1. Upon the facts, held that claimants for remission of
forfeitures of automobiles seized for unlawful transportation of
tax unpaid liquors had complied with the conditions imposed by §
204(b) of the Liquor Law Repeal and Enforcement Act of August 27,
1935, and that the courts below properly remitted the forfeitures.
Pp.
307 U. S. 224
et seq.
2. A claimant (automobile finance company) who in good faith
purchased from a dealer a conditional sale contract covering the
sale of an automobile, who believed that the vendee named therein
was the real purchaser and owner of the automobile, and who had no
knowledge, information or suspicion of facts to the contrary until
the car was later seized for violation of the revenue laws, had an
"interest in such vehicle . . . acquired in good faith" within §
204(b)(1) of the Liquor Law Repeal and Enforcement Act. P.
307 U. S.
224.
3. Where such claimant, before acquiring such sale contract,
investigated the person named therein as purchaser and found that
he had no record or reputation for violation of liquor laws, and
believed that such person was the real purchaser, and had no
knowledge, information, or suspicion that he was merely a "straw"
purchaser, this was a sufficient showing under § 204(b)(2) that the
claimant had no reason to believe that the car would be used in
violation of liquor laws. The contention that, since claimant knew
that automobiles were frequently used for violation of liquor laws,
he had reason to believe that the car in question would be so used,
is rejected. P.
307 U. S.
224.
4. Subsection (b)(3) of § 204 of the Liquor Law Repeal and
Enforcement Act does not require, as a condition to remission of
forfeiture
Page 307 U. S. 220
by the court, that the claimant shall have investigated at his
peril, every person with record or reputation for violating the
liquor laws who, in fact, although wholly unsuspected, had acquired
some right to the vehicle. The subsection was intended to prevent
remission to a claimant who had failed to make inquiry when he
should have done so, to one chargeable with willful negligence or
purpose of fraud. P.
307 U. S.
235.
5. Forfeitures are not favored; they should be enforced only
when within both the letter and the spirit of the law. P.
307 U. S.
226.
93 F.2d 771, 19 F. Supp. 470, affirmed.
99 F.2d 498, 22 F. Supp. 507, affirmed.
Certiorari, 303 U.S. 633, 306 U.S. 625, to review the
affirmances of judgments in two cases in which the District Courts
ordered remission of forfeitures under the Liquor Law Repeal and
Enforcement Act. In No. 10, the judgment below was previously
affirmed here by an equally divided Court, 305 U.S. 564; a
rehearing was subsequently granted, 305 U.S. 666. No. 627 was
assigned for argument immediately following the reargument in No.
10.
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
In each of these causes, the District Court, proceeding under
the "Liquor Law Repeal and Enforcement Act"
Page 307 U. S. 221
of August 27, 1935, c. 740, 49 Stat. 872, 878, mitigated the
forfeiture of an automobile seized for unlawful transportation of
distilled spirits upon which the federal tax had not been paid.
(One was seized December 3, 1936; the other, March 15, 1937.) The
forfeiture was decreed in a proceeding based upon § 3450 R.S.
(Title 26 U.S.C. § 1441). The Circuit Courts of Appeals rightly
approved, and their judgments must be affirmed.
The facts, undisputed, are essentially alike in both causes. The
points of law are the same. A statement based on Record No. 10 will
suffice.
The Repeal Enforcement Act provides --
"Sec. 204. (a) Whenever, in any proceeding in court for the
forfeiture, under the internal revenue laws, of any vehicle or
aircraft seized for a violation of the internal revenue laws
relating to liquors, such forfeiture is decreed, the court shall
have exclusive jurisdiction to remit or mitigate the
forfeiture."
"(b) In any such proceeding, the court shall not allow the claim
of any claimant for remission or mitigation unless and until he
proves (1) that he has an interest in such vehicle or aircraft, as
owner or otherwise, which he acquired in good faith, (2) that he
had at no time any knowledge or reason to believe that it was being
or would be used in the violation of laws of the United States or
of any State relating to liquor, and (3) if it appears that the
interest asserted by the claimant arises out of or is in any way
subject to any contract or agreement under which any person having
a record or reputation for violating laws of the United States or
of any State relating to liquor has a right with respect to such
vehicle or aircraft, that, before such claimant acquired his
interest, or such other person acquired his right under such
contract or agreement, whichever occurred later, the claimant, his
officer or agent, was informed in answer to his inquiry at the
Page 307 U. S. 222
headquarters of the sheriff, chief of police, principal Federal
internal revenue officer engaged in the enforcement of the liquor
laws, or other principal local or Federal law enforcement officer
of the locality in which such other person acquired his right under
such contract or agreement, of the locality in which such other
person then resided, and of each locality in which the claimant has
made any other inquiry as to the character or financial standing of
such other person, that such other person had no such record or
reputation."
The following findings by the District Court, it is agreed,
correctly set out "the facts in this case:"
The Ford automobile in question was sold by the Greenville Auto
Sales, Incorporated (the dealer) October 3, 1936, through its
agent, Elrod, to Guy Walker, who, in part payment, exchanged an old
car paid for by him, but registered in his wife's name. He was
given terms for payment under a conditional sales contract, drawn
by an agent of the dealer, in the name of his brother, Paul Walker,
who formally executed the agreement. Guy Walker had the conditional
sales contract drawn and executed in the name of his brother in
order to place the title "where his wife could not reach it." Paul
Walker had no interest in the transaction except to comply with his
brother's request. Guy Walker made the transaction with the dealer.
He selected the car, made the agreement, and handled the
transaction himself. Paul Walker drove the car from the dealer's
place of business. Guy Walker, at the time and for two or three
weeks after the purchase, was living at his brother's house. Only
one payment was made on the conditional sales contract before the
seizure, and that by Guy Walker to the dealer.
It was admitted that Guy Walker had a previous record and
reputation for violating both state and federal laws relating to
liquor. Paul Walker was convicted of violating the National
Prohibition Act, 41 Stat. 305, in 1929, and was duly
Page 307 U. S. 223
sentenced therefor, but his record and reputation since serving
the sentence were good.
On the date when the sale was consummated, the dealer submitted
the contract to the Commercial Credit Company, the claimant here,
who accepted by telephone, and subsequently, on October 5th, in the
usual course of business, the dealer assigned the contract to the
claimant and received a check therefor.
The claimant, before accepting assignment of the sales contract,
made an investigation of Paul Walker by inquiring at the
headquarters of the Sheriff of Greenville County and at the
headquarters of the Chief of Police of Greenville, the County and
City where the interest was acquired and the locality where Paul
Walker resided, as to his record and reputation for violation of
the liquor law. Information was received from these offices that
had no such record or reputation. Information was given, however,
from the Sheriff's office that Guy Walker had both record and
reputation as violator of state and federal laws relating to
liquor. No inquiry or investigation was made at the headquarters of
the principal Federal internal revenue officer engaged in the
enforcement of the liquor laws in that locality, or at the
headquarters of any other principal local or federal law
enforcement officer of the locality as to Paul Walker, and no
inquiry or investigation whatsoever was made of Guy Walker, the
admitted real owner and purchaser of the automobile.
The claimant had Paul Walker investigated in August, 1936, by
the Business Service Bureau of Greenville, South Carolina, in
connection with the purchase of a refrigerator. No investigation at
that time was made as to his reputation or record for violating the
liquor laws; the investigation did disclose that he had a good
reputation in the community where he lived, and this was the
reputation given him by his employer at that time.
The claimant purchased the conditional sales contract in good
faith, believing that Paul Walker was the purchaser
Page 307 U. S. 224
and owner of the automobile. It had no knowledge, information,
or suspicion of the true facts until after the automobile had been
seized by federal officers.
Petitioner challenges the judgment below because of claimant's
failure to establish compliance with the conditions imposed by
subsection (b), § 204. Especially because claimant failed to show
that it had no reason to believe the automobile was being used or
would be used to violate the liquor laws; also because it made no
adequate inquiry concerning the record and reputation of the real
purchaser -- Guy Walker.
Respondent's interest in the automobile is not questioned.
It
"purchased the conditional sales contract in good faith,
believing that Paul Walker was the purchaser and owner of the
automobile. It had no knowledge, information, or suspicion of the
true facts until after the automobile had been seized."
This is enough to show compliance with subsection (b)(1). There
was an interest acquired in good faith.
After investigation of the record and reputation of Paul Walker,
followed by favorable reports, and believing him to be purchaser
and owner of the automobile, claimant in good faith acquired the
sales contract. It had no knowledge, information, or suspicion that
Paul Walker was only a "straw" purchaser. This is enough to show
compliance with subsection (b)(2). The suggestion that, since
respondent knew automobiles were frequently used for violation of
liquor laws, it therefore had reason to believe that the one in
question would be so used is not well founded. The findings
positively affirm that it entertained no such belief or
suspicion.
The difficult phrasing of subsection (b)(3) has produced
divergent views concerning its meaning.
In
Federal Motor Finance v. United States, 88 F.2d 90,
93, the Circuit Courts of Appeals Eighth Circuit said:
"We think the fair intendment of the language of subsection (3)
concerning remission of forfeiture is that the
Page 307 U. S. 225
appellant could not rely entirely upon a course of business
whereby it acquired an interest in the car so nearly approximating
the total value thereof without taking care to ascertain who the
real owner was in possession of and using the car."
In the causes now before us (4 Cir., 93 F.2d 771, 773; 99 F.2d
498, 500), the Circuit Court of Appeals accepted the view that:
"The involved language of subsection (b)(3) of the act does
permit the possible interpretation that the lienor is charged with
the duty of making inquiry as to everyone bearing a bad reputation
or record who may have a right under the contract of sale, whether
or not it appears on the face of the instrument.
See Federal
Motor Finance v. United States, 88 F.2d 90. But, in our view,
Congress did not intend to impose upon the lienor the obligation to
ascertain at his peril the identity of every person having an
interest in the property, and to make inquiry of the law
enforcement officers as to the previous record and reputation of
every such person, unless, from the documents themselves or other
surrounding circumstances, the lienor possesses information which
would lead a reasonably prudent and law-abiding person to make a
further investigation."
See also C.I.T. Corp. v. United States, 86 F.2d 311,
and
United States v. C.I.T. Corporation, 93 F.2d 469.
Counsel for petitioner now maintain:
"That, under the language of the statute [(b)(3)], the claimant
is required to investigate the real purchaser at its peril, and
that, if it fails to do so, as between it and the Government, the
claimant assumes the risk of fraud perpetrated upon it by the
dealer and the bootlegger. In any event, the claimant should have
been required to show that it at least made a reasonable effort to
ascertain who the real
Page 307 U. S. 226
purchaser and user of the car was, so that he could be
investigated as required by the statute."
Manifestly, § 204 is a remedial measure. It empowers the courts,
exercising sound discretion, to afford relief to innocent parties
having interests in condemned property where the claim is
reasonable and just. Its primary purpose is not to protect the
revenues, but this is proper matter for consideration whenever
remission is sought. The section must be liberally construed to
carry out the objective. The point to be sought is the intent of
the lawmaking powers. Forfeitures are not favored; they should be
enforced only when within both letter and spirit of the law.
Farmers' & M. National Bank v. Dearing, 91 U. S.
29,
91 U. S. 33-35.
If any claimant has been negligent or in good conscience ought not
be relieved, the court should deny his application.
Consideration of the statutory provisions relative to remissions
prior to § 204 and the circumstances of its adoption will enlighten
the purpose entertained by Congress.
Sections 3450 and 3453 Revised Statutes (Title 26 U.S.C. §§
1441, 1620-1621) -- derived from Acts June 30, 1864 and July 13,
1866 -- provide that, whenever any commodity in respect of which a
tax is imposed is removed with intent to defraud the United States,
it shall be forfeited, and
"Every vessel, boat, cart, carriage, or other conveyance
whatsoever, and all horses or other animals, and all things used in
the removal or for the deposit or concealment thereof,
respectively, shall be forfeited. . . . The proceedings to enforce
such forfeiture shall be in the nature of a proceeding
in
rem in the circuit court or district court of the United
States for the district where such seizure is made. [
Footnote 1] "
Page 307 U. S. 227
Sections 3460 and 3461 (Title 26 U.S.C. § 1624), derived from
Acts July 13, 1866 and June 6, 1872, provide that, when goods,
wares, or merchandise seized as subjects of forfeiture, do not
exceed $500 in value, they may be restored to the claimant upon the
execution of a bond, and this shall be delivered to the District
Attorney
Page 307 U. S. 228
for proper proceedings; if no bond, the articles shall be sold
and the proceeds paid into the Treasury. Within a year, any
claimant may apply to the Secretary for remission, which may be
granted
"upon satisfactory proof, to be furnished in such manner as he
shall prescribe:
Provided, That it shall be satisfactorily
shown . . . That the said forfeiture was incurred without willful
negligence or any intention of fraud on the part of the owner of
said property. [
Footnote
2]"
Where the value exceeds $500 or bond is given, forfeiture must
be sought in court through a libel
in rem.
Page 307 U. S. 229
United States v. Two Bay Mules, 36 F. 84;
United
States v. Mincey, 254 F. 287;
Logan v. United States,
260 F. 746;
United States v. One Bay Horse, 270 F.
590.
Section 3229 Revised Statutes (Act July 20, 1868, c. 186, § 102,
15 Stat. 125, 166, 26 U.S.C. § 1661), provides:
"The Commissioner of Internal Revenue, with the advice and
consent of the Secretary of the Treasury, may
Page 307 U. S. 230
compromise any civil or criminal case arising under the internal
revenue laws instead of commencing suit thereon; and, with the
advice and consent of the said Secretary and the recommendation of
the Attorney General, he may compromise any such case after a suit
thereon has been commenced. Whenever a compromise is made in any
case, there shall be placed on file in the office of the
Commissioner the opinion of the Solicitor of Internal Revenue, or
of the officer acting as such, with his reasons therefor, with a
statement of the amount of tax assessed, the amount of additional
tax or penalty imposed by law in consequence of the neglect or
delinquency of the person against whom the tax is assessed, and the
amount actually paid in accordance with the terms of the
compromise."
(Amended, Acts February 26, 1926, c. 27, § 1201, 44 Stat. 9,
126; May 10, 1934, c. 277, § 512(b), 48 Stat. 680, 759; May 28,
1938, c. 289, § 815, 52 Stat. 447, 578.)
Wilson Motor Co. v. United States, 84 F.2d 630, 632,
states:
"The government's brief advises that, prior to the Act of August
27, 1935, the procedure of the government to afford relief to these
innocent owners was under the provisions of compromise powers given
the Attorney General and the Treasury under § 1661, 26 U.S.C."
In connection with the sections referred to above, the United
States Code Annotated points to their origin and history.
The National Prohibition Act, October 28, 1919, c. 85, Title II,
§ 26, 41 Stat. 305, 315, provided that
"whenever intoxicating liquors transported or possessed
illegally shall be seized by an officer he shall take possession of
the vehicle and team or automobile, boat, air or water craft, or
any other conveyance, and shall arrest any person in charge
thereof."
The person
Page 307 U. S. 231
arrested shall be proceeded against, but the vehicle or
conveyance shall be returned upon execution of a bond. Upon his
conviction, the court shall order the liquor destroyed, "and unless
good cause to the contrary is shown by the owner, shall order a
sale by public auction of the property seized." [
Footnote 3]
See Richbourg Motor Co. v.
United States, 281 U. S. 528.
This was repealed by The Repeal and Enforcement Act,
supra.
Page 307 U. S. 232
The Act of September 21, 1922, c. 356, § 618, 42 Stat. 858, 987
provides:
"Whenever any person interested in any vessel, vehicle,
merchandise, or baggage seized under the provisions of this Act, or
who has incurred, or is alleged to have incurred, any fine or
penalty thereunder, files with the Secretary of the Treasury if
under the customs laws, and with the Secretary of Commerce if under
the navigation laws, before the sale of such vessel, vehicle,
merchandise, or baggage a petition for the remission or mitigation
of such fine, penalty, or forfeiture, the Secretary of the
Treasury, or the Secretary of Commerce, if he finds that such fine,
penalty, or forfeiture was incurred without willful negligence or
without any intention on the part of the petitioner to defraud the
revenue or to violate the law, or finds the existence of such
mitigating circumstances as to justify the remission or mitigation
of such fine, penalty, or forfeiture, may remit or mitigate the
same upon such terms and conditions as he deems reasonable and
just, or order discontinuance of any prosecution relating
thereto."
(Reenacted by Act July 17, 1930, c. 497, § 618, 46 Stat. 590,
757.)
The Act May 29, 1928, c. 852, § 709, 45 Stat. 791, 882,
extended
"[t]he provisions of law applicable to the remission or
mitigation by the Secretary of the Treasury of forfeitures under
the customs laws . . . to forfeitures incurred or alleged to have
been incurred, before or after the enactment of this Act, under the
internal revenue laws."
In the situation disclosed by the foregoing summary, Congress
came to consider the Act of August 27, 1935. The Judiciary
Committees of Senate and House made reports (Senate Report No.
1330, House Report No. 1601,
Page 307 U. S. 233
74th Cong., 1st Session). In each, the paragraphs relative to
section 204(a) and (b) are the same in substance. [
Footnote 4]
Page 307 U. S. 234
A representative of the Treasury Department made a statement to
the Senate Judiciary Committee. An extract from this appears in the
margin. [
Footnote 5]
A rearrangement of the words of subsection (b)(3) will enlighten
its meaning:
"The court shall not allow the [request] -- claim -- of any
claimant for remission or mitigation if it appears that
Page 307 U. S. 235
the interest asserted by [him] -- the claimant -- arises out of
or is in any way subject to any contract or agreement under which
any person having a record or reputation for violating laws of the
United States or of any State relating to liquor has a right with
respect to such vehicle or aircraft,
unless and until he
[the claimant] proves that, before [he] -- such claimant --
acquired his interest, or such other person acquired his right
under such contract or agreement, whichever occurred later, [he] --
the claimant -- his officer or agent, was informed in answer to his
inquiry at [certain headquarters specified in the alternative] as
to the character or financial standing of such other person, that
such other person had no such record or reputation."
If the words of § 204(b)(3) be taken literally, without regard
to history or purpose of the enactment, they inhibit remission by
the court unless one who claims an interest made actual inquiry
concerning every person with record or reputation for violating the
liquor laws who in fact (although wholly unsuspected) had acquired
some right to the vehicle. There would be absolute forfeiture
although the claimant acquired his interest in the utmost good
faith and without suspicion of any undisclosed interest, although
indeed, he had diligently but unsuccessfully sought information
concerning all the facts from every person connected with the
transaction. Thus construed, the provision would require absolute
forfeiture notwithstanding the claimant could not by the utmost
diligence ascertain the true situation. No greater reason exists
for saying a claimant should be relieved if he made unsuccessful
inquiry of the seller concerning undisclosed matters than there is
for relief when he had no cause to suspect the existence of an
undisclosed interest -- no cause to question appearances. A measure
requiring absolute forfeiture under such circumstances probably
would be expressed in language sufficiently plain to admit no
reasonable doubt.
Page 307 U. S. 236
During many years, innocent claimants had a clear remedy either
by appeal to the discretion of the Secretary of the Treasury or by
application for compromise addressed to the Attorney General and
Treasury officials (
Wilson Motor Co. v. United States,
supra) or, under the Prohibition Act, to the court
(
Richbourg Motor Co. v. United States, supra). This
situation was called to the attention of the Senate Committee by
the representative of the Treasury. He also pointed out that,
before restoring a car, the Secretary required that the claimant
"must prove that he made an investigation as to whether or not the
purchaser had a bootlegger record, and found that he had none." The
Secretary
"considers that the bootleg hazard is an element involved in the
credit risk, and is just as much a part of the investigation by the
finance company of a person as a credit risk as is his financial
standing in the community."
The Committee reported in respect of 204(b)(3):
"This last requirement is predicated upon the recognition of the
'bootleg hazard' as an element to be considered in investigating a
person as a credit risk."
These facts indicate that Congress intended a reasonable inquiry
concerning the bootleg risk should be made in connection with the
investigation of financial responsibility. They negative the notion
that wholly innocent claimant, at his peril, must show inquiry
concerning something unknown and of which he had no suspicion.
Dealers do not investigate what they have no cause to suspect.
The forfeiture acts are exceedingly drastic. They were intended
for protection of the revenues, not to punish without fault. It
would require unclouded language to compel the conclusion that
Congress abandoned the equitable policy, observed for a very long
time, of relieving those who act in good faith and without
negligence, and adopted an oppressive amendment not demanded by
Page 307 U. S. 237
the tax officials or pointed out in the reports of its
committees.
Subsection (b)(3) was intended to prevent remission to a
claimant who had failed to inquire when he should have done so, to
one chargeable with willful negligence or purpose of fraud. It
would be excessively harsh -- unreasonable, indeed -- to say that
one dealing in entire good faith must, at his peril, first discover
and then make inquiry concerning somebody of whose existence he has
no knowledge or suspicion. We cannot think Congress intended thus
to burden dealing in all vehicles capable of transporting
liquor.
It should be observed that the following things are possible
subjects of seizure and forfeiture because of liquor law
violations: "Every vessel, boat, cart, carriage, or other
conveyance whatsoever, and all horses or other animals, and all
things used in the removal or for the deposit or concealment, etc."
"Vehicle" is thus defined: "That in or on which a person or thing
is or may be carried from one place to another." A wheelbarrow, a
covered wagon, a "Rolls-Royce," the patient mule, a "Man of War,"
and possibly a Pullman car or Ocean Liner is a vehicle.
Goldsmith-Grant Co. v. United States, 254 U.
S. 505;
United States v. Two Bay Mules, supra;
United States v. One Bay Horse, supra.
Subsection (b)(3) applies not only to transactions by financial
concerns like respondent, but to those of individuals and
corporations, great or small. It contemplates an investigation, and
this presupposes some reason at least to suspect the existence of
the subject of investigation. Congress took away from executive
officers the power to mitigate forfeitures where the property
exceeds $500 in value, and gave this to the court familiar with the
circumstances; but it left with the Secretary of the Treasury
discretion to remit when the value was below $500. The intent was
to require the courts to exact
Page 307 U. S. 238
proof of inquiries like those demanded by the Treasury
Department practice, and disclosed by its representative before the
Senate Committee. The petitioner's view, if adopted, would sanction
one standard of remission for a vehicle worth $500, another when
appraised at a dollar more.
The challenged decrees must be
Affirmed.
MR. JUSTICE BUTLER and MR. JUSTICE STONE took no part in the
consideration or decision of these causes.
* Together with No. 627,
United States v. Automobile
Financing, Inc., on writ of certiorari to the Circuit Court of
Appeals for the Fifth Circuit. Argued May 1, 1939. Decided May 22,
1939.
[
Footnote 1]
R.S. § 3450, Act July 13, 1866, c. 184, § 14, 14 Stat. 98,
151:
"(a) Every person who removes, deposits, or conceals, or is
concerned in moving, depositing, or concealing any goods or
commodities for or in respect whereof any tax is imposed, with
intent to defraud the United States of such tax or any part
thereof, shall be liable to a fine or penalty of not more than
$500."
"
* * * *"
"(3) Every vessel, boat, cart, carriage, or other conveyance
whatsoever, and all horses or other animals, and all things used in
the removal or for the deposit or concealment thereof,
respectively, shall be forfeited."
[This section was amended by Act June 26, 1936, c. 830, Title
III, § 325, 49 Stat. 1939, 1955, which changed the provision for
$500 penalty to a "fine of not more than $5,000 or be imprisoned
for not more than three years, or both."]
Revised Statutes, § 3453 (Act June 30, 1864, c. 173, § 48, 13
Stat. 223, 240; Act July 13, 1866, c. 184, § 9, 14 Stat. 98, 111,
26 U.S.C. §§ 1620-1621):
"All goods, wares, merchandise, articles, or objects on which
taxes are imposed which shall be found in the possession or custody
or within the control of any person for the purpose of being sold
or removed by him in fraud of the internal revenue laws, or with
design to avoid payment of said taxes, may be seized by the
collector or deputy collector of the proper district or by such
other collector or deputy collector as may be specially authorized
by the Commissioner of Internal Revenue for that purpose, and shall
be forfeited to the United States. And all raw materials found in
the possession of any person intending to manufacture the same into
articles of a kind subject to tax for the purpose of fraudulently
selling such manufactured articles, or with design to evade the
payment of said tax, and all tools, implements, instruments, and
personal property whatsoever in the place or building or within any
yard or inclosure where such articles or raw materials are found
may also be seized by any collector or deputy collector, as
aforesaid, and shall be forfeited as aforesaid. The proceedings to
enforce such forfeitures shall be in the nature of a proceeding
in rem in the circuit court or district court of the
United States for the district where such seizure is made."
[
Footnote 2]
Revised Statutes §§ 3460 and 3461 (Act July 13, 1866, c. 184, §
63, 14 Stat. 98, 169; Act June 6, 1872, c. 315, § 40, 17 Stat. 230,
257, 26 U.S.C. § 1624):
"Sec. 3460. In all cases of seizure of any goods, wares, or
merchandise as being subject to forfeiture under any provision of
the internal revenue laws, which, in the opinion of the collector
or deputy collector making the seizure, are of the appraised value
of five hundred dollars or less, the said collector or deputy
collector shall, except in cases otherwise provided, proceed as
follows:"
"
* * * *"
"Second. If the said goods are found by the said appraisers to
be of the value of five hundred dollars or less, the said collector
or deputy collector shall publish a notice, for three weeks, in
some newspaper of the district where the seizure was made,
describing the articles, and stating the time, place, and cause of
their seizure, and requiring any person claiming them to appear and
make such claim within thirty days from the date of the first
publication of such notice."
"Third. Any person claiming the goods, wares, or merchandise so
seized, within the time specified in the notice, may file with the
said collector or deputy collector a claim, stating his interest in
the articles seized, and may execute a bond to the United States in
the penal sum of two hundred and fifty dollars, with sureties to be
approved by the said collector or deputy collector, conditioned
that, in case of condemnation of the articles so seized, the
obligors shall pay all the costs and expenses of the proceedings to
obtain such condemnation, and upon the delivery of such bond to the
collector or deputy collector, he shall transmit the same, with the
duplicate list or description of the goods seized, to the United
States district attorney for the district, and said attorney shall
proceed thereon in the ordinary manner prescribed by law."
"Fourth. If no claim is interposed and no bond is given within
the time above specified, the collector or deputy collector, as the
case may be, shall give ten days' notice of the sale of the goods,
wares, or merchandise by publication, and at the time and place
specified in the notice, shall sell the articles so seized at
public auction, and, after deducting the expense of appraisement
and sale, he shall deposit the proceeds to the credit of the
Secretary of the Treasury."
"Sec. 3461. Within one year after the sale of any goods, wares,
or merchandise, as provided in the preceding section, any person
claiming to be interested in the property sold may apply to the
Secretary of the Treasury for a remission of the forfeiture
thereof, or of any part thereof, and a restoration of the proceeds
of the sale, and the said Secretary may grant the same upon
satisfactory proof, to be furnished in such manner as he shall
prescribe:
Provided, That it shall be satisfactorily shown
that the applicant at the time of the seizure and sale of the said
property, and during the intervening time, was absent, out of the
United States, or in such circumstances as prevented him from
knowing of the seizure, and that he did not know of the same, and
also that the said forfeiture was incurred without willful
negligence or any intention of fraud on the part of the owner of
said property. If no application for such restoration is made
within one year, as hereinbefore prescribed, the Secretary of the
Treasury shall at the expiration of the said time, cause the
proceeds of the sale of the said property to be distributed
according to law, as in the case of goods, wares, or merchandise
condemned and sold pursuant to the decree of a competent
court."
[
Footnote 3]
"When the commissioner, his assistants, inspectors, or any
officer of the law shall discover any person in the act of
transporting in violation of the law, intoxicating liquors in any
wagon, buggy, automobile, water or air craft, or other vehicle, it
shall be his duty to seize any and all intoxicating liquors found
therein being transported contrary to law. Whenever intoxicating
liquors transported or possessed illegally shall be seized by an
officer, he shall take possession of the vehicle and team or
automobile, boat, air or water craft, or any other conveyance, and
shall arrest any person in charge thereof. Such officer shall at
once proceed against the person arrested under the provisions of
this title in any court having competent jurisdiction; but the said
vehicle or conveyance shall be returned to the owner upon execution
by him of a good and valid bond, with sufficient sureties, in a in
double the value of the property, which said bond shall be approved
by said officer and shall be conditioned to return said property to
the custody of said officer on the day of trial to abide the
judgment of the court. The court, upon conviction of the person so
arrested, shall order the liquor destroyed, and unless good cause
to the contrary is shown by the owner, shall order a sale by public
auction of the property seized, and the officer making the sale,
after deducting the expenses of keeping the property, the fee for
the seizure, and the cost of the sale, shall pay all liens,
according to their priorities, which are established, by
intervention or otherwise at said hearing or in other proceeding
brought for said purpose, as being
bona fide and as having
been created without the lienor having any notice that the carrying
vehicle was being used or was to be used for illegal transportation
of liquor, and shall pay the balance of the proceeds into the
Treasury of the United States as miscellaneous receipts. All liens
against property sold under the provisions of this section shall be
transferred from the property to the proceeds of the sale of the
property."
[
Footnote 4]
House Reports, Vol. 4, 74th Congress, 1st Session, 1935, Report
No. 1601, p. 6:
"Section 204(a) of section 204 provides that, in any court
proceeding for the forfeiture under the internal revenue laws of
any vehicle or aircraft seized for a violation of the internal
revenue laws relating to liquor, the court shall, upon decree of
forfeiture, have exclusive jurisdiction to remit or mitigate the
forfeiture. At the present time, the court has authority only to
decree the forfeiture, and remission or mitigation is dependent
upon administrative action. Section 204 extends to the court which
determines whether the vehicle or aircraft shall be forfeited by
reason of having been used in the violation of internal revenue
laws relating to liquor, the power to determine whether the claim
of any person having an interest in the vehicle or aircraft should
be allowed after forfeiture. Thus, in all cases where the value of
the seized property exceeds $500, and in all cases where the value
is $500 or less, but a bond is posted in order to bring the
forfeiture proceeding into court, the court will have exclusive
jurisdiction to remit or mitigate the forfeiture. In the event that
a bond is not filed in cases where the property is of the value of
$500 or less, the power to remit or mitigate will remain in the
Secretary of the Treasury."
"Certain standards are given to the court to guide it in this
determination. Thus, under subsection (b), the claimant must prove
that he acquired his interest in good faith, that he had no
knowledge or reason to believe that the vehicle or aircraft was
being or would be used in violating Federal or State liquor laws,
and that, if his interest arises out of, or is subject to, any
agreement under which any person having a record or reputation for
violating Federal or State liquor laws has a right with respect to
the vehicle or aircraft, the claimant, before he acquired his
interest, or before the other person acquired his right, whichever
of these events occurred later, inquired of the law enforcement
officers in the locality where such other person acquired his
right, of the locality in which such other person then resided, and
of each locality where the claimant made inquiry as to the
character or credit standing of such other person, whether the
other person had such a record or reputation, and was informed he
had not. This last requirement is predicated upon the recognition
of the 'bootleg hazard' as an element to be considered in
investigation a person as a credit risk. As a matter of sound
business practice, automobile dealers, finance companies, and
prospective lienholders on automobiles examine records, and make
inquiry of references and credit rating agencies as to the owner's
or prospective purchaser's reputation for paying his debts and his
ability to do so. This subsection merely requires that in the
making of such inquiry, the 'bootleg hazard' also be examined as
one aspect of the credit risk."
[
Footnote 5]
Senate Committee Hearings, 1935, Vol. 495, No. 4, p. 13:
"Section 204 . . . relates to proceedings in court for the
forfeiture of vehicles or aircraft seized for violations of
internal revenue laws. At the present time, claimants of interests
in vehicles or aircraft that have been seized and forfeited for
violation of internal revenue laws, petition the Secretary of the
Treasury for the remission or mitigation of the forfeiture, and the
Secretary, under the law, requires the person claiming to have an
innocent interest to show that he had no knowledge of the unlawful
use of the vehicle or aircraft. What this section will do, in the
case of any court proceeding for the forfeiture of vehicles or
aircraft, is to give the court jurisdiction to determine whether or
not the person claiming to have an innocent interest actually had
such an interest. Under the present practice, the Secretary of the
Treasury requires such a showing. . . . This section is of
particular importance in connection with the discounting by a
finance company of an automobile dealer's paper."
"At the present time, the Secretary of the Treasury considers
that the bootleg hazard is an element involved in the credit risk,
and is just as much a part of the investigation by the finance
company of a person as a credit risk as is his financial standing
in the community. He requires that, before a car be returned to the
person claiming an innocent interest, the latter must prove that he
made an investigation as to whether or not the purchaser had a
bootlegger record, and found that he had none."
MR. JUSTICE DOUGLAS, dissenting.
MR. JUSTICE BLACK, MR. JUSTICE FRANKFURTER and I think that the
judgments below should be reversed.
The problem here involved raises the question of the duty of
automobile finance companies to investigate those who purchase cars
from dealers, financed by those companies, in order to determine
whether the ostensible purchasers are in reality straw men for
bootleggers. Here, the dealers knew that the named purchasers were
only nominal purchasers, and they also knew the identity of the
real purchasers. But the finance companies made no inquiry
whatsoever of the dealers to ascertain if those purchasers were
straw men. They made no inquiry in spite of the fact that the use
of straw men by bootleggers was not novel. They made no inquiry in
spite of the intimate business relations which exist between them
and the dealers and the presumption of availability of such
information which that relationship creates. And they now seek the
benefit of an Act which the Congress passed to ameliorate some of
the risks of confiscation and forfeiture. We do not think they have
satisfied the burden which the Congress has placed upon them.
Sec. 204(a) gives the District Court "exclusive jurisdiction to
remit or mitigate" forfeitures. Sec. 204(b)
Page 307 U. S. 239
sets forth three conditions precedent which the claimant must
satisfy before the court may remit or mitigate a forfeiture. To
satisfy the third of these conditions, claimant must prove under
certain circumstances that he made inquiry of designated law
enforcement agencies concerning any person for whom a straw man
purchaser was acting, and that he was informed on such inquiry that
such person had no record or reputation for violating the liquor
laws. The circumstances under which claimant must make that inquiry
exist
"if it appears that the interest asserted by the claimant arises
out of or is in any way subject to any contract or agreement under
which any person having a record or reputation for violating laws
of the United States or of any State relating to liquor has a right
with respect to such vehicle or aircraft. . . ."
To be sure, the phrasing of Sec. 204(b)(3) is difficult. But it
means to us that a claimant must prove, in order to satisfy that
condition, that he made a reasonable investigation to ascertain if
the purchaser was a mere straw man acting for another, or was a
legitimate purchaser in his own right. The words "if it appears"
carry that connotation. A contrary construction defeats the purpose
of the Congress by placing an enormous premium on lack of
diligence. That construction opens wide the doors to defraud the
revenue, for finance companies need lift no finger nor make any
effort to ascertain the existence of a straw man purchaser.
Ignorance now is surely bliss. By failure to make inquiry, they can
effectively insulate themselves even from the knowledge which their
business intimates -- the dealers -- have. Unless informed by
disclosures, in the written contract or otherwise, they can
contentedly assume that the purchaser is not a straw man for a
bootlegger. That they will thus be voluntarily informed by the
parties or by others seems unlikely. Since the function of the
straw
Page 307 U. S. 240
man is to conceal the bootlegger, neither the straw man nor the
bootlegger can be expected to step forward with the information.
And the automobile salesman is not likely to volunteer the
information, for his desire is to sell automobiles, not to defeat
sales. On the other hand, the interpretation which we urge would
give the statute real meaning and significance in terms of this
specific bootleg hazard which concerned the Congress on its
enactment.*
Furthermore, the requirement for reasonable investigation cannot
possibly place such a burden on finance companies as to force us to
resolve an ambiguity in statutory language against forfeiture. In
the cases before us, a single question put the dealer or the
purchaser might alone have disclosed the existence of a straw man.
But no such simple inquiry was made. An investigation in each case
was made to ascertain whether the named purchaser had a reputation
or record for liquor violations. But the existence of a straw man
was never probed. Certainly, on such a matter, investigational
techniques are not novel, involved, or unique. The responsibility
for a
Page 307 U. S. 241
reasonable investigation would add but imperceptibly if at all
to the cost of doing business. In this field, such investigation
entails a burden which any legitimate enterprise should be prepared
to carry. We need not conjure up hypothetical cases of extended
inquiry which disclosed no straw man, for they would meet the test
of reasonable investigation here proposed.
For these reasons, the judgments should be reversed.
* Precisely the investigation here urged seems to have been
intended, for the Report of the Senate Committee on the Judiciary
said as respects Sec. 204(b)(3):
"This last requirement is predicated upon the recognition of the
'bootleg hazard' as an element to be considered in investigating a
person as a credit risk. As a matter of sound business practice,
automobile dealers, finance companies, and prospective lienholders
on automobiles examine records, and make inquiry of references and
credit rating agencies as to the owner's or prospective purchaser's
reputation for paying his debts and his ability to do so. This
subsection merely requires that, in the making of such inquiry, the
'bootleg hazard' also be examined as one aspect of the credit
risk."
Sen.Rep. No. 1330, 74th Cong., 1st Sess., p. 6. To investigate
the "bootleg hazard" as "one aspect of the credit risk" when
inquiry is made of the "prospective purchaser's reputation for
paying his debts" seems clearly to entail inquiry as to whether or
not the prospective purchaser is a straw man for a bootlegger.