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VOL. 53

GEORGE AIRSCH 12,

CENTRAL LAW JOURNAL.

Central Law Journal.

ST.LOUIS, MO., SEPTEMBER 20, 1901

No more difficult problem of government exists than the effort to subject all property equally to the burdens of taxation. The most lamentable weakness in the whole system of taxation is that upon personal property.

The statement can be made without fear of contradiction that the great majority of taxpayers make no return whatever on mortgages, bonds and other intangible securities. This practice of evasion, seemingly legitimated by the unanimity with which it is practiced were it not for the strict oath still required to be taken, practically exempts the holders of these securities from taxation.

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An effort has recently been made in the city of Chicago to meet this weakness and failure of the tax system by encouraging the taxpayers of the city to report any discrepancy in their neighbor's return of personal property. The newspapers of Chicago took up the idea with avidity and succeeded in making up several sensational "scoops" over the affair, and withal the result was quite successful at least from the city sessor's standpoint. "Some kind friend," as the informant of the assessor was invariably referred to, was quite active all over the city. One man's assessment was raised from nothing to twelve thousand dollars, and one lady who was congratulating herself on escaping taxation was assessed on information of "some kind friend" for two hundred and fifty thousand dollars, the value of certain stocks and bonds held by her. These are but examples of many increases of assessments ranging from one thousand to one hundred thousand dollars.

That the result of this experiment is not everywhere regarded as an enthusiastic success, we note the recent comment of the St. Louis Post-Dispatch as follows:

"The success of the higgledy-piggledy, called the tax system, has come to depend upon 'some kind friend.' He is the uncommissioned attache of the assessor's office. This some 'kind friend is no doubt a very useful person. He should be suitably rewarded with money enough to keep him from

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want, and the hearty contempt of all decent people. But what kind of a 'system' is it that can be made to work, even roughly, only by resorting to espionage, treachery and plain sneaking; which puts a premium upon perjury; tempts men to spy upon one another, and surrounds friends with an atmosphere of mutual suspicion. Considerations of even the lowest plane of morality require a reform in this formless system. If enough thought is given to the subject it can be re

duced to reason and order."

Undoubtedly the present system of taxation has resulted in dulling and debauching the moral sense of the people. It puts a tax on honesty and a premium on the most unscrupulous liar. It is not necessary, however, to offer proof of the utter failure of this system. No fact is better known nor more thoroughly regretted by the people. They simply await the suggestion of a remedy. Of the many suggestions for the solution of this difficulty which have so far been offered, three stand out with special prominence-the single tax, the income tax and the graduated business tax. The latter suggestion contemplates an assessment on the amount of sales or gross earnings of all business enterprises.

It is not our province, however, to advocate any particular suggestion, such questions partaking more of a political than of a legal nature, but we desire to call attention of the bar to the serious aspect which the question is rapidly taking and the natural attitude of the American people in looking to the legal profession for a practical solution of difficulties of this character rather than to the theoretical speculations of polit. ical scientists and public economists.

A dangerous advance of paternalistic tendencies is noticeable in the frequent successful attempts of legislatures to enact sumptuary laws under the vague, uncertain and seemingly all-comprehensive authority of the police power. An instance of this is to be noted in the case of State v. Crescent Creamery Co., 86 N. W. Rep. 107, where the Supreme Court of Minnesota held that section 7002 of the General Statutes of 1894, which prohibits the sale of cream that contains less than twenty per centum of fat, is a valid exercise of the police power and therefore

constitutional. It is the general concensus of opinion that it is not the proper function of government to regulate the morals and conduct of its citizens in their relations and intercourse with one another by sumptuary legislation;-its sole legitimate object is to protect them in their life, liberty and property. Beyond what is necessary for this protection the greatest freedom of contract and of business dealings is to be permitted. Sumptuary legislation makes the government the parent of a great family and its citizens nothing but weaklings under its custody and control, whereas, in its true aspect, it should be nothing but the servant and retainer of a strong people. The police power, therefore, as an attribute of sovereignty, is to be used only for the purpose of affording protection. to the life, liberty and property of the whole community, and not for the prevention of fraud or unfair dealings between individuals. In the adulteration of food products this distinction can be easily recognized. There is first that adulteration of food products which is injurious to the general health and that which is not. In the former case the adulteration endangers the life of the com. munity and is a proper subject of legislative regulation under the police power. In the second class of cases, where no injury to the health or life of the community is threatened, and especially, as is often the fact, where the adulterated product is itself beneficial and wholesome, little reason and authority can be seen for the interference of the legislature any more than in any of the other innumerable instances in which man takes advantage of his neighbor by misrepresentation and fraud. The ordinary remedies at law are sufficient to protect and compensate the unfortunate victim in such cases, and where the law affords no remedy, the stern emptor impresses him with the life is in large measure the

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rule of caveat fact that this survival of the

tendency in this country of surrounding the debtor who was a man of family with almost insurmountable barriers in the way of special privileges and exemptions. The belief is growing that the creditor has some rights which ought to be respected and enforceable even against heads of family, and especially creditors who have provided the family with the necessaries of life. Illinois has a statute which looks in this direction. It provides as follows:

The expenses of the family and of the education of the children shall be chargeable upon the property of both husband and wife, or of either of them, in favor of creditors therefor, and in relation thereto they may be sued, jointly and separately."

The U. S. Circuit Court of Appeals was recently called upon to construe this statute in the case of Walker v. Houghteling, 107 Fed. Rep. 619, where they held that where a house was rented to defendant under a written lease signed by defendant, and the premises were occupied as a dwelling by defendant and wife, the contention that an action could be maintained only on the lease, and against defendant alone, because the instrument was in writing and signed by defendant, and not as an action for use and occupation, under the statute, against defendant and wife, could not be sustained, since the statutory action was not merely remedial, but created a liability against the husband and wife, independent of any relation of landlord and tenant. The court said in part:

"The family expense statute under consideration, on the contrary, is not simply remedial. It creates a right in favor of the creditor, and a liability against the husband and wife. It introduces into the law a new character of obligation. It is, in no sense, an additional method of enforcing the relation of landlord and tenant, which was the sole purpose of the common-law action for use and occupation. The existence of the lease, in an action like this. is, of course, a material fact. It tends to show the value of the use and occupation. It may, by virtue of its force as a contract, set a limitation upon the amount that can be recovered. But it is not the basis of the suit. The suit is founded upon the provision of the statute that the wife, as well as the husband, shall be liable for family expense; and upon the fact that the use of a dwelling house is, within the meaning of this statute. a family expense. The circumstance

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after the death of the wife, and defendant was no longer the head of a family, he sold the homestead, and moved on a 2,200-acre tract which he owned, and applied the proceeds of the homestead to the payment of a mortgage on that tract, and thereafter sold 2,000 acres of it, but continued to reside on the remaining 200. Held, that defendant was not entitled to a homestead in the 200 acres. The court said in part:

sale.

"At the time Leland sold his city homestead, it was exempted from forced although he was not then the head of a family, because it had been exempted during the existence of his family, which was dissolved by death of his wife and the majority of his son. Under the rule laid down in Taylor v. Boulware, 17 Tex. 74, the exemption continued to Leland, notwithstanding the family was extinct. When Leland moved upon the 200 acres of land now claimed for a homestead, he could not acquire an exemption in that [place, because he was not then the head of a family, unless it be true that his former homestead was in fact converted into and became the land now claimed by him. In the case of Schneider v. Bray, 59 Tex. 668, the owner of the homestead exemption, a widow, whose family was dissolved by the death of her husband, exchanged the exempted homestead for a place in Blossom Prairie, in Lamar county, Tex., with the intent to immediately occupy it as a home, and did in fact move upon it as such, and continued to reside thereon. This court held that the home which was acquired in exchange for that which was exempted took the place of the former homestead, and was itself protected from forced sale. In the case of Watkins v. Davis, 61 Tex. 414, a widow whose family had consisted of herself and husband continued to occupy the homestead after the death of her husband, and, contemplating the purchase of the land in suit, sold her home, and invested the money received, in the new home, to which she immediately removed, and continued to occupy as a home. The court held that this was, in effect, an exchange of one place for the other; that it came within the rule announced in Schneider v. Bray, and the new homestead was exempted from the claims of creditors. In the case before the court, Leland owned the land in controversy before he sold his homestead. Consequently he did not exchange his home in the city for the land sought to be protected from sale, as was the case in Schneider v. Bray. Neither did he buy the property now in question with the proceeds of

quite far enough in that direction, and should mark the limit of the rule of law announced in those cases.”

CORPORATIONS-SALE OF ASSETS-RIGHTS OF CREDITORS.-An interesting discussion on the right of a corporation to sell its assets to another company in fraud of its creditors is to be noticed in the recent case of Hurd v. New York Laundry Co., 60 N. E. Rep. 327, where the New York Court of Appeals held that a corporation cannot, where the rights of a creditor have inter vened, with the consent of its stockholders, sell its plant and retire from business, taking the stock of the purchasing corporation in payment therefor, such stock being issued to an individual stockholder, without any agreement on his part to pay the corporate debts. The court said:

"Stripped of all speculations and assumptions, we have here the case of a corporation which is in debt. While so indebted its officers enter in to an agreement under which substantially all its of assets are transferred to another corporation, which is thereafter to continue the business. In payment of this transfer the purchasing corporation issues some of its capital stock, not to the selling corporation, nor yet to its officers as trustees, but to the principal stockholder as an individual. When the creditor undertakes to assert his rights the stock is reissued to the late treasurer of the selling corporation, who has become the president of the purchasing corporation, and he distributes the same without regard to the claims of creditors. This is the transaction that is sought to be defended under the authority of Holmes & Grigg Mfg. Co. v. Holmes & Wesse! Metal Co., 127 N. Y. 252, 27 N. E. Rep. 831. The statement in the opinion in that case, to the effect that a corporation has power, with the consent of all of its stockholders, to sell its plant to another corporation and to retire from business. taking payment in the stock of the other corporation, was entirely correct as qualified by the facts before the court. No rights of creditors intervened, the stockholders had all consented, and the question arose between the parties to a promissory note given for some of the stock. Here we have an entirely different condition of things. The stockholders consent, but the creditor objects. When he demands payment of his claim he is referred to the empty shell, which is all that is left of the live corporation whose tangible assets constituted a trust fund for the payment of his debt at the time of its creation. When he seeks to follow this

of its debts, upon which the creditors have an equitable lien, both as against stockholders and all transferees, except those purchasing in good

faith and for value. Bartlett v. Drew, 57 N. Y. 587; Brum v. Insurance Co. (C. C.), 16 Fed. Rep. 143; Mor. Priv. Corp. § 791. The Millerton Company was not such a purchaser. It parted with nothing. It knew and participated in the illegal purpose to destroy the National Company, to make it utterly insolvent, and to deprive its creditors of the trust fund upon which they had the right to rely, and so they were at liberty to set aside the transfer so far as it barred their remedy, and to enforce their equitable lien upon the property in the hands of the transferee.'"

ELEEMOSYNARY

THE NON-LIABILITY OF CHARITABLE AND INSTITUTIONS FOR NEGLIGENCE CAUSING PERSONAL INJURIES OR DEATH.*

Missionary Societies, Churches and Cemeteries. With respect to corporations created for the promotion of religion and benevolence by the establishment of hospitals, asylums and other institutions, within whose walls persons inclined to a life of charitable works may follow that life by caring for and relieving pain and disease, and wherein the gifts of private benevolence are accumulated for the purpose of organizing such relief upon some definite plan and with a veiw to the perpetuity of the relief dispensed, substantially the same immunities and exemptions have been extended by the courts as in the case of charitable institutions maintained by state, city and county taxation. Individual and collective private philanthropy and benevolence are encouraged upon like grounds of public policy. It is said in support of such immunity, first, that if a liability were admitted the trust fund might be wholly destroyed and diverted from the purpose for which it was given, thus thwarting the donor's intent as the result of negligence for which he was in no. wise responsible; and second, that since the trustees cannot divert the fund by their direct act from the purposes for which it was donated, such fund cannot be indirectly diverted by the tortious or negligent acts of the managers of the fund or their agents or employees.

I find that in one instance immunity from liability in tort was extended to a missionary

* An article by this writer on "Torts of Charitable Institutions Maintained by Taxation" appeared in the CENTRAL LAW JOURNAL of July 26, 1901.

society, but this seems to have been, in part at least, in consequence of certain statutory provisions directing that the rector, warden and vestrymen, or the trustees, consistory, or session, of any church, congregation or religious society, incorporated under the laws of New York, shall administer the temporalities thereof and hold and apply the estate and property belonging thereto, and the revenues of the same, for the benefit of such corporation, according to the rules and usages of the church or denomination to which said corporation shall belong, and making it unlawful to divert such estate, property, or revenue, to any purpose except the support and maintenance of such church, or religious or benevolent institution or object connected with the church or denomination, to which such corporation shall belong.' As indicated by the corporate title and admitted by the pleadings, defendant was a religious corporation duly organized under the laws of New York. and the question for decision presented to the court was whether, under the laws of that state, the plaintiff could maintain an action to recover damages for injuries sustained by reason of the negligence of an employee of the defendant, there being no allegation that such employee was Lot qualified for the work he was engaged to perform, or that there had been any negligence on the part of the officers of the corporation in his selection. The court observed that there was no allegation in the pleadings that the corporation was possessed of any other funds except those for the support and maintenance of the charity. "It has no capital stock, no financial return is made to its members, and, as far as appears. its officers serve without compensation. Under such circumstances it is merely an instrument of law to accomplish a certain object. The donor of its funds have selected it as a trustee for this object, and the estate, property and revenue in its hands are impressed with the trust for that purpose, and it does not seem to me to be lawful to divert them to any other, and consequently none of these funds can be diverted to the payment of damages for a personal injury received by a stranger at the hands of an agent not shown to be unworthy or unfit for the purpose for

1 Chapter 176, Laws 1876, sec. 1. A similar statute exists in Illinois, §§ 42 and 43, ch. 32; Corporations, 1 Starr & Curtis' An. St. p. 623.

in a defective condition whereby one coming on its premises by invitation was seriously injured, although its general objects are of such a nature as to endow it with legal capacity to take a charitable gift. And the fact that the funds of a cemetary association were actually applied to a considerable extent, in charity, is no more material, in Massachusetts, to relieve a mere religious society from liability, than evidence of a similar application of a part of his income by a private citizen would be in a suit against him."

which he was employed." "It is true," the court further remarked, "that most of the adjudged cases are those in which hospitals or other charities of that character were sought to be subjected to liability. But all of them proceeded upon the ground that it would be a diversion of the trust funds if they could be compelled to pay damages out of them, and in this respect we think that religious corporations are upon the same footing with hospitals, or other charitable institutions. The objects of the association are certainly as worthy and the trusts as sacred as in any other class of cases, and their liability in such actions as this must be denied." But on the other hand where it appeared that the plaintiff, while attending a church conference was injured without her fault, by falling over a dangerous wall which defendant congregation had constructed on the premises, it was held in Massachusetts that the jury were justified in finding that defendant was guilty of a breach of duty to keep its premises safe for plaintiff and others coming thereon by its invitation. The application of the rules on which defendant's liability depends is not affected by the consideration that this is a religious society and that plaintiff came there solely for her own benefit or gratification. It makes no difference that no pecuniary profit or other benefit was received or expected by the society. The fact that plaintiff came by invitation is enough to impose on the defendant the duty which lies at the foundation of this liability; and that, too, although the defendant in giving the invitation was actuated only by motives of friendship and Christian charity. And so a corporation, although much of its work is of a religious and charitable nature, but whose purposes are also social and include the giving of lect-placed while under the influence of an ures and theatrical and other entertainments for the benefit of its members, the provision of a gymnasium and of athletic sports for promoting the health, and also engaging in the sale of food at a coffee or lunch counter, is not within the exemption which protects

The Sisters of Charity.-Inasmuch as hospitals and asylums under the control of the religious orders aid to lighten public burdens by relieving the community from the necessity for resorting to taxation to establish and maintain such institutions, justice and sound policy would seem to require that they be extended the same privileges and immunities that would be claimed by the state should it undertake similar enterprises. Therefore, although the facts showed the admission of plaintiff to the "private pay patients' department" of a public charitable hospital conducted by the sisters of charity, under an express contract that she should have a private room and medicines and should be corstantly attended by a skillful, experienced and trained nurse, and that the very best of care should be taken of her, for which she agreed to pay, and did pay, the hospital $25 per week and the nurse so furnished to be paid $3 per day additional, but a nurse was furnished who had only been on probation for a course of instruction for a short period of time, and in disregard of the order of her superior, through forgetfulness or gross carelessness, left an uncovered hot water bag in the bed in which plaintiff was to be

anaesthetic after an operation, and from

5 Goodell v. Young Men's Christian Assn., 29 N. J. Eq. 32.

6 Donnelly v. Boston Catholic Cemetery Assn., 146 Mass. 163, 15 N. E. Rep. 505, 5 New Eng. Rep. 741. A city owning a cemetery, in a vault erected upon

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