*530

liminary orders restraining *appellants from threatening or attempting to enforce the Compulsory Education Act1 adopted November 7, 1922 (Laws Or. 1923, p. 9), under the initiative provision of her Constitution by the voters of Oregon. Judicial Code, § 266 (Comp. St. § 1243). They present the same points of law; there are no controverted questions of fact. Rights said to be guaranteed by the federal Constitution were specially set up, and appropriate prayers asked for their protection.

The challenged act, effective September 1, 1926, requires every parent, guardian, or

lows:

Sec. 5259. Children Between the Ages of Eight and Sixteen Years.-Any parent, guardian or other person in the state of Oregon, having control or charge or custody of a child under the age of sixteen years and of the age of eight years or over

at the commencement of a term of public school of

the district in which said child resides, who shall fail or neglect or refuse to send such child to a public school for the period of time a public school shall be held during the current year in said district, shall be guilty of a misdemeanor and each day's failure to send such child to a public school shall constitute a separate offense; provided, that in the following cases, children shall not be required to attend public schools:

(a) Children Physically Unable.-Any child who is abnormal, subnormal or physically unable to at

tend school.

(b) Children Who Have Completed the Eighth Grade. Any child who has completed the eighth

grade, in accordance with the provisions of the state course of study.

(c) Distance from School.-Children between the ages of eight and ten years, inclusive, whose place and children over ten years of age whose place of residence is more than three miles, by the nearest traveled road, from a public school; provided, however, that if transportation to and from school is furnished by the school district, this exemption shall not apply.

of residence is more than one and one-half miles,

(d) Private Instruction.-Any child who is being taught for a like period of time by the parent or private teacher such subjects as are usually taught in the first eight years in the public school; but before such child can be taught by a parent or a private teacher, such parent or private teacher must receive written permission from the county superintendent, and such permission shall not extend longer than the end of the current school year. Such child must report to the county school superperson designated by him at least once every three months and take an examination in the work covered. If, after such examination, the county superintendent shall determine that such child is not being properly taught, then the county superintendent shall order the parent, guardian or other person, to send such child to the public school the remainder of the school year.

intendent or some

If any parent, guardian or other person having control or charge or custody of any child between the ages of eight and sixteen years, shall fail to comply with any provision of this section, he shall be guilty of a misdemeanor, and shall, on conviction thereof, be subject to a fine of not less than $5, nor more than $100, or to imprisonment in the county jail not less than two nor more than thirty days, or by both such fine and imprisonment in the cretion of the court.

other person having control or charge or custody of a child between 8 and 16 years to send him "to a public school for the period of time a public school shall be held during the current year" in the district where the child resides; and failure so to do is de

*531

clared a misdemeanor. There are *exemp-
tions-not specially important here-for chil-
dren who are not normal, or who have com-
pleted the eighth grade, or whose parents or
private teachers reside at considerable dis-
tances from any public school, or who hold
special permits from the county superintend-
ent. The manifest purpose is to compel gen-
eral attendance at public schools by normal
children, between 8 and 16, who have not
And without
completed the eighth grade.
doubt enforcement of the statute would se-
riously impair, perhaps destroy, the profit-
able features of appellees' business and
greatly diminish the value of their property.

Appellee the Society of Sisters is an Oregon corporation, organized in 1880, with power to care for orphans, educate and instruct the youth, establish and maintain academies or schools, and acquire necessary real and

*532

per*scnal property. It has long devoted its property and effort to the secular and religious education and care of children, and has acquired the valuable good will of many parents and guardians. It conducts interdependent primary and high schools and junior colleges, and maintains orphanages for the custody and control of children between 8 and 16. In its primary schools many children between those ages are taught the subjects usually pursued in Oregon public schools during the first eight years. Systematic religious instruction and moral training according to the tenets of the Roman Catholic Church are also regularly provided. All courses of study, both temporal and religious, contemplate continuity of training under appellee's charge; the primary schools are esSential to the system and the most profitable. It owns valuable buildings, especially constructed and equipped for school purposes. The business is remunerative the annual income from primary schools exceeds $30,000— and the successful conduct of this requires long time contracts with teachers and parents. The Compulsory Education Act of 1922 has already caused the withdrawal from its schools of children who would otherwise continue, and their income has steadily declined. The appellants, public officers, have proclaimed their purpose strictly to enforce the statute.

After setting out the above facts, the Society's bill alleges that the enactment conflicts with the right of parents to choose schools where their children will receive apdis-propriate mental and religious training, theright of the child to influence the parents' choice of a school, the right of schools and teachers therein to engage in a useful busi-

This act shall take effect and be and remain in force from and after the first day of September, 1926.

(45 S. Ct.)

ness or profession, and is accordingly repug-erty. Finally, that the threats to enforce the nant to the Constitution and void. And, fur- act would continue to cause irreparable inther, that unless enforcement of the measure jury; and the suits were not premature. is enjoined the corporation's business and property will suffer irreparable injury. Appellee Hill Military Academy is a private corporation organized in 1908 under the

574

45 SUPREME COURT REPORTER

(Oct. Term,

action. Truax v. Raich, 239 U. S. 33, 36 S., of the manufacture, sale, and transportation of Ct. 7, 60 L. Ed. 131, L. R. A. 1916D, 543, Ann. intoxicating liquor, carries with it power to enCas. 1917B, 283; Truax v. Corrigan, 257 U. S. act any legislative measures reasonably adapted 312, 42 S. Ct. 124, 66 L. Ed. 254, 27 A. L. R. to promote the purpose. 375; Terrace v. Thompson, 263 U. S. 197, 2. Intoxicating liquors 13-Prohibition Act 44 S. Ct. 15, 68 L. Ed. 255. as to denatured alcohol held valid under Eighteenth Amendment.

The courts of the state have not construed the act, and we must determine its meaning National Prohibition Act, Oct. 28, 1919, tit. for ourselves. Evidently it was expected to 2, § 4 (Comp. St. Ann. Supp. 1923, § 101382b), have general application and cannot be con- forbidding sale of denatured alcohol for beverstrued as though merely intended to amend age purposes or under circumstances from the charters of certain private corporations, which seller may reasonably infer purchaser's as in Berea College v. Kentucky, 211 U. S. intention to so use it, and title 3, § 15 (section 101384n), making it a crime to knowingly 45, 29 S. Ct. 33, 53 L. Ed. 81. No argument offer for sale completely denatured alcohol in in favor of such view has been advanced. packages containing less than five wine gallons, [4] Generally, it is entirely true, as urged with no label affixed thereto, held valid under by counsel, that no person in any business Const. Amend. 18, being reasonably adapted to has such an interest in possible customers as enforcement of prohibition of manufacture, to enable him to restrain exercise of proper sale, and transportation of intoxicating liquor for beverage purposes. power of the state upon the ground that he

*536

out attachment of label to packages and of selling denatured alcohol for beverage purAffirmed. Messrs. Gerald J. Pilliod and J. C. Breitenstein, both of Cleveland, Ohio, for plaintiff in error.

poses, and he brings error.

will be deprived of patronage. But the in- In Error to the District Court of the junctions here sought are not against the ex- United States for the Northern District of ercise of any proper power. Appellees asked Ohio. protection against arbitrary, unreasonable, Meyer Selzman was convicted of conspirand unlawful interference with their patrons ing to violate the National Prohibition Act and the consequent destruction of their busi- by offering denatured alcohol for sale withness and property. Their interest is clear and immediate, within the rule approved in Truax v. Raich, Truax v. Corrigan, and Terrace v. Thompson, supra, and many other cases where injunctions have issued to protect business enterprises against interference with the freedom of patrons or customers. Hitchman Coal & Coke Co. v. Mitchell, 245 U. S. 229, 38 S. Ct. 65, 62 L. Ed. 260, L. R. A. 191SC, 497, Ann. Cas. 1918B, 461; Duplex Printing Press Co. v. Deering, 254 U. S. 443, 41 S. Ct. 172, 65 L. Ed. 349, 16 A. L. R. 196; American Steel Foundries v. Tri-City Central Trades Council, 257 U. S. 184, 42 S. Ct. 72, 66 L. Ed. 189, 27 A. L. R. 360; Nebraska District, etc., v. McKelvie, 262 U. S. 404, 43 S. Ct. 628, 67 L. Ed. 1047; Truax v. Corrigan, supra, and cases there cited.

[5] The suits were not premature. The injury to appellees was present and very real, not a mere possibility in the remote future. If no relief had been possible prior to the effective date of the act, the injury would have become irreparable. Prevention of impending injury by unlawful action is a wellrecognized function of courts of equity. The decrees below are affirmed.

(268 U. S. 466)

SELZMAN v. UNITED STATES. (Submitted April 27. 1925. Decided June 1, 1925.)

No. 998.

1. Intoxicating liquors 13 Eighteenth Amendment authorizes statutes reasonably adapted to prohibition of manufacture, sale, and transportation of intoxicating liquor. Federal government's power, granted by Const. Amend. 18, to enforce the prohibition

Mr. James M. Beck, Sol. Gen., of Washington, D. C., for the United States.

Mr. Chief Justice TAFT delivered the opinion of the Court.

Meyer Selzman was tried and convicted on two indictments in the District Court. The first charged him, Martin Bracker, Harry Porter, and others with a violation of section 37 of the Criminal Code (Comp. St. §

*467

10201) in conspiring to violate *section 15, title 3, of the National Prohibition Act (enacted October 28, 1919, c. 85, 41 Stat. 305 [Comp. St. Ann. Supp. 1923, § 101384n]), and the regulations relating to the manufacture and distribution of industrial alcohol prescribed by the Commissioner of Internal Revenue, pursuant to the provisions of title 3 of the act (sections 101384-101384t), in that they knowingly offered for sale completely denatured alcohol in packages containing less than five wine gallons, without having affixed to the packages a label containing the words "Completely denatured alcohol," together with the word "Poison" and a statement of the danger from its use. United States v. Grimaud, 220 U. S. 506, 31 S. Ct. 480, 55 L. Ed. 563.

Selzman was also convicted under four counts of the second indictment of violating section 4 of title 2 of the act (section 101382b) forbidding the sale of denatured alcohol for beverage purposes or under cir

(45 S.Ct.)

cumstances from which the seller may reasonably infer the intention of the purchaser to use it for such purpose.

This is a writ of error under section 238 of the Judicial Code (Comp. St. § 1215), on the ground that the provisions of the Prohibition Act in respect to denatured alcohol under which these indictments were found exceed the power of Congress. Whether this is a sound contention is the only question for

our decision.

[1, 2] It is said that the Eighteenth Amendment prohibits the manufacture, sale, and transportation of intoxicating liquor for beverage purposes only, and that as denatured alcohol is not usable as a beverage, the amendment does not give to Congress authority to prevent or regulate its sale, and that such authority remains with the states and is within their police power exclusively.

Reference is had to the part of section 1 of title 2 of the Prohibition Act (41 Stat. 307 [Comp. St. Ann. Supp. 1923, § 101381⁄2]), as follows:

"Sec. 1. When used in title 2 and title 3 of

this act (1) the word 'liquor' or the phrase 'intoxicating liquor' shall be construed to in

*468

clude alcohol, brandy, *whisky, rum, gin, beer, ale, porter, and wine, and in addition thereto any spirituous, vinous, malt, or fermented liquor, liquids, and compounds, whether medicated, proprietary, patented, or not, and by whatever name called, containing one-half of 1 per centum or more of alcohol by volume which are fit for use for beverage purposes."

This, it is said, is a proper construction and limitation of what the Eighteenth Amendment was intended to prohibit and excludes denatured alcohol, although intoxicating, because not fit for beverage purposes. The argument is without force.

formerly needed to permit its use in the arts and to prevent its consumption as a beverage without paying the tax. The power of the federal government, granted by the Eighteenth Amendment, to enforce the prohibition of the manufacture, sale, and transportation of intoxicating liquor, carries with it power

*469

to enact any legislative measures reasonably adapted to promote the purpose. The denaturing in order to render the making and sale of industrial alcohol compatible with the enforcement of prohibition of alcohol for beverage purposes is not always effective. The ignorance of some, the craving and the hardihood of others, and the fraud and cupidity of still others, often tend to defeat its object. It helps the main purpose of the Amendment, therefore, to hedge about the making and disposition of the denatured article every reasonable precaution and penalty to prevent the proper industrial use of it from being perverted to drinking it. The conclusion is fully supported by the decisions of this court in Jacob Ruppert v.

Caffey, 251 U. S. 264, 282, 40 S. Ct. 141, 64 L. Ed. 260, and National Prohibition Cases, 253 U. S. 350, par. 11, 40 S. Ct. 486, 588, 64 L. Ed. 946. See, also, Huth v. United States (C. C. A.) 295 F. 35, 38.

Affirmed.

(268 U. S. 536)

MARR v. UNITED STATES. (Reargued March 12, 1925. Decided June 1, 1925.) No. 236.

Internal revenue

7-Difference between cost of stock in one corporation, and value of stock in other corporation received therefor, held taxable as "income."

Where new corporation was organized to take over assets to and assume liabilities of old corporation and acquired stock of old corporation by issuance of stock in new corporation to holders thereof, the difference between the cost of stock in old corporation and value of stock in new corporation, received in lieu thereof, held taxable as "income" under Act Sept. 8, 1916, §§ 1, 2 (Comp. St. §§ 6336a, 6336b), being gain in value resulting from profits represented by different stock in different corporation.

In order that the uses of alcohol might not be lost to the arts by reason of the then heavy internal revenue tax, Congress made provisions (Act of June 7, 1906, c. 3047, 34 Stat. 217, Act of March 2, 1907, c. 2571, 34 Stat. 1250, and Act of October 3, 1913, c. 16, § IV, N, subsec. 2, 38 Stat. 114, 199 [Comp. St. § 6137]) by which alcohol was made tax free if denatured so that it could not be used for a beverage and evade the federal tax on the potable article. Any attempt to recover the alcohol thus denatured for beverage purposes was punished. The plaintiff in error's suggestion is that this was then within the power of Congress because necessary to protect its power of levying an excise tax on liquor under section 8, art. 1, of the Constitution; but that as there is now no tax upon alcohol to protect, denatured alcohol has passed out of the domain of Congressional action. But surely the denaturing of alcohol is now as necessary in maintaining its use in the arts and prohibiting its use as a beverage, as it was firmed.

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Income.]

Mr. Justice Van Devanter, Mr. Justice Mc

Reynolds, Mr. Justice Sutherland, and Mr. Justice Butler, dissenting.

Appeal from the Court of Claims.

Suit by Walter L. Marr against the United States. Judgment for the United States (58 Ct. Cl. 658), and plaintiff appeals. Af

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

*Mr. Justice BRANDEIS delivered the opinion of the Court.

On this basis all the common stock of the

New Jersey corporation was exchanged and all the preferred stock except a few shares.

These few were redeemed in cash. For ac

quiring the stock of the New Jersey corporation only $75,000,000 of the common stock of the Delaware corporation was needed. The remaining $7,600,000 of the authorized common stock was either sold or held for

sale as additional capital should be desired. The Delaware corporation, having thus become the owner of all the outstanding stock of the New Jersey corporation, took a transfer of its assets and assumed its liabilities. The latter was then dissolved.

Prior to March 1, 1913, Marr and wife purchased 339 shares of the preferred and 425 shares of the common stock of the General Motors Company of New Jersey for $76,400. In 1916, they received in exchange for this stock 451 shares of the preferred and 2,125 shares of the common stock of the General Motors Corporation of Delaware which (including a small cash payment) had the aggregate market value of $400,866.57. The difference between the cost of their stock in the New Jersey corporation and the value of the stock in the Delaware corporation was $324,466.57. The Treasury Department ruled that this difference was gain or income under the Act of September 8, 1916, c. 463, title 1, §§ 1 and 2, 39 Stat. 756, 757 (Comp. St. §§ 6336a, 6336b); and assessed, on that account, an additional income tax for 1916 which amounted, with interest, to $24,944.12. That sum Marr paid under protest. He then appealed to the Commissioner of Internal Revenue by filing a claim for a refund; and, upon the disallow-gal effect a stock dividend; and that under ance of that claim, brought this suit in the Court of Claims to recover the amount. Judgment was entered for the United States.

58 Ct. Cl. 658. The case is here on appeal under section 242 of the Judicial Code (Comp. St. § 1219).

The exchange of securities was effected in this way. The New Jersey corporation had outstanding $15,000,000 of 7 per cent. preferred stock and $15,000,000 of the common stock; all shares being of the par value of $100. It had accumulated from profits a large surplus. The actual value of the common stock was then $842.50 a share. Its officers caused to be organized the Delaware corporation, with an authorized capital of $20,000,000 in 6 per cent. nonvoting preferred stock and $82.600,000 in common stock; all shares being of the par value of $100. The Delaware corporation made to stockholders

It is clear that all new securities issued in excess of an amount equal to the capitalization of the New Jersey corporation represented income earned by it; that the new securities received by the Marrs in excess of the cost of the securities of the New Jersey corporation theretofore held were financially the equivalent of $324,466.51 in cash; and that Congress intended to tax as income of stockholders such gains when so distributed. The serious question for decision is whether it had power to do so. Marr contends. that, since the new corporation was organized to take over the assets and continue the business of the old, and his capital remained invested in the same business enterprise, the additional securities distributed were in le

the rule of Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R.

*540

1570, applied in *Weiss v. Stearn, 265 U. S. 242, 44 S. Ct. 490, 68 L. Ed. 1001, 33 A. L.

R. 520, he was not taxable thereon as in

come, because he still held the whole invest

ment.

The government insists that identity of the business enterprise is not conclusive; that gain in value resulting from profits is taxable as income, not only when it is represented by an interest in a different business enterprise or property, but also when it is represented by an essentially different interest in the same business enterprise or property; that, in the case at bar, the gain actually made is represented by securities with essentially different characteristics in an essentially different corporation; and that, consequently, the additional value of the new securities, although they are still held in the New Jersey corporation the following by the Marrs, is income under the rule apoffer for exchange of securities: For every plied in United States v. Phellis, 257 U. S. share of common stock of the New Jersey 156, 42 S. Ct. 63, 66 L. Ed. 180; Rockefeller corporation, five shares of common stock v. United States, 257 U. S. 176, 42 S. Ct. 68, of the Delaware corporation. For every 66 L. Ed. 186; and Cullinan v. Walker, 262 share of the preferred stock of the New U. S. 134, 43 S. Ct. 495, 67 L. Ed. 906. In Jersey corporation, one and one-third shares our opinion the government is right. of preferred stock of the Delaware corporation. In lieu of a certificate for fractional shares of stock in the Delaware corporation, payment was to be made in cash at the rate of $100 a share for its preferred and at the rate of $150 a share for its common stock.

#539

In

In each of the five cases named, as in the case at bar, the business enterprise actually conducted remained exactly the same. United States v. Phellis, in Rockefeller v. United States, and in Cullinan v. Walker, where the additional value in new securities