or enhancement of danger, the railroad was not liable for death of a five-year-old child, who had wandered from home, from drowning therein, on any theory of attractive nuisance.-Blough v. Chicago Great Western R. Co., Iowa, 179 N. W. 840.

58.

Pleading-Admissions.-Where a party to an action at law relies upon admissions in the pleadings of the other party as proof in support of his case, he must accept the admission in its entirety, and any statement in the pleading of another fact connected with the admission which nullifies or modifies the effect of the admission must also be held as established, for the whole statement must be taken and construed together.-Sterry v. Fitz-Gerald, N. J., 111 Atl. 636.

Process-Amendment.--Where

59. the summons in divorce proceedings was so defective as not to give the court jurisdiction, the defect could not be cured by amendment.-Perry v. Perry, Vt., 111 Atl. 632.

60. Railroads Federal Control. Where a shipper sustained loss or damage to freight carried over a railroad during the period of federal control, the railway company is not liable. Morrell v. Northern Pac. Ry. Co., N. D., 179 N. W. 922.

61. Negligence Per Se.-An automobile driver, who could have seen approaching train in time to have avoided collision, if he had looked and who failed to stop and look before going on the track, held negligent as a matter of law.-Hines v. Cooper, Ala., 86 So. 396.

62. Risk of Injury. In the absence of statute regulating the subject, an express messenger's agreement to assume all risk of injury incidental to his employment, from whatever cause arising, is valid and binding.-Wells Fargo & Co. v. Taylor, U. S. S. C., 41 Sup. Ct. 93. 63.- -Safety Appliance.-Safety Appliance Act March 2, 1893, as amended by Act March 2. 1903, § 2, requiring brakes to be so coupled as to be under engine control, does not impose on the courts any duty to weigh the dangers incident to particular operations.-United States v. Northern Pac. Ry. Co., U. S. S. C.. 41 Sup. Ct. 101.

64. Sales-Passing of Title.--The sale and delivery of chattels, on condition that the property is not to vest until the purchase price is paid, does not pass title to the buyer.-Worcester Morris Plan Co. v. Mader, Mass., 128 N. E. 777.

65.Rescission.-Where the seller, on discovery of fraudulent representations, failed to rescind a sale of powder, but demanded payment, and the buyer, to whom delivery had been made, mortgaged the powder to secure a note, which mortgage and note thereafter were assigned to an innocent third person, who, having also obtained bill of sale, in turn transferred it to defendant, a corporation organized to take over the business of the buyer, held, that the seller could not thereafter rescind and replevin the powder. Middleton V. McCarthy Hidden Treasure Mining Corporation, Col., 193 Pac. 553. 66. Seamen-Seaworthiness.-Inherent in the shipping articles of seamen is the absolute obligation of the owners and operator to see that the vessel was seaworthy; that is, she must be tight, staunch, and strong, and so equipped and the cargo so stored as to resist all ordinary action of the sea. But it is not necessary that she be in perfect condition or equipped with the most improved appliances.-Hamilton v. United States, U. S. C. C. A., 268 Fed. 15.

67. Statutes-Ambiguity.-While an act that is too plain to admit of construction must be accepted and enforced by the courts as it was written, the courts will give to a doubtful or ambiguous statute a construction, if possible, which will not lead to inequitable results. Williamson v. Illinois Cent. R. Co., Ind., 128 N. E. 758.

68. Taxation.-Laws imposing taxes are not to be construed as imposing burdens upon doubtful interpretations.-Sperry & Hutchinson Co. v. Harbison, Miss., 86 So. 455.

69. Taxation-Exactions.-Taxes are, in legal contemplation, neither debts nor contract

ual obligations, but are, in the strictest sense of the word, exactions.-Baker v. City of East Orange, N. J., 111 Atl. 681.

70. Telegraphs and Telephones-Damages.In the absence of statutory or contractual modification of the liability of a telegraph company, if there is negligent failure to transmit a message correctly, the party in whose favor the liability is incurred is entitled to recover such damages as are the direct and natural result of that breach of duty, including special damages which the terms of the message disclose to be likely to result from the default.-Western Union Telegraph Co. v. Esteve Bros. & Co., U. S. C. C. A., 268 Fed. 22.

71. Trespass-Exemplary Damages. Where land has been invaded in intentional disregard of owner's right and of his warnings not to do So, owner is entitled to exemplary damage.Stockburger v. Aderholt, Miss., 86 So. 464.

72. Trial-Preponderance of Evidence.-An instruction, defining "preponderance of the evidence" as not the greater number of witnesses. but that evidence which was more satisfying and convincing to the minds of the jury, without adding "in respect to its credibility." was not erroneous--Zack wik ν Hanover Fire Ins. Co., Mo., 225 S. W. 135.

73. Trusts-Devise to Class.-Where all of the living beneficiaries who might take under a devise in trust to a class were made parties to a proceeding to sell for reinvestment, a sale made under judicial decree is binding on any beneficiary who may be added to the class by birth, etc.-Bibb v. Bibb, Ala., 86 So. 376. 74.

-Resulting Trust.-A resulting trust in real property arises where an agent invests his principal's money in such property with the latter's consent but takes the title thereto in the agent's name, and the fact that the agent applies the particular money furnished to him for the purchase to his own use, but later substitutes therefor funds of his own, does not alter the rule.-Jackson v. Jackson, Fla., 86 So. 510.

75. Vendor and Purchaser-Assignee.-The assignee of an option to purchase land, in the absence of estoppel, takes subject to all the defenses that might be interposed against the assignor, and is not in the position of an innocent purchaser.-Andrews v. Mohrenstecher, Ill., 128 N. E. 729.

76. Waters and Water Courses-Act of God. -A railroad company, which filled in a side channel of a river through which it was obvious that the water flowed in time of flood, cannot claim exemption from liability for the flooding of land above because of such obstruction, on the ground. that the freshet was so unprecedented as to be an act of God.-Oregon-Washington R. & Nav. Co. v. Williams, U. S. C. C. A., 268 Fed. 56.

77. Wills -Revocation.-If a codicil expressly revokes any part of the will, the part revoked must be treated as stricken, and, if any clause of the codicil is irreconcilably repugnant to the provisions of the will, to such extent the codicil supplants the will.-Abdill v. Abdill, Ill.. 128 N. E. 741.

78.Testamentary Capacity.-Less strength of mind is required to make a will than a contract, where the party has to combat the sagaeity and cunning of a mind which may be superior. Langford's Ex'r v. Miles, Ky., 225 S. W. 246.

79.- Testamentary Act. While the law looks with suspicion on a will, the preparation and execution of which has been attended to by a beneficiary, such a will is not invalid, unless the circumstances convince the court or jury that it was the act of the beneficiary, and not the free and conscious act of the testatrix. In re Gordon's Will, Del., 111 Atl. 610. 80. Witnesses-Competency of Wife.-A wife was incompetent to testify as a witness for her husband for the purpose of contradicting witnesses for the government, who testified that certain matters transpired in her presence, as the rule excluding a wife from testifying for her husband applies, irrespective of the kind of testimony she might give.-Jin Fuey Moy v. United States, U. S. S. C., 41 Sup. Ct. 99.

Central Law Journal.

ST. LOUIS, MO., FEBRUARY 11, 1921

IS A GAIN IN VALUE REALIZED FROM THE SALE OF PROPERTY INCOME?

A recent decision by United States District Judge Thomas of the District of Connecticut in a case known as the Brewster Case, is being discussed in clubs, banking houses and wherever men encumbered with large incomes and plagued with big profits assemble to commiserate each other on the injustice of the income tax. But this decision has given cause for more rejoicing than did the decision of the Supreme Court in the Eisner Case (252 U. S. 206, 40 Sup. Ct. 193), holding stock dividends not to be income. For this decision holds that "profits realized from the sale of property which is part of the capital of one not engaged in trading in such property is not income." Brewster vs. Walsh, 268 Fed. 207.

In this case plaintiff bought certain bonds. in 1903 for $231,000 and sold them in 1916 for $276,000. Plaintiff refused to return this profit as income of the year 1916 and the Commissioner of Internal Revenue assessed the income on this transaction at $111,670, taking as the basis of his calculation the value of the bonds on March 1, 1913, at which time, according to market. quotations the bonds were worth $164,480. If the market price for these bonds on March 1, 1913, had been higher than in 1916, plaintiff would have had to pay no tax in spite of the actual profit based on the original cost, of $44,850. But since the market value of the bonds on March 1, 1913, was less than the purchase price, the plaintiff was compelled to pay on more than on his actual profit. But plaintiff objected to paying anything on those bonds as income since, as he contended, they represented exactly the same capital that he had in 1913 and appreciation of capital under the Eisner decision was not income.

He therefore paid the tax under protest and brings this suit to recover the amount so paid. In giving judgment for the plaintiff the court declared that the income tax act so far as it attempts to tax "gains derived from the sale or other disposition of property" is not within the Sixteenth Amendment authorizing a tax on incomes, but is a direct tax not apportioned among the states and therefore prohibited under the Constitution." In support of his position Judge Thomas says:

"The meaning of the word 'incomes' in the Sixteenth Amendment is no broader than its meaning in the act of 1867. It was adopted in its present form, using only the words 'incomes from whatever source derived,' with the presumptive knowledge on the part of Congress and the several state legislatures, of the meaning attributed thereto by the decisions of the various courts, both state and federal.

"It has been held repeatedly that gains realized from the sale of capital assets held in trust are not income, but are principalexactly as the securities were before they were sold, and that where a tenant for life is entitled to the entire net income of a fund, and the trustee realizes an advance in value by the sale of an investment, the life tenant is not entitled to the gain which is uniformly treated by the courts as an increment to principal and a part of the corpus of the trust.

"These decisions had at the time of the adoption of the Sixteenth Amendment established a definite meaning of the word 'income' for the purpose of statutory and constitutional construction. It is difficult to see how the word 'income' can have any different meaning when applied to the proceeds of an investment, when held by a trustee, than when held by an individual, as the Income Tax Law specifically refers to funds held in trust. Section 2 (b).

"The exact question presented in this case has not been before the Supreme Court since its decision in Gray v. Darlington, nor did it arise in Eisner v. Macomber. Notwithstanding certain passages in the opinion of the court in the Macomber Case, stating that, when dividend stock is sold at a profit, the profit is taxable like other income, which I consider, in view of all that has been written by the Supreme Court in a long line of income tax decisions, must

mean that the profit derived from such transactions, if it is income, applies in the case of a trader, and not in the case of an individual, who merely changes his invest

ments.

"Therefore, under the authority of Gray v. Darlington, I feel constrained to hold that the appreciation in value of the plaintiff's bonds, even though realized by sale, is not income taxable as such."

The case of Gray v. Darlington, 15 Wall. 63, referred to by the court in the quotation we have just given, is the nearest case in point on this exact question. This case arose under the Income Tax Law of 1867 and it was there decided that a gradual increase in value extending over a period of years could not be taxed as income for the year in which it was realized by sale. Speaking for the court, Mr. Justice Field, on page 65 of 15 Wall. (21 L. Ed. 45), said:

"The question presented is whether the advance in the value of the bonds, during this period of four years, over their cost, realized by their sale, was subject to taxation as gains, profits, or income of the plaintiff for the year in which the bonds were sold. The answer which should be given to this question does not, in our judg.. ment, admit of any doubt. The advance in the value of property during a series of years can in no just sense, be considered the gains, profits, or income of any one particular year of the series, although the entire amount of the advance be at one time turned into money by a sale of the property. The statute looks, with some exceptions, for subjects of taxation only to annual gains, profits, and income."

Probably the real point in the Darlington case is that gains to be regarded as income must be annual and not such as those which extend over a period of years. For, in this respect, that case has been definitely approved by the Supreme Court in the opinion in the case of Lynch vs. Turrish, 247 U. S. 221. In that case the court, speaking through Justice McKenna, said:

"Besides, the contention of the government does not reach the principle of Gray v. Darlington, which is that the gradual advance in the value of property during a

series of years in no just sense can be ascribed to a particular year, not therefore as arising or accruing,' to meet the challenge of the words, in the last one of the years, as the government contends, and taxable as income for that year or when turned into cash. Indeed, the case decides that such advance in value is not income at all, but merely increase of capital and not subject to a tax as income."

The Brewster decision seems to us to follow logically from the decision in the Stock Dividend Case (Eisner vs. Macumber, 252 U. S. 189). For if an increase in the value of one's capital is not taxed when it takes the form of a stock dividend then the subsequent sale of such stock would be a mere conversion of capital assets. If the increase in value of a bond or a tract of real property is not income it is hardly logical to say that the realization of such gain by sale is income.

NOTES OF IMPORTANT DECISIONS.

IS THERE A LIMIT UPON SALARIES PAID BY CORPORATIONS WHICH MAY BE DEDUCTED IN COMPUTING INCOME TAX? -It has not been a secret that many corporations have been diverting their profits to pay huge salaries to officers, directors and stockholders in order to reduce the amount of their income tax assessment. To counteract this practice the Department of Internal Revenue took the position that salaries of corporate officers in excess of a reasonable compensation for services rendered were subject to income taxation as part of the net income or profits of the corporations employing them. This po sition has been held to be untenable by the U. S. District Court (E. D. Pennsylvania). United States v. Philadelphia Knitting Mills Co., 268 Fed. 270. In support of its decision, the Court said:

"It is clearly the right of the employer to fix and determine what he shall pay, assuming, of course, that the employee is willing to accept of what is thus fixed. He may be unduly, or indeed unwisely, liberal, but an error of judgment of this kind cannot affect his right. We say the position is untenable, not upon the ground that Congress could not limit what should be allowed for deductions by reason of executive salaries, but on the ground that Congress has not thus far, and by the tax acts in question, established any such limitation. Nothing short of the legislative strong hand could

fix any such limitation. There is practically no guide to determine what should be paid or measure of payment other than the judgment of those whose money is being paid. To object to a salary, for illustration, of $25,000 which a corporation might well deem it to be to its interest to pay to one man as its president, because other men might be found willing to accept the position for $5000, or even for $1000, would be recognized at once as an objection without weight."

There can be no doubt that under cover of large salaries the income tax can be easily averted, but who shall say whether a salary paid is too large for the service rendered? Clearly in the first instance the Department of Internal Revenue under its power to make regulations and rules for finding one's income, can define the character of the deductions to be made. It is for the courts to say, of course, whether the regulation is reasonable or whether the rule is applied in a reasonable manner. is going too far, however, it seems to us, for the courts to say that the Internal Revenue Department has no authority to make any rule whatever with respect to the amounts set apart for salaries. The fact that there may be a deduction for salary necessarily implies that that which is not in fact salary but a distribution of the profits should not be deducted as salary.

It

THE DOCTRINE OF NUISANCES ATTRACTIVE TO CHILDREN AS APPLIED TO ARTIFICIAL BODIES OF WATER.-The doctrine of the Turntable Cases have given the courts much difficulty. This doctrine is that one who creates an instrument or situation attractive to children must use every means possible to keep children away or protect them from the dangers thereof. The Supreme Court of Iowa, in two recent cases, decided on the same day, had occasion to apply this doctrine to the creation of artificial ponds by railroads on their right of way, such as cofferdams and barrow pits. The Court conceded that such artificial bodies of water were attractive to children but were no more attractive than natural bodies of water and therefore the doctrine did not apply. Massingham v. Railway Co., 179 N. W. 832; Blough v. Railway Co., 179 N. W. 840.

In the Massingham case the Court held that a cofferdam about an abutment of a railroad bridge, inclosed by a substantial barbed wire fence, located wholly on the railroad's right of way and remote from dwellings, was not an attractive nuisance so as to render the railroad liable for death of a boy eight years old, who drowned when he fell from a beam attached to the dam.

In the Blough case the Court held that a pond or barrow pit situated in a railroad's right of way being such as is common wherever railroads have been constructed, without characteristics different than natural collections of water, and without any additional attraction to children or enhancement of danger, the railroad was not liable for death of a five-year-old child, who had wandered from home, from drowning therein, on any theory of attractive nuisance.

The Massingham case differs from the Blough case in the fact that the dam itself in addition to the water inclosed thereby was attractive to children. The Court held that such a structure was not inherently dangerous to children and could not be guarded against a child going upon the dam and falling off into the water. The Court said:

"The sole question in the case before us is whether the structure complained of was of a character and so located as to come within the definition of an attractive nuisance. It was manifestly not inherently dangerous. No machinery of any kind was connected therewith. The only way a child could be injured thereby would be to fall therefrom into the water and be drowned. The structure was not in itself dangerous. It is true that children might be tempted to gratify a spirit of adventure and go upon the dam and do what deceased was doing at the time of the accident, but it is not the law that property owners, having lawful structures thereon, not in their nature dangerous or capable of inflicting injury upon children of tender years, are bound to guard the same against the possibility of someone being injured while upon or about the same."

In the Blough case the Court put its decision that the defendant was not liable on the sole ground that an artificial body of water with no other attraction than the water itself was not any more a nuisance attractive to children than a natural pond or water course.

The rule that artificial ponds of themselves, are not attractive nuisances is held by the great majority of the Courts in this country. Gillespie v. McGowan, 100 Pa. 144, 45 Am. Rep. 365; Sullivan v. Huidekoper, 27 App. D. C. 154, 5 L. R. A. (N. S.) 263, 7 Ann. Cas. 196; Stendal v. Boyd, 73 Minn. 53, 75 N. W. 735, 42 L. R. A. 288, 72 Am. St. Rep. 597; Klix v. Nieman, 68 Wis. 271, 32 N. W. 223. 60 Am. Rep. 854; Richards v. Connell, 45 Neb. 467, 63 N. W. 915; Barnhardt v. C., M. & St. P. R. Co., 89 Wash. 304, 154 Pac. 441, L. R. A. 1916D, 443.

There is a line of cases which apparently declare a rule different from that just given of which the case of City of Pekin v. McMahon, 154 Ill. 141, 39 N. E. 484, 27 L. R. A. 206, 45 Am. St. Rep. 117, is an example. In this case there was an excavation on a lot in a thickly settled community. Water had collected in this

pit to a depth of 14 feet. It was the fact, however, that a large number of logs had been allowed to remain in the water which induced the boys to make rafts of them which led the Court to hold the owner liable. The Court distinctly says that it was the logs in the water and not the water itself that constituted a nuisance attractive to children.

The decision in the Kansas case of Price v. Water Company, 58 Kans. 551, 50 Pac. 450, 62 Am. St. Rep. 625, is explained in the same way as the decision in the McMahon case, for the nuisance in this case was not the reservoir or settling basin in which the boy was drowned, but a "wooden apron" or buoy which attracted the boy.

An artificial pond of itself is not a nuisance attractive to children any more than a natural water course; nor is the embankment or dam which causes the water to collect. But if there are attractions on or near the water such as rafts, logs, etc., the place may become attractive to children for that reason and should be carefully guarded or the attraction removed.

One of the first psychopathic laboratories in the United States was that in connection with the Juvenile Court of Cook County, established in 1909 on a private foundation furnished by Mrs. William Dummer of Chicago. Dr. William Healy was the Director. After about five years this laboratory was taken over by Cook County and is now maintained by it.

The Psychopathic Laboratory of the Municipal Court was established in 1914. The Juvenile Court of Cook County had about 4,000 cases annually. The Municipal Court Laboratory receives cases from the specialized courts, such as Domestic Relations, Boys', Morals, and the various criminal branches. It, therefore, has cases above the Juvenile Court age, seventeen years, and

*We discussed the Organization and Administration of the Municipal Court of Chicago in last week's issue of the Journal. This article. however, reveals a most interesting development of criminal procedure in this country.

adults, both men and women. About 10,000 cases annually go through each of the Morals, Domestic Relations, and Boys' Courts; besides a great volume of business through the criminal branches and only selected. cases go to the laboratory.

The police officers of the City of Chicago to the number of 5,000 are ex-officio bailiffs of the Municipal Court and hence become agents of the laboratory in bringing in those who do not conform to normal standards and who commit crimes. The Police Department costs the city about $7,000,000.00 per year and the Municipal Court now costs it nearly a million, so that the facts gathered by the Psychopathic Laboratory are incident to an annual outlay of nearly $8,000,000.00 by the City of Chicago. They are expensive facts, therefore, that can nowhere else be gathered together with the same facilities. No medical school has or could afford such a clinic. It would take the Rockefeller Foundation to finance it. In the third annual report of this court a plan for recording data concerning criminals was outlined as a result of the report of Committee A of the American Institute of Criminal Law and Criminology. comparing this and the 10th and 11th annual reports of the Municipal Court, which cover three years of the court's history, and records data as to 4,447 cases, excelling in breadth and variety of material any examination of this sort ever made, it will be seen how actual laboratory findings and experiments on actual material have turned out to be widely different from a priori ideas and speculations which were the basis of the earlier reports.

By

The laboratory draws its material principally from the specialized courts, Domestic Relations, Boys' and Morals Courts. The examination involves intensive individual, criminalistic, psychiatric, psychologic, neurologic, hereditary, anthropometric, and sociologic study. While the heart of the inquiry is subjective study of the individual, it is supplemented with consideration of all that can be revealed by extrin