The Distilled Spirits - 78 U.S. 356 (1870)
U.S. Supreme Court
The Distilled Spirits, 78 U.S. 11 Wall. 356 356 (1870)
The Distilled Spirits
78 U.S. (11 Wall.) 356
1. The acceptance by the collector of a false and fraudulent bond given for the removal of distilled spirits from a bonded warehouse will not prevent a forfeiture of such spirits under the 45th section of the Internal Revenue Act of July 13, 1866, which forfeits "distilled spirits found elsewhere than in a bonded warehouse, not having been removed therefrom according to law."
2. The removal will be illegal if effected by means of a false and fraudulent bond.
3. The 48th section of the Internal Revenue Act of June 30, 1864, as amended by the act of 1866, which forfeits "all goods, wares, merchandise, articles or objects" if found in possession of any person in fraud of the internal revenue laws &c., is applicable to distilled spirits notwithstanding the forfeiture of spirits is provided for in a distinct series of sections relating thereto in the same law or in a supplementary law.
4. All the sections can stand together, and where that is the case, one does not repeal or supersede the other, as repeals by implication are not favored.
5. The rule that notice to the agent is notice to the principal applies not only to knowledge acquired by the agent in the particular transaction, but to knowledge acquired by him in a prior transaction and present to his mind at the time he is acting as such agent, provided it be of such a character as he may communicate to his principal without breach of professional confidence.
6. Where distilled spirits forfeited to the United States are mixed with other distilled spirits belonging to the same person (ignorant of the forfeiture) they are not lost to the government by such mixture, either on the principle of confusion of goods, or transmutation of species, even though subsequently run through leaches for the purpose of rectification. The government will be entitled to its proportion of the result.
The 48th section of the Internal Revenue Act of June
30, 1864, [Footnote 1] as amended by an act of July 13, 1866, enacts that
"All goods, wares, merchandise, articles or objects on which taxes are imposed by the provisions of law which shall be found in the possession or custody or within the control of any person or persons in fraud of the internal revenue laws or with design to avoid payment of said taxes may be seized &c., and shall be forfeited to the United States."
The 45th section of this later act [Footnote 2] enacts that
"All distilled spirits found elsewhere than in a bonded warehouse not having been removed from such warehouse according to law and the tax imposed by law not having been paid shall be forfeited."
By the 42d section of the same act, a penalty is imposed on persons executing any false and fraudulent bond or other document for the purpose, among other things, of withdrawing from any bonded warehouse any spirits or other merchandise or which shall be used in fraud of the internal revenue laws. By this section, the property is forfeited and the party executing the document made liable to imprisonment.
The act of 1864 contained no specific provisions for the forfeiture of distilled spirits. The act of 1866, in certain sections -- that is to say in sections from 40 to 45 -- made provisions about them, including cases in which the government would be entitled to a forfeiture of such spirits. One section, the 40th, enacted that distilled spirits, when inspected, might be removed under bond without payment of tax from the bonded warehouse of the distiller to any general bonded warehouse. Another, the 41st, that spirits or other merchandise might be removed from bonded warehouse for the purpose of being exported. Another, the 42d, already quoted, makes penal the making of any false bond or other document to evade payment of the tax; another,
the 43d, that owners of distilled spirits intended for sale, manufactured before the date of the act, should give notice to the collector to gauge and prove them; another, the 44th, that forfeited spirits should be disposed of by the Commissioner of Internal Revenue; and another, the 45th, as already mentioned, that all distilled spirits found elsewhere than in a bonded warehouse, not having been removed from such warehouse according to law, and the tax unpaid, should be forfeited.
With these various provisions on the statute book, the United States filed an information stating that the collector of internal revenue at Boston, in April, 1867, had seized 278 barrels of distilled spirits as being forfeited by removal from a bonded warehouse without paying the tax due thereon.
The first count of the information was founded on the 45th section of the act of July 13, 1866, and alleged that the spirits were found elsewhere than in a bonded warehouse, not having been removed therefrom according to law and the taxes not having been paid.
The second and third on the 48th section of the Act of June 30, 1864, as amended by Act of July 13, 1866, and alleged that the spirits were in the possession of one Harrington for the purpose of being sold in fraud of the internal revenue laws and with design to avoid the payment of taxes.
Subsequently Harrington appeared and claimed 124 of the barrels, and a certain Boyden the remainder, and they pleaded that none of the goods became forfeited as alleged in the information, and that the allegations therein were not true. Issue was taken on each of these pleas. It appeared in proof, that in April, 1867, a large quantity of spirits were withdrawn from the United States bonded warehouses in Boston upon the pretense of an intent to transport the same to Eastport, Maine, for exportation thence. False and fraudulent bonds were given therefor, and the spirits were never attempted to be transported to Eastport, but were removed for consumption and sale in Boston and its vicinity, and the
taxes were not paid. The government contended that the spirits seized were parcel of this lot, and that the claimants were parties to, or cognizant of, the fraud. The claimants contended that part of the spirits in controversy were not a portion of the spirits fraudulently withdrawn, but were from different and distinct lots, and that the spirits claimed by Harrington had been rectified in leaches in which various lots were mixed, including, possibly, some of the lot fraudulently withdrawn, which it was impossible to identify. They further claimed that the spirits were bought in open market without knowledge of the fraud, and that such of the fraudulent lot as Harrington had bought, he had bought through Boyden as his agent. Evidence was given on both sides, tending to prove these several points.
The claimants requested the court to instruct the jury as follows:
"1. That if the spirits had been deposited in a United States bonded warehouse, and had been removed therefrom upon application to the collector of the district in which they were situate, and by his authority, for rectification or transportation for exportation, they are not liable to forfeiture."
"2. That if the said spirits had been removed from a United States bonded warehouse, upon application to the collector of the district, and upon the furnishing of bonds which were satisfactory to and accepted by him, and upon permission thereupon granted by the collector, and were seized before the expiration of the time allowed for rectification or transportation, the spirits are not liable to forfeiture."
"3. That if the said spirits had been removed from a United States bonded warehouse according to the forms of law, viz., upon application made in due form to the collector for leave to withdraw, and upon bonds being given in the prescribed form, and permission thereupon given in due form for their removal, and said spirits had been bought by the claimants of the party withdrawing, or his agent, without knowledge of the fact that the bonds were worthless, or that said spirits were removed from the warehouse with intent to defraud the government, they are not liable to forfeiture."
"4. That if a portion of the spirits proved in this case not to
have paid a tax had passed through the rectifiers in which there were other spirits, and so become mixed with them, no portion of the spirits, when rectified, would be liable to forfeiture."
The court declined to give the first and second of these instructions, but gave the third, with this qualification, that if Boyden bought the spirits as agent for Harrington, and Boyden was cognizant of the fraud, Harrington would be bound by his knowledge.
It declined to give the fourth instruction as prayed for, and instead of it instructed the jury that:
"If the rectified spirits came from vats and rectifiers in which the spirits so fraudulently withdrawn, or any portion, were mixed with other lots of similar spirits of the claimants, so that they could not be distinguished, the government were entitled to the forfeiture of a fair proportion of these spirits, although the mixture might have been innocently made, provided the jury were satisfied of such facts as would, under the instructions of the court, forfeit the spirits so fraudulently withdrawn if they had not been so mixed; and if the jury were satisfied of such facts, and also found the spirits so fraudulently withdrawn were mixed with other similar spirits of the claimants by them fraudulently, with knowledge of the fraud committed, for the purpose of destroying the identity of the spirits and defrauding the government, and were so mixed that they could not be distinguished and identified, that the entire quantity of this mixture seized was forfeited to the United States."
To the above rulings, and refusals to rule, the claimants took exceptions. The jury found against 50 barrels, claimed by Harrington, and all those claimed by Boyden; and the court decreed accordingly. On appeal to the circuit court, that court affirmed the decree. The case was now here on error.