351.868.91. In March and April, 1903, negotiations were had between the said parties,

Gallice & Co. claiming that the sum of $171,926 was owing to them, and on April 14, 1903, an agreement marked Exhibit A, herein, was entered into between the parties and one Francis J. Crilly. * * "The material por

tions of said agreement are as follows: 'Whereas, the parties of the first part (Du Vivier & Co.), are indebted to the parties of the second part (Gallice & Co.) in the total sum of four hundred and seventy-one thousand nine hundred and twenty-six dollars ($471,926); * And, whereas, the parties of the second part, at the request of the party of the third part (Francis J. Crilly), have agreed to an amicable liquidation and compromise, of the said indebtedness, for the sum of seventy-five thousand dollars ($75,000), provided such sum is paid in the manner hereafter specified: Now, there fore, in consideration of the premises and of the mutual covenants and agreements herein contained and of one dollar by each party to the other in hand paid, the receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows: (1) The parties of the first part hereby pay to the parties of the second part the sum of two thousand five hundred dollars ($2,500), in cash, and hereby deliver to the parties of the second part (certain property) and also twenty-nine (29) promissory notes, bearing even date herewith, each for $2,500, bearing 3% interest, and payable respectively, on June 14, 1903, and on the 14th day of each of the twentyeight months next ensuing, to the party of the third part and by him indorsed to the parties of the second part. * (4) The parties of the second part hereby agree upon the due payment by the parties of the first and third parts of all of the said notes and their due performance of the covenants and agreements herein contained. to make, execute and deliver to the parties of the first part, a general release of the said indebtedness of four hundred and seventy-one thousand nine hundred and twenty-six dollars ($471,926); but in case of default in the payment of any of the said notes, the whole of the said debt, with interest, less any payments made in pursuance of this agreement and any collections by legal proceedings or otherwise made upon any of the said notes, shall become due and payable forthwith.'

*

"Pursuant to said agreement the copartnership paid to Gallice & Co. the sum of $2,500, and executed and delivered to them the series of 29 promissory notes for $2.500, payable respectively to Francis J. Crilly and indorsed by him to Gallice & Co. The note maturing in June, 1903, was paid by the copartnership. Du Vivier & Co., and the notes maturing in July, August and September, 1903, were paid by the corporation Du Vivier & Co. The rest of the notes due at the time of the filing of the proof of claim, had not been paid and the balance of the series of notes have not been paid. In May, 1904, Gallice & Co., after a demand and refusal to pay. commenced two actions in the state of Pennsylvania against Francis J. Crilly, indorser, on the first eight of the said series of notes, which were due and unpaid at that time. No collections, however, have been made thereon. The two actions are now pending. All of the notes which have matured were protested at maturity. No security has been received for the claim, except Indorsements of Crilly, if those should be held to be security."

Upon these facts the referee held as follows:

"It does not seem to me that these notes were given as security for the payment of the indebtedness of $471,000, but were given and accepted for $75,000, the creditor, Gallice & Co., having agreed to reduce their indebtedness to that amount if they could obtain what they supposed was a responsible person to guarantee the payment of the notes. By this agreement a new and independent debt from the corporation to Gallice & Co. was created to the extent of $75,000, and secured by the Crilly indorsements with a right to resort to the original indebtedness in case of default. This new debt was not a security for the payment of the old one, but a substitution for the other. Gallice & Co. were willing to reduce the principal amount because they had ample security as they thought, for the payment of that reduced amount. Now upon a default in the payment of any of the notes, two courses were open to Gallice. They could cancel and return the notes and reinstate the original claim, less the payments made, and this of course